Kk day 1 pm 1st speaker COLIN TAYLOR, IFC
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Kk day 1 pm 1st speaker COLIN TAYLOR, IFC Presentation Transcript

  • 1. Agri-FinanceConstraints and Opportunities forIncreasing Competitiveness For 2020Cocoa Economy Kakao Konek, Davao City, November 21st 2012
  • 2. IFC Services Investment Services Advisory Services• Loans Four business lines:• Equity • Access to finance• Trade finance • Sustainable Business• Syndications • Investment Climate• Securitized finance • Public-Private Partnerships• Client risk management services• Treasury services• Liquidity management 2
  • 3. Agriculture Remains an Important Activity in Emerging Markets IMPORTANCE OF AGRICULTURE as major source of livelihood75% of poor people in developingcountries live in rural areas – 2.1 billionlive on less than $2 a day.Agriculture is a source of livelihood for86% of rural people - Jobs to 1.3 billionsmall holders and landless workers2.5 billion households of the developingworld population are involved inagriculture with low access to finance 3
  • 4. Agri-Finance: A Key Global Challenge LACK OF ACCESS TO FINANCEto adopt efficient technologies and efficient resource allocationIndia: in 2 states 87% of marginal farmers surveyed had no access to formal credit; only 49% of small farmers have access to institutional finance.Rural Nicaragua, Honduras and Peru: 40% of all agricultural producers are credit constrained.Africa: less than 1% of commercial lending goes to agriculture.Philippines: 75% agri credit provided informally, agri loans represent just 9% of total lending. Agri credit gap estimated at Php 252b ($6b) 4
  • 5. IFC’s Value Proposition in Agri-Finance• Global agribusiness knowledge combined with financial market capabilities• Access to finance project delivery capabilities: Global KM with field management capacity• Ability to combine Investment & Advisory Services• IFC/WB convening power: the enabling environment 5
  • 6. IFC Advisory Services Agri-FinanceA portfolio of 69 Agri-Finance Projects at IFC 6
  • 7. Financial Institutions Reluctant to Participate in First Stages of Agriculture Supply Chains Risk generally decreases as chain moves forward Financial Institution 7
  • 8. Agri-Finance Why Financial Institutions do not finance agribusiness – high risk profile Cost to serve - Rural financing involves higher transaction costs than in urban areasSECTOR FEATURES AGRICULTURE Seasonality and loan term structure - frequently long gestation periods from planting/livestock birth to harvest/slaughter Farming heterogeneity & lack of information range of farm and non-farm income can make the assessment of loan suitability more complex Production and yield risks – uncertainty due to natural hazards (weather, pests etc.)AGRICULTURESECTOR RISKS Market and price risk – fluctuations in price, particularly where markets are likely to be imperfect and information may be lacking Risk of loan collateral limitations – local farmers may lack land title or land value may be low 8
  • 9. IFC Agri-Finance Advisory Approach Supply ChainSME Banking LinkagesMicrofinance Farmer Training Crosscutting Agri - Leasing Business Agri sector Ag Productivity expertise in financial Finance specific products Eco standards Insurance knowledge WaterSustainable Energy “Doing Agri Finance Business” IFC IFC Financial Wholesaling Real Markets Sector Financial Institution 9
  • 10. IFC Advisory Services Agri-FinanceIFC promotes an integrated approach to agricultural development Market Access (trader - processor) Technical Agri-Finance Assistance (agribusiness & Access to firm/ Financial Technology Institution) 10
  • 11. IFC Advisory Services Agri-FinanceThrough a combination of services, farmers receive multiple direct and indirect benefits Market Access (trader - processor) Price risk mitigation Better access to Income smoothing markets/prices Higher-value Insurance products Long-term assets Technical Agri-Finance Assistance Better practices (agribusiness & Access to Improved quality firm/ Financial Technology Institution) Higher yields 11
  • 12. IFC Advisory Services Agri-FinanceSupply chain finance differs from traditional agriculture lendingArea Traditional Lending Supply Chain FinanceLending Asset Based Cash flow based; contractsKYC Relationship Banking Supply ChainCredit Risk Traditional Assessment, needs Improved systems for risk assessment; sufficient client information info through supply chainRisk Mitigation Careful client selection; Portfolio diversification; insurance / hedging Risk sharing, insurance / hedgingClient Type Larger commercial farmers Smaller commercial farmers Associations of farmersCapacity Building Clients are knowledgeable Additional knowledge on technical and financial topics needed 12
  • 13. IFC Advisory Services Agri-FinanceAgriculture supply chain finance integrates multiple actors Supply Chain Financing includes multiple options BUYER for financing and / CORPORATE contractual relationships Loan Repayment Delivery of goods Risk sharing THIRD PARTY (DONOR) INPUT FINANCIAL SUPPLIER INSTITUTION Inputs provided to Pre-finance harvest Disbursement to supplier farmer, based on (=> loan to farmer) loan from FI (+TA) Financial Intermediation FARMER Technical assistance can be delivered Technical Assistance by the FI, the buyer or supplier 13
  • 14. Philippine Agri-A2F Project Farmers• Increase capacity to meet • Improve supply chain Agri-Agra commitments • Increase income by linkages• Increase Agriculture improving productivity, • Increase private sector (Farmers) Loan Portfolio quality, access to markets investments (banks meet and business skills Agri-Agra Law) • Increase credit- worthiness of farmers Banks Sector 14
  • 15. Component 1: Bank & Sector Activities • Mapping, market assessment and FI/Sector LevelBank Level • Bank diagnostic to determine and assess current portfolio, products, value chain studies to identify and processes and procedures, skills assess- requirements and crop, client, and • Potential crops, market size, key strategic objectives. players, risks & opportunities • Current lenders and products, formal • Provide identified staff training, and informal whether financial or agriculture • Potential borrowers • Support development of risk • Potential market share, profitability mitigating processes and structures, etc eg crop insurance, risk share • Identification of other bank product facilities market opportunities • Support development of enhanced • Establish audit trails for farmer loans internal processes and procedures through conduits financed by banks • New agri-finance product (Agra) development • Additional IFC interventions eg index • Pilot of new product and monitoring insurance 15
  • 16. Component 2: Farmer Clustering • Organizational developmentAgrilinkages • Supply chain management Link to Demonstration farmsActivities Lead • Practical learning Firms Bank Extension Financing Services Technical TrainingBusiness Training Smallholder • Good agronomic practices • Operational management Farmers • Sustainable practices • Financial management Adopt Sustainable Access Increase Increase Agriculture Finance and productivity Income Practices Inputs 16
  • 17. Expected ImpactsBanks • Build a sound agribusiness portfolio • Farm is managed as a sustainable Agri-supply chains based on ‘credit worthy’ farmers and ‘business’ agribusiness firms. • Farmers develop a ‘credit culture’ • Expansion of product portfolio and are more credit worthy and • High class crop value chains and ‘bankable clients identified • Increase in farm productivity, net income • Improved loan performance • Increase in capital base • Improved farm practices, sustainable use of farm land • Internal processes and procedures • Improved effectiveness of training reflect the needs of agribusiness lending activities / extension services • Improved farm margins through price • Enhanced skill set of bank personnel premiums and cost savings • Improved control of financial performance • Improved access to markets through certified products • Improved farmer loyalty • More stable value chain 17