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Key recommandation from AASW6: Innovative Financing and Investment in Agriculture


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Published in: Business, Economy & Finance
  • Ms. Jane Karuku is a transformational leader whose leadership in the field of Agriculture has inspired members of our company to regard themselves as Artrepreneurs. Indeed, it is my belief that the Model that she has utilized to raise awareness on the issues that farmers face could easily be adapted to secure financing for the artists that I work with in Boston, Massachusetts, United States. In closing, on behalf of myself and the Black Art Development of Boston, we would love to meet and hear Ms. Karuku speak on the innovative breakthroughs she has introduced in the field of Agriculture. Ubuntu,
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Key recommandation from AASW6: Innovative Financing and Investment in Agriculture

  1. 1. Innovative Financing and Investment in Agriculture Presented by Jane Karuku President, AGRA 1
  2. 2. Agriculture is a major source of growth in sub-Saharan Africa  This is despite the challenges of food security and high potential for economic growth.  Agriculture continues to be given low priority for investment;  In Sub – Saharan Africa, agriculture accounts for 70% of labor force and about 30-50% of GDP,  But agriculture receives only about 2-3% of total lending;  Rapid decline in adoption of improved technologies and practices  Growth in the sector has the best chance for reducing poverty. 2
  3. 3. MAGNITUDE OF THE GAP There is a clear disconnect between the role agriculture plays in African economies and access to financing in the sector….. Agriculture as a share of GDP and commercial bank lending, 20081 (%) 44 % GDP 51 % Lending 31 28 25 29 24 29 30 22 30 15 12 11 10 8 6 6 4 4 3 1 Malawi Tanzania Ethiopia Sub- Mozam- Uganda Gambia Ghana Kenya Sierra Nigeria Saharan bique Leone Africa2 Agriculture is a key driver of most economies in Sub-Saharan Africa, contributing to more than 25% of GDP on average Ag sector has limited access to commercial bank lending: it receives on average 2-6 times less credit than its fair share based on GDP 1 2008 reflects latest available data 2 Commercial bank lending across SSA is estimated at <10%, with the exception of Malawi, Tanzania and Uganda SOURCE: IMF; Central Bank data 3
  4. 4. However, Banks perceive high risks in lending to agriculture….  Agricultural not viewed by banks as a strategic sector to engage in;  Banks have inadequate distribution networks for efficient lending hence high transaction costs;  Weak credit capacity for agricultural lending;  Few complete and structured agricultural value chains.  Banks experience high transaction costs 4
  5. 5. Despite these constraints, measures can be taken to reduce the level of risk perception by commercial banks:  By providing incentives to the private sector to increase investment in agriculture on a more sustainable basis.  By supporting Financial institutions to be more creative and flexible in lending and;  Should consider non-traditional forms of lending. 5
  6. 6. On the other hand, Farming should be practiced as a business…to attract investments…  Agriculture has the potential to transform Africa into a global leader, so we must explore every opportunity.  We have to start looking at farming in Africa as a business with the potential not to just feed our people but to be an engine for development.  All stakeholders should be involved.  There must be collaboration between the public and private sectors to invest in agriculture and grow economies strategically. 6
  7. 7. AGRA and Partners have been making attempts to bridge the financing gap in Agriculture…….. 7
  8. 8. AGRA and partners have used USD $17 million in loan guarantees to leverage $160 million from commercial banks in Ghana, Kenya, Mozambique, Tanzania, and Uganda… $5m guarantee Fund $2.1 M fund $10M Fund 8
  9. 9. Scaling up the Innovating Financing Models….. Country Level Initiatives 9
  10. 10. AGRA and Partners Facilitating Impact Investing Initiatives…  AGRA is working with African Governments  The initiatives take an impact investing approach and has combined interventions of risk sharing facilities, Technical assistance especially financial literacy, insurance and bank incentives.  Increasing countries are showing interest in the impact investing model 10
  11. 11. Examples of Some Country Initiatives… The Nigerian Incentive –Based Risk Sharing System for Agricultural Lending (NIRSAL) The $500 Million established by Central Bank of Nigeria to leverage $3 Billion financing 11
  12. 12. The Kenyan Incentive–Based Risk Sharing System for Agricultural Lending (KIRSAL)  Kenya Government established a Kshs.5 Billion (about $65m) Impact Investing Fund  The scheme proposes to leverage at least Kshs.50 Billion of financing into Agriculture over the next five years.  The initiative is expected to benefit more than 1.5 million small scale farmers and producers, and over 10,000 agribusinesses.  Government kicked off this initiative through the Programme For Rural Outreach of Financial Innovations and Technologies (PROFIT) with initial fund of $30 Million supported by IFAD.  Government has set a side a further Kshs.2 Billion (about $25 Million) in this year’s June Budget 2013/14 for this purpose. 12
  13. 13. The Tanzanian Incentive –Based Risk Sharing System for Agricultural Lending (TIRSAL)  As part of the Tanzanian Government’s initiative, Marketing Infrastructure, Value Addition and Rural Finance (or MIVARF) Programme, the Government through the support by IFAD has set aside US$20 million in funding for risk sharing facilities.  This is to leverage about $200 Million of financing to Tanzanian Agriculture. 13
  14. 14. Facilitating Access to agricultural finance in Ghana…  AGRA is working with Danida in the implementation of Agricultural Value Chain Programme in Northern Ghana  The initiative has set aside $3 Million in respect to sharing facilities that is leveraging $30 Million of term financing to support agricultural equipment for small holder farmers 14
  15. 15. Other Countries interested in starting similar Financing Initiatives:  Ethiopia  Zambia  Malawi  Among others 15
  16. 16. Key Points  Farming has to be seen as a profitable business  Capacity building; eg Financial literacy, for Farmers, banks, etc  The Agricultural value chain must be de-risked  Good Inputs  God Agronomy  Structured markets  Enabling Policy environment  Insurance schemes  All players must invest more in Agriculture,  Governments  Private Sector  Farmers  Donors 16
  17. 17. THANK YOU 17