The Role of Technical Assistance in Lending Products for Smallholder Agriculture

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Nairobi 16 July, 2014 - Presentation by George R. Osure …

Nairobi 16 July, 2014 - Presentation by George R. Osure
(Syngenta) at the Fin4Ag Conference.

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  • 1. The Role of Technical Assistance in Lending Products for Smallholder Agriculture George R. Osure June 2014
  • 2. Agenda 1. About SFSA 2. How to make use of Technical Assistance (TA) as a risk mitigation tool plus other benefits to both lenders and farmers. 3. Conveying technical assistance to lenders and farmers as an sharing information service for efficiency. 4. Structure of a Special Purpose Vehicle for Technical Assistance. 5. Conclusion and recommendation INPUT MGT PLAN OUTPUT MGT PLAN SERVICES MGT PLAN
  • 3. 3 GOAL: Reach millions of small farmers through scalable, sustainable solutions, raise farmers’ productivity, activate supply chains, increase incomes. About the SFSA : Where we work
  • 4. About SFSA: support systems and assets 4 R & D Market-led Extension Risk Management Policy Development Seed Systems Outreach 1. A non-profit organization established by Syngenta under Swiss law. 2. Can access Company expertise but it is legally independent and has its own board.
  • 5. We will now consider how technical assistance (TA) can support the lending process by reducing cost of transaction, improving accuracy, and mitigating risk.
  • 6. Enabler; Agribusiness environment developer; Virtual trusted broker who selects and bundles services to facilitate expansion and efficiency. The “go to office” on how to utilize & leverage on public resource capacity (PPP) 4 benefits from a TA service for agricultural lending
  • 7. Technical Assistance as an enabler • Introducing traceability of input-throughput – output linkages • Improves ease of monitoring QC standards of farmer- lender interaction. Develops opportunities for both farmer and lender by efficiently aggregating services required at all levels of the value chain. • Access to credit as complex due to the tools required e.g. BP • Lenders as being only Interested in markets, not production with preference for “town based” operations • Institutions who work supported by a very harsh legal regime. Enables farmers by changing mindset (as it is participatory). • Uses transparency, accuracy, and timeliness of availability of data as a risk mitigation tool due to availability of predictive nature. • Relates with suppliers on technology development trends Integrates information acquisition with risk management:
  • 8. The Trust pipeline linking buyer-lender - farmer Knowledge and personal experience of the farmer e.g. weather. Soil health and water quality at the beginning. Relevant laws related to: seeds, research, regulatory institutions, policies, packaging, and standards. Annual crop calendars, physical & geographical location. The contribution of gross margins and crop rotation towards loan repayment. 8 High Quality technical assistance is the virtual trusted broker or glue at the center of the buyer – lender – farmer.
  • 9. Reports & data TA prepares for an agric. lender The report should be easy to understand and relate to the conditions that borrowers (farmers) relate to such as: Number of farmer groups suitable and available Labour market available & created to sustain agric prodn Area cultivated (ha or acres): Revenue/profit/yield generated and available for loan repayment per unit area. 9
  • 10. Technical Assistance (TA) requires a vehicle to convey the information in a format that is regulated, legally sound in a cost effective manner. This requires a Special purpose vehicle (SPV) designed for this specific purpose and business environment.
  • 11. SPV can provide TA to a single or group of lenders Recommended that for TA to benefit lenders to agriculture we require a Special Purpose Vehicle (SPV) that can link credit, input suppliers farmers, and buyers. The SPV is designed to be primarily used as a trusted, legally sound information brokering and exchange platform”.
  • 12. SPV structure as TA for lender- farmer- buyer 12 A not for profit company whose KPI can be: addditional sales generated for suppliers, work created and incomes generated, additional value of business for the area. Structured to cover work done between lender and input & services suppliers, buyer, and a regulator. 1. The SPV should be financed from transaction costs (loan) reducing insurance/risk costs and hence becomes an virtual risk mitigation tool. 2. Triple bottom line (profit, poverty alleviation, environmental sustainability) becomes an inclusion tool as it will facilitate partnerships with the development community.
  • 13. 13 Board of management Metrics Support Process/ Farmer financial management / P&L Location 1 Location 2 Location 3 Public Enterprise support / Network • Labs • Plant protection services • Agronomy Training Marketing Support Registration of members to SPV Private Enterprise support / Network • Fertilizer companies • Irrigation firms • Machinery suppliers, etc External partners & lender loans officers Production Support • Strong technical focus • Coordination of plans Private Enterprise support / Network • Loans officers from Lenders • Implement training • Stewardship (safety) • Tech support • Agro systems • Market analysis • Market development • links • Profitability, • cost analysis, • impact assessment KPI for the SPV Location 4 Special purpose vehicle to organize & manage services Loans officers access information required. SPV organogram to provide TA with support networks
  • 14. Conclusions: TA for the business environment A SPV will efficiently bundle the farmer- lender requirements by sharing information with all parties in a timely manner aspects of the production & market plan : 1. Inputs 2. Buying specifications including prices 3. Procurement 4. Reduced risk through transparency: 5. Reduces the high operation costs related to distribution incurred by lenders by using data availed in a timely manner.
  • 15. Conclusions: Recommendation Farmers and lenders need Technical assistance availed by a legally sound and transparent SPV to support the mix of production & market led systems anchored on joint liability collateral, crop& trade insurance, working thro bundled services for planned aggregated production.
  • 16. The Role of Technical Assistance in Lending Products for Smallholder Agriculture: THANK YOU FOR YOUR ATTENTION George R. Osure June 2014