Successful Models in Agricultural Microfinance Sponsored by the Central Bank of Sudan

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Presentation Fin4Ag S13 by Prof. Badr El Din A. Ibrahim

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Successful Models in Agricultural Microfinance Sponsored by the Central Bank of Sudan

  1. 1. CTA-AFRACACTA-AFRACA Revolutionizingfinanceforagri-chainRevolutionizingfinanceforagri-chain 1 4-1 8 July 201 41 4-1 8 July 201 4 Nairo bi , KenyaNairo bi , Kenya Successful Models in Agricultural Microfinance Sponsored by the Central Bank of Sudan, (CBoS).   Prof. Badr El Din A. Ibrahim, President, MicrofinanceUnit, Central Bank of Sudan  badr_el_dinbadr_el_din@@hotmail.comhotmail.com
  2. 2. Contents  Introduction  Connecting Farmers to Markets  The Agricultural Bank of Sudan Microfinance Initiative, )ABSUMI(  MASARA, Rural Productive Family Project, North Kordofan  Women Associations- Gedarif (Eastern Sudan)  Hibiscus (Karkadi) - Value Chain Model  Lessons to belearned.
  3. 3. Introduction  TheSudanese central bank-led, Islamic, gap-filling, full-fledged & nationally-integrated microfinance regulatory &supervisory model is described by the World Bank's Consultative Group to Assist the Poor (CGAP) as : ” Alabo rato ry fo r Islamic micro finance delivery where develo pments co uld shed light o n effective Islamic micro finance practices" . "Trendsin Sharia-Compliant Financial Inclusion", ConsultativeGroup to Help thePoor, CGAP, TheWorld Bank, Fo cus No te, No. 84, March, 2013“  The IMF Sudan Article of Consultation, Sep. 2013, Stated that: “The micro finance secto r is smallbut gro wing rapidly… . The results o f this push have been impressive to date… In terms o f active clients, Sudan & Bangladesh are easily the glo balleaders in Islamic finance micro finance, with Sudan likely to take to p spo t given current gro wth rates”  The IDBhighly appraised the o utco me and the visio n o f the US$ 60-Millio ns MF Partnership with the CentralBank o f Sudan & declared its replicatio n in o ther
  4. 4.  Themicrofinancein Sudan isled by theMicrofinanceUnit of theCentral bank of Sudan (CBOS).  MicrofinanceUnit/CBO overlook themicrofinancesector. The Unit is a national microfinance legislative and regulatory body providing: licensing of MFIs, wholesale lending to MFIs& specialized banks, sharing in MFIs’ capital, HR up-grading & technical & institutional assistanceto all institutionsworking in microfinance sector, coordinatewith stakeholdersvianetworking, provision of awarenessprograms, &design &sponsoring of pioneering national micro agricultural projects, to set a good example forfurtherextensions by banks &MFIs.  This presentation come underthis last objective of
  5. 5. Connecting Farmers to Markets Program Objective The Model Achieve financial inclusion of rural farmers to consolidate value chain and to enable small-scale farmers to get out of the cycle of underproduction & poverty, become self-sufficient & produce forsurplus. Create a commercially-viable program (with no donors financial support) for all stakeholders (farmers, banks, insurance Cos., extension and food procurement Cos.) linking farmersin traditional agricultural rain-fed states to all markets(crop market, crop insurance market, extension services - seed selection, fertilizerusage, harvesting techniques etc.).
  6. 6. Stakeholders &Roles Federal Ministry of Agriculture (FMA) . Together with WFP, select farmersthrough association, provideextension training servicesto beneficiaries (training on micro-credit, micro-insurance, management of personal finances. Jointly with CBoS, providetechnical extension training on seed selection, fertilizer, crop & water mgt, weeding, harvesting etc. United Nations World Food Program (WFP): Selection of farmers & provision of food for farmers. Banks: Select the ‘creditworthy’ farmers from within WFPlist & provide financeloans disbursement & repayments, & periodical reporting. •Shiekan Insurance Company : provideIslamic insurance co vering finance, assets& physical disability or death. The Central Bank of Sudan (CBoS). Together FMA, & Banks support assessment of farmers’ credit viability, & provide financial support for training services, takecoordination leadership to provide reporting. The Strategic Reserve Corporation of the government act as abuyer of last resort and theWFP also buysthe surplusproduct for itsown program of schools& for food for work. 6 (Source: CBOS/MFU)
  7. 7. Connecting Farmers to Markets Program - cont. First experiment Financing In 2011 thetarget was100000 rural farmersWFP-targeted farmers (with 5-10 feddans -1.038 acres - each) in nineStates viafour commercial & MF banks (Agricultural Bank of Sudan, Saving & Social Development Bank, Family Bank & Khartoum Bank). Financefrom Aman (portfolio of a consortium of privatesector banks& Zakat fund). Other stakeholders: Shiekan insurance Co. provide micro-insurance+ State Ministry of Finance (extension) +CBoS (finance) & WFP(food for work). Repayment: 86%, in somecase repayment islow. (Source: CBOS/MFU)
  8. 8. Cont. Problems identified The new version, 2013 Lowerrepayment , weak coordination among stakeholders, no special training coursefor the target group, late finance, small number of agricultural advisers, loose time table of training and financing, weak selection of the target group, no precise determination of av. finance . • Recommendations: add other stakeholders (e.g. FAO to provide improved seeds, tools& training), concentrate on basic agricultural products, independent body for supervision, introduction of livestock &non-agricultural activities, precise reporting & analysis, revision of WFPfood Thecreation of amodel with no constraints (including lower repayment) aremadein 2013 version (No resultsso far). • In 2013, 16000 rural farmers(135000 in small rural agricultureand 25000 animal raising) weretargeted in 7 States. Finance wasmadeviaSMDF (SDG 36 mill., app. US$ 6.3 Mill.) (SMDF isacompany shared by the CBoS& theMONE & other donors), Khartoum Bank (SDG 20 millions, app. US$ 3.5 mill.), other banks(ABS, Commercial FarmersBank, Saving & Social Development Bank SDG 18.3 mill, app. US$ 3.2 mill.). • 4 MFIs wereused to extend financing. Other stakeholdersarethesame, but The National Insurancecompany replacesShiekan Co. (viatheComprehensiveInsurance Document , CID.(Source: CBOS/MFU
  9. 9. Cont. 2013version State Targeted clients Total Agri. Livestock North Darfur 20,000 5,000 25,000 South Darfur 20,000 5,000 25,000 West Darfur 20,000 zero 20,000 Kassala 20,000 5,000 25,000 Gezira 10,000 zero 10,000 Blue Nile 15,000 zero 15,000 North Kordofan 30,000 10,000 40,000 Total 135,000 25,000 160,000
  10. 10. Connecting Farmers to Markets Program: The Comprehensive Insurance Document, CID: introduce “microtakaful in micro- lending”. use micro-takaful to enhance microfinance outreach”, mainly via portfolios(portfolio of linking small farmersto market, and other microfinanceprojects(. build a“dual- functioning microtakaful model” asan insuranceand a guaranteefor finance “coverthree microtakaful necessary formicrofinance ” (money lend, assets& Takaful- physical disability or death(.
  11. 11. The Agricultural Bank of Sudan Microfinance Initiative, ABSUMI. Objective The model Extensions Started 2010 to cover up to 2013 based on small loans of around US$ 130 to rural farmersgiven on Murabaha & Musharaka (Islamic partnership( to perform agricultural activities (mainly livestock fattening , small agricultural activities & incomegenerating activities(. A target of 1 million family in 10 years is underway. Thepilot project reached 510 Saving groups(small saving mobilization( composed of morethan 9 thousands women membersin 90 villagesvia total lending of morethan millions SDG (app. US$. 175,000 equally shared between theCBOS/ABS. • Resultsof thetrail phaseshared a zero risk &a 100% repayment rate. • Theextension islargely dueto the successof thepilot project and the enthusiasm of thestakeholders to expand to fill in thegap between demand and supply of microfinance servicesin rural areas. In 2013 cover 40000 families werecovered, divided in 5000 clientsin 8 localities in Kordofan (western Sudan( & two white NileState (central Sudan(, & Kassala State(eastern Sudan(. (Source: Central ABSUMI Unit(.
  12. 12. MASARA Rural Productive Family Project, North Kordofan. Objective The model Impact & challenges This is a self food- dependency &poverty alleviation project among poorwomen (760( in North Kordofan State(western Sudan(. It isalso acapacity-building in rural small agriculture and microfinanceawarenessproject in rural areas. Finance agriculture & livestock in addition to training &groupings of women in associations (15(. Started in 2011 with finance from theCBoS/MFU, (3.8 SDG millions, app. US$ 6.7 millions( through Saving & Social Development Bank. Theaveragefinanceis2 millions(App. US$ 3.5 millions& the repayment is 100%. Theproject targeting 50000 women in 100 villagesin all localitiesof Kordofan State. There is positive socio-economic impact (improved heath conditions, education for children (. Challenges: seasonal rain and marketing. (Source: CBOS/MFU(
  13. 13. Women Associations- Gedarif (Eastern Sudan( Objective The model Help women in groups to be self- sufficient in sorghum & peanuts. Financeof women groupsin agricultural projectsvia Mudaraba mode of finance (agency profit & lossjoint venture/limited partnership) of 1 SDG mill. from theCBOSto theABS(averageloan sizeSDG 400, app. US$ 70), & themodeof financeis Salammode of finance (thebuyer paysthefull negotiated priceof theagricultural product that theseller promisesto deliver at afuturedate). The groups: (100; 25-30 memberseach) administer & follow -up repayments. Commercial companiesprovidestorage facilities &agricultural tools. Islamic Takaful (Islamic micro-insurance) isused Guarantees: through sheikhs & personal guarantees Repayment 98%, net profit is 75 thousands, rate of return is (7.5%( Extension: preparation underway for 4 timesextension (Source: CBOS/MFU)
  14. 14. Hibiscus (Karkadi)- Value Chain Model Objective The model Hibiscus Kerkadi : Dueto cultural practices& believes hibiscus is a female crop &monopolized by local &town traders to the farmers’ disadvantages. Hibiscusvalechain providesagood opportunity to empowerpoorfemale farmers in rural areas to produce on a large-scale &increase productivity and open export marketing opportunities , as hibiscusisoneof themost important crop for thepoor, and it resistsdrought & bests. Moreover, it islabor intensive. Increase the production &productivity of Hibiscus Kerkadi , &the share of farmers via market study &training, consolidation of production associations, improvement of quality & increase farmers’ income, provision of improved seeds Pilot project of 27 thousands clientsin 3 western states (South Kordofan, North Kordofan & South Darfur), including 60 villages. (Source: CBOS/MFU
  15. 15. Lessons to be learned  Rural-based small agricultural microfinance projects are both successful &wide in term of clients coverage.  Islamic (agricultural-related( modes of finance (slammode) prove to generate high repayment.  Moreover, other reasonsfor high repaymentsare: dedicated &honest productive rural farmers , use of Islamic micro-insurance (Takaful( as a guarantee .  A multiple& coordinated stakeholdersproviding different services, closesupervision & following up via independent body areingredientsfor successful projects.  Extensions of these model at different rural

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