Fara presentation jane karuku


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Fara presentation jane karuku

  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