OROMIA COFFEE FARMERS COOPERATIVE UNION

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Financial challenges and a range of supporting services to its member cooperatives
By Dessalegn Jena

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OROMIA COFFEE FARMERS COOPERATIVE UNION

  1. 1. OROMIA COFFEE FARMERS COOPERATIVE UNION (OCFCU) Financial challenges and a Range of Supporting Services to Its Member Cooperatives By Dessalegn Jena      July, 2014 Nairobi 1
  2. 2. Outline 1. Role of Agriculture and an Overview of the Financial sector in Ethiopia 2. Efforts of Financing the Agricultural Sector 3. ‘Unique’ challenges associated with farmers’ access to finance 4. Efforts to Finance the Cooperative Sector 5. Establishment of CBO 6. Establishment of OIC 7. OCFCU’S success in the Last Decade 8. OCFUC’s Support to Farmers 9. OCFCU’s Plan (Immediate – Short-term) 2
  3. 3. Role of agriculture in Ethiopia  Agriculture plays vital role in national economy  Agriculture accounts 46.3% of GDP 83.9% of  export and 80%of labour force. Small scale producers  contribute more than  90% of agricultural products. 3
  4. 4. An Overview of the Financial sector in Ethiopia • Formal Financial Sectors Commercial Banks Micro Finance Institutions (MFIs) Insurance Companies • Semi-formal Financial Sectors Cooperative Financing Saving and Credits (SACCOs) • Informal Financial sectors 4
  5. 5. Efforts of Financing the Agricultural Sector • Government Banks The loan is advanced by guarantee of Regional  Governments •  Micro Finance Institutions (MFIs) Newly established system to mitigate risk of  default •  Financial Inclusion • Warehouse Receipt Financing 5
  6. 6. ‘Unique’ Problems Associated with  Farmers’ Access to Finance Agriculture is a less attractive field of business to the  established financial institutions:  Agricultural sector is considered as high risk  Perishable products and collateral issues   High transaction costs (for banks) Small farm size Geographically dispersed clients  Poor Financial management 6
  7. 7. Efforts to Finance the Cooperative Sector Establishment of the Cooperative Bank of Oromia (CBO) with the following objectives: To provide ful-filaged commercial bank services To solve the financial challenges of cooperatives  To reach the rural community where the other banks don’t reach, To expand saving habit in rural communities 7
  8. 8. Current status of CBO As of Dec 31,2013  Asset Br.7.3 billion birr Capital =901.34 million birr Loan portfolio =3.2 billion birr Coops’ Loan = 27-30% Recovery rate =98.5% Branch network = 102 8
  9. 9. CBO’s Financing experience. . Beneficiaries of Financing Cooperative societies Rural and Urban SACCOs Cooperative Unions  Cooperative Federations Activities financed: Production activities Processing activities Marketing activities 9
  10. 10. Role of CBO in addressing the financial needs of Cooperatives • The loan advanced to cooperatives 30%of total loan portfolio:  2012 $12,300,000.  2013 $15,000,000 10
  11. 11. Establishment of Oromia Insurance Company (OIC) • OIC was established with a total share capital of $ 7.7 million subscribed capital and $ 2.4 million initial paid-up. • Cooperatives and farmers in Oromia Regional State, own subscribed shares capital of $1.3 in the company . 11
  12. 12. Objectives of OIC  To provide ful-filaged insurance services  To provide Index based Livestock insurance  To provide Farm insurance  To support CBO as sister company  To address the insurance need of the farmers  etc 12
  13. 13. Role of OCFCU in establishing CBO and OIC Initiation of idea and implementation Major share holder Major client Participating in Governance 13
  14. 14. Objectives of OCFCU  To Provide market information to Co-op societies  To sell their coffee product at better price at local and international market,  To improve and maintain the quality, productivity and sustainability of coffee production  To provide coffee farmers with social services  To represent the coffee farmers at all forums 14
  15. 15. Farmer Collector Supplier ECX Exporter Buyer Roaster Farmer Cooperative Union Buyer Roaster Retailer consumer Retailer Profit Profit Fair Trade Premium CooperativeAuction The Coffee Value Chain consumer 15
  16. 16. OCFCU’s success in the Last Decade Membership (coops) : 34—311 Farming households: 22,500—288,201 Coffee sales (volume): 126 –-9000 tons Profit generated: $ 24,000— $ 6.7 mil. Dividend paid : $22,000—$ 3.4 mil. Fair Trade premium $74,000---$ 1.6 mil. Capital: $90,000 - $15.5 mil. Farmers earning of FOB 35% --80% 16
  17. 17. Social Activities School and related facilities 81 Health post and related facilities 20 Potable water 89 All weather Road 50km Bridge 7 Coffee processing mills 4 Ware house 46 Flour mills 5 Coffee museum 1 17
  18. 18. OCFUC’s Support to Farmers  Loan advancement to members  Capacity building (including extension & advisory services)  Provision of marketing services  Supply of small farm tools, beehives, etc  Establishing and supporting savings and credit associations  Energy efficient cooking stoves  Job creation (thousands of seasonal and permanent employees)  Value chain supporting facilities 18
  19. 19. Value chain supporting facilities  127 wet mills  26 dry coffee hullers  2 coffee Processing and Grading Machines  11 Trucks  9 vehicles  5 Buses (services ) 19
  20. 20. OCFCU’s Plan (Immediate – Short-term) Coffee roasting industry establishment Honey processing industry, Expansion of processing plant Coffee complex construction Expansion of income generating projects 20
  21. 21. Thank You! 21

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