Financing Smallholder & Entrepreneurs in NENA and CEN

New Directions for Smallholder Agriculture: Financing Smallholders & Entrepreneurs in NENA and CEN Mylene Kherallah and Omer Zafar 24 January 2011

Outline
the status of rural finance in NENA and CEN regions
IFAD’s guiding principles for rural finance
selected IFAD experiences
sanadiq in Syria
refinancing facilities in CEN countries
equity financing in Armenia
rural finance approach in Yemen

Status of Rural Finance in NENA
NENA’s rural financial sector is considered underdeveloped
rural lending through state-owned banks with subsidised credit
lending favours larger farmers and entrepreneurs with collateral
microfinance and commercial banks largely urban/peri-urban
savings, micro-insurance and other services rarely offered
small farmers and the rural poor lack access to financial services

Status of Rural Finance in CEN
state-owned banking sector disappeared in the 1990s
completely new systems and institutions had to be developed
weak enforcement of legal and institutional framework
absence of long-term capital invested in rural areas
initial interventions focused on credit lines and microfinance
SCAs, NGOs, MFIs and banks gradually expanding in rural areas
rural financial services and long-term capital still insufficient

IFAD’s Guiding Principles for Rural Finance
support access to a variety of financial services
promote a range of financial institutions and modalities
support demand-driven and innovative approaches
encourage market-based approaches
focus on sustainability and poverty outreach
promote an enabling environment for rural finance

Sanadiq in Syria
Concept
sanduq is an improved version of a savings and credit association
four operational pillars: self-reliance; autonomy; sustainability; outreach to the poor

Sanadiq in Syria

Sanadiq in Syria
Achievements
76 sanadiq created, with 13,500 members (45% women)
22,000 loans extended, amounting to USD 17 million
loans are short-term with maximum 1 year duration
members invest in agricultural and livestock micro-businesses and off-farm commercial enterprises
scaling up: now operating in all Syria projects, with similar model in Sudan, Somaliland, Yemen and other regions

Sanadiq in Syria
Way Forward
legalisation of sanduq as financial institution
creation of Apex institution for financial and other services
linkages for refinancing from financial institutions
innovative forms of capitalisation

Refinancing Facilities
Concept
MT and LT refinancing capital to financial institutions for onlending to smallholders and small agribusinesses
capacity building services to financial institutions and their clients (smallholders and entrepreneurs)
refinancing facilities financially sustainable for all stakeholders

Achievements in Rural Areas
Armenia : 9 PFIs; loans approved USD 13.9 million
Moldova : 9 PFIs; loans approved USD 22.6 million
Macedonia : 7 PFIs; loans approved USD 11.6 million
Bosnia & Herz .: 13 PFIs; loans approved USD 20.8 million
PFIs leverage IFAD funds with their own resources
near-perfect repayment rates (PAR 30 days)

Impact – Financial institutions are now:
increasing rural outreach and attracting new clients/resources
adapting financial products/services to rural/agricultural demand
investing their own funds and leveraging additional funds
introducing innovative collateral requirements (forward contracts)

Way Forward
diversification of financial instruments (e.g. micro-leasing; equity financing); already operational in some countries;
technical assistance to mobilise deposits and savings (as an exit strategy).

Equity Financing
Concept
temporary strategic investments in rural enterprises (often family-owned) with growth potential and job creation;
combined with non-financial advisory services (managerial, technical, market access);
the foundation is the value chain approach

Equity Financing - Value Chain Approach

Equity Financing in Armenia
Methodology
creation of an Equity Fund to channel IFAD resources
ongoing investments in rural enterprises through equity participation combined with optional debt financing
major investment criteria include backward linkages with smallholders as well as poverty reduction impact
pre-defined exit strategy based on enterprise sustainability at nominal value

Equity Financing
Way Forward
policy dialogue with Government to improve the conducive environment for rural investments
development of producers’ associations to increase smallholders’ bargaining power
access to private or institutional strategic investors (perhaps even producers’ associations)
equity participation in microfinance institutions to expand rural operations

IFAD’s Rural Finance Approach in Yemen
three programmes valued at USD 120-150 million cofinanced with strategic partners and managed by a public-private partnership
focus on economic opportunities in selected value chains (initially coffee, honey, horticulture, fish products, ornamental flowers)
debt financing, leasing and micro-insurance for small producers, and development of their associations
equity financing for processors/exporters with backward linkages to commercialised smallholders / associations (contract farming)
financial services to include savings/deposits, debt financing, venture capital, leasing, insurance

IFAD’s Rural Finance Approach in Yemen
Outputs
win-win; value addition across the supply chain; on-farm, off-farm and non-farm business profitability; equitable profit distribution
creation of market linkages between commercialised smallholders and processors/exporters
rural job creation
rural economic growth and sustained poverty reduction
strengthened financial institutions with improved rural outreach

Financing Smallholder & Entrepreneurs in NENA and CEN

by IFAD International Fund for Agricultural Development

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Financing Smallholder & Entrepreneurs in NENA and CEN Presentation Transcript