New Directions for Smallholder Agriculture: Financing Smallholders & Entrepreneurs in NENA and CEN Mylene Kherallah and Om...
Outline <ul><li>the status of rural finance in NENA and CEN regions </li></ul><ul><li>IFAD’s guiding principles for rural ...
Status of Rural Finance in NENA <ul><li>NENA’s rural financial sector is considered underdeveloped </li></ul><ul><li>rural...
Status of Rural Finance in CEN <ul><li>state-owned banking sector disappeared in the 1990s </li></ul><ul><li>completely ne...
IFAD’s Guiding Principles for Rural Finance <ul><li>support access to a variety of financial services </li></ul><ul><li>pr...
Sanadiq  in Syria <ul><li>Concept </li></ul><ul><li>sanduq  is an improved version of a savings and credit association </l...
Sanadiq  in Syria
Sanadiq  in Syria <ul><li>Achievements </li></ul><ul><li>76  sanadiq  created, with 13,500 members (45% women) </li></ul><...
Sanadiq  in Syria <ul><li>Way Forward </li></ul><ul><li>legalisation of  sanduq  as financial institution </li></ul><ul><l...
Refinancing Facilities <ul><li>Concept </li></ul><ul><li>MT and LT refinancing capital to financial institutions for onlen...
Refinancing Facilities
Refinancing Facilities <ul><li>Achievements in Rural Areas </li></ul><ul><li>Armenia : 9 PFIs; loans approved USD 13.9 mil...
Refinancing Facilities <ul><li>Impact – Financial institutions are now: </li></ul><ul><li>increasing rural outreach and at...
Refinancing Facilities <ul><li>Way Forward </li></ul><ul><li>diversification of financial instruments (e.g. micro-leasing;...
Equity Financing <ul><li>Concept </li></ul><ul><li>temporary strategic investments in rural enterprises (often family-owne...
Equity Financing - Value Chain Approach
Equity Financing in Armenia <ul><li>Methodology </li></ul><ul><li>creation of an Equity Fund to channel IFAD resources </l...
Equity Financing <ul><li>Way Forward </li></ul><ul><li>policy dialogue with Government to improve the conducive environmen...
IFAD’s Rural Finance Approach in Yemen <ul><li>three programmes valued at USD 120-150 million cofinanced with strategic pa...
IFAD’s Rural Finance Approach in Yemen <ul><li>Outputs </li></ul><ul><li>win-win; value addition across the supply chain; ...
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Financing Smallholder & Entrepreneurs in NENA and CEN

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Financing Smallholder & Entrepreneurs in NENA and CEN

  1. 1. New Directions for Smallholder Agriculture: Financing Smallholders & Entrepreneurs in NENA and CEN Mylene Kherallah and Omer Zafar 24 January 2011
  2. 2. Outline <ul><li>the status of rural finance in NENA and CEN regions </li></ul><ul><li>IFAD’s guiding principles for rural finance </li></ul><ul><li>selected IFAD experiences </li></ul><ul><ul><ul><li>sanadiq in Syria </li></ul></ul></ul><ul><ul><ul><li>refinancing facilities in CEN countries </li></ul></ul></ul><ul><ul><ul><li>equity financing in Armenia </li></ul></ul></ul><ul><ul><ul><li>rural finance approach in Yemen </li></ul></ul></ul>
  3. 3. Status of Rural Finance in NENA <ul><li>NENA’s rural financial sector is considered underdeveloped </li></ul><ul><li>rural lending through state-owned banks with subsidised credit </li></ul><ul><li>lending favours larger farmers and entrepreneurs with collateral </li></ul><ul><li>microfinance and commercial banks largely urban/peri-urban </li></ul><ul><li>savings, micro-insurance and other services rarely offered </li></ul><ul><li>small farmers and the rural poor lack access to financial services </li></ul>
  4. 4. Status of Rural Finance in CEN <ul><li>state-owned banking sector disappeared in the 1990s </li></ul><ul><li>completely new systems and institutions had to be developed </li></ul><ul><li>weak enforcement of legal and institutional framework </li></ul><ul><li>absence of long-term capital invested in rural areas </li></ul><ul><li>initial interventions focused on credit lines and microfinance </li></ul><ul><li>SCAs, NGOs, MFIs and banks gradually expanding in rural areas </li></ul><ul><li>rural financial services and long-term capital still insufficient </li></ul>
  5. 5. IFAD’s Guiding Principles for Rural Finance <ul><li>support access to a variety of financial services </li></ul><ul><li>promote a range of financial institutions and modalities </li></ul><ul><li>support demand-driven and innovative approaches </li></ul><ul><li>encourage market-based approaches </li></ul><ul><li>focus on sustainability and poverty outreach </li></ul><ul><li>promote an enabling environment for rural finance </li></ul>
  6. 6. Sanadiq in Syria <ul><li>Concept </li></ul><ul><li>sanduq is an improved version of a savings and credit association </li></ul><ul><li>four operational pillars: self-reliance; autonomy; sustainability; outreach to the poor </li></ul>
  7. 7. Sanadiq in Syria
  8. 8. Sanadiq in Syria <ul><li>Achievements </li></ul><ul><li>76 sanadiq created, with 13,500 members (45% women) </li></ul><ul><li>22,000 loans extended, amounting to USD 17 million </li></ul><ul><li>loans are short-term with maximum 1 year duration </li></ul><ul><li>members invest in agricultural and livestock micro-businesses and off-farm commercial enterprises </li></ul><ul><li>scaling up: now operating in all Syria projects, with similar model in Sudan, Somaliland, Yemen and other regions </li></ul>
  9. 9. Sanadiq in Syria <ul><li>Way Forward </li></ul><ul><li>legalisation of sanduq as financial institution </li></ul><ul><li>creation of Apex institution for financial and other services </li></ul><ul><li>linkages for refinancing from financial institutions </li></ul><ul><li>innovative forms of capitalisation </li></ul>
  10. 10. Refinancing Facilities <ul><li>Concept </li></ul><ul><li>MT and LT refinancing capital to financial institutions for onlending to smallholders and small agribusinesses </li></ul><ul><li>capacity building services to financial institutions and their clients (smallholders and entrepreneurs) </li></ul><ul><li>refinancing facilities financially sustainable for all stakeholders </li></ul>
  11. 11. Refinancing Facilities
  12. 12. Refinancing Facilities <ul><li>Achievements in Rural Areas </li></ul><ul><li>Armenia : 9 PFIs; loans approved USD 13.9 million </li></ul><ul><li>Moldova : 9 PFIs; loans approved USD 22.6 million </li></ul><ul><li>Macedonia : 7 PFIs; loans approved USD 11.6 million </li></ul><ul><li>Bosnia & Herz .: 13 PFIs; loans approved USD 20.8 million </li></ul><ul><li>PFIs leverage IFAD funds with their own resources </li></ul><ul><li>near-perfect repayment rates (PAR 30 days) </li></ul>
  13. 13. Refinancing Facilities <ul><li>Impact – Financial institutions are now: </li></ul><ul><li>increasing rural outreach and attracting new clients/resources </li></ul><ul><li>adapting financial products/services to rural/agricultural demand </li></ul><ul><li>investing their own funds and leveraging additional funds </li></ul><ul><li>introducing innovative collateral requirements (forward contracts) </li></ul>
  14. 14. Refinancing Facilities <ul><li>Way Forward </li></ul><ul><li>diversification of financial instruments (e.g. micro-leasing; equity financing); already operational in some countries; </li></ul><ul><li>technical assistance to mobilise deposits and savings (as an exit strategy). </li></ul>
  15. 15. Equity Financing <ul><li>Concept </li></ul><ul><li>temporary strategic investments in rural enterprises (often family-owned) with growth potential and job creation; </li></ul><ul><li>combined with non-financial advisory services (managerial, technical, market access); </li></ul><ul><li>the foundation is the value chain approach </li></ul>
  16. 16. Equity Financing - Value Chain Approach
  17. 17. Equity Financing in Armenia <ul><li>Methodology </li></ul><ul><li>creation of an Equity Fund to channel IFAD resources </li></ul><ul><li>ongoing investments in rural enterprises through equity participation combined with optional debt financing </li></ul><ul><li>major investment criteria include backward linkages with smallholders as well as poverty reduction impact </li></ul><ul><li>pre-defined exit strategy based on enterprise sustainability at nominal value </li></ul>
  18. 18. Equity Financing <ul><li>Way Forward </li></ul><ul><li>policy dialogue with Government to improve the conducive environment for rural investments </li></ul><ul><li>development of producers’ associations to increase smallholders’ bargaining power </li></ul><ul><li>access to private or institutional strategic investors (perhaps even producers’ associations) </li></ul><ul><li>equity participation in microfinance institutions to expand rural operations </li></ul>
  19. 19. IFAD’s Rural Finance Approach in Yemen <ul><li>three programmes valued at USD 120-150 million cofinanced with strategic partners and managed by a public-private partnership </li></ul><ul><li>focus on economic opportunities in selected value chains (initially coffee, honey, horticulture, fish products, ornamental flowers) </li></ul><ul><li>debt financing, leasing and micro-insurance for small producers, and development of their associations </li></ul><ul><li>equity financing for processors/exporters with backward linkages to commercialised smallholders / associations (contract farming) </li></ul><ul><li>financial services to include savings/deposits, debt financing, venture capital, leasing, insurance </li></ul>
  20. 20. IFAD’s Rural Finance Approach in Yemen <ul><li>Outputs </li></ul><ul><li>win-win; value addition across the supply chain; on-farm, off-farm and non-farm business profitability; equitable profit distribution </li></ul><ul><li>creation of market linkages between commercialised smallholders and processors/exporters </li></ul><ul><li>rural job creation </li></ul><ul><li>rural economic growth and sustained poverty reduction </li></ul><ul><li>strengthened financial institutions with improved rural outreach </li></ul>

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