Session 6: Mitigating risks for private sector investments in FLR: which relevant mechanisms and partnerships?

Session 6: Mitigating risks for private sector investments
in FLR: Relevant mechanisms and partnerships
Time Content Speakers
11:30
Introductory presentation : FAO led initiative on
mitigating risks for private sector investments:
perspectives and roadmap
Facilitator: Rao Matta, Food and Agriculture Organization
(FAO) / Co-facilitator: Fraser Brown, International Union for
Conservation of Nature (IUCN)
11:40
What is risk mitigation? Examples and practical
applications.
Fraser Brown, International Union for Conservation of Nature
(IUCN)
11:47 Risk Mitigation Strategies for FLR Lending David Odongo, East African Development Bank (EADB)
11:54
Creating the conditions for increased investments
in FLR: the role of public institutions.
Winifred Ngangure, Rwanda Development Board (RDB)
12:01
Mitigating private investment risks in forestry and
agroforestry value chains: perspectives from a
leading insurance company.
Robinah Batamuriza, UAP Insurance Rwanda Ltd
12:08
Financing landscape action plans: using multi-
stakeholder landscape partnerships to mitigate
investment risks, enhance returns and scale
impacts
Sara Scherr, Landscape for People, Food and Nature (LPFN) /
EcoAgriculture Partners
12:15 Facilitated discussion

Rao.Matta@fao.org
Mitigating risks for private sector
investments: perspectives and roadmap
Kigali, Rwanda
17 April 2017

Climate change finance:
A turning point?
Sources of financing for ag and
forestry combined, 2012
Source: UNFF, Forest Finance Issue Brief, July 2016

Source: Mahmoud Mohieldin, The World Bank

Total private investment in forest plantations in
three regions (2011)
Source: Castren et al. (2014)

Objectives of the Initiative
 Presenting and analyzing the existing risk
mitigation and management strategies- case
studies/best practices.
 Promote a better understanding of the major
risk categories/ areas including the gaps in the
current strategies
 Identifying new & innovative risk mitigation
and management strategies and approaches.
 Launching of a policy and technical guidance
process on the subject- including developing a
publication.

• 26 participants
• 14 countries
• 10 case studies/best
practices
• 4 partnerships/
institutional mechanisms
• 2 enabling environment
1st Expert Meeting – Solsona, Spain

• 36 participants
• 12 countries
• 18 case studies/best practices
• 6 partnerships/ institutional mechanisms
• 3 enabling environment
2nd Expert Meeting – Santiago, Chile

• Economies of scale
• Uncertainty in returns
• Collateral /liquidity
• Limited access to capital
• Lack of entrepreneurial capacity
• Limited documentation
(cash flows/financial analyses)
• High risk & uncertainty
• High transaction costs &
bureaucracy
• Low profitability
• Low visibility investment
Forest owners/managers
Forest farmers
Forest industry
Forest communities
Donors/bi/multi lateral
Institutional investors
Mainstream bankers
Other state sectors
Public needs and aspirations of
forests and landscapes
Major barriers to investment
• Lack of capacity
• Lack of sector knowledge
• Only large investments
• Low risk investments
• Lack of business models

Public sector
Effective mobilization of investments
Intermediary/facilitator/
Project developers/
Technical service providers
• Insurance
• Guarantees
• Match-funding
• Certification
• Partnerships
• Enabling environment
• Institutional frameworks
• Good governance
Risk mitigation /management
• Economies of scale
• Uncertainty in returns
• Collateral /liquidity
• Limited access to capital
• Lack of entrepreneurial capacity
• Limited documentation
(cash flows/financial analyses)
Forest owners/managers
Forest farmers
Forest industry
Forest communities
Donors/bi/multi lateral
Institutional investors
Mainstream bankers
Other state sectors
• Lack of capacity
• Lack of sector knowledge
• Only large investments
• Low risk investments
• Lack of business models

http://www.fao.org/forestry/finance/87664/en/
Financial inclusion and capacity
building
Information on demand and
supply
Business models and
bankable projects
Investment Attractiveness
Index
Risk assessment/management
tools
Access to financial/market
services
Financial and market
innovation
Partnerships and platforms

What is risk mitigation?
Examples and practical
applications
Fraser Brown, Consultant, IUCN

Local Bank
Kiva
1. Kiva markets loan to
community for funding.
2. Funds are deposited in
the Kiva account at Local
Bank as a “guarantee”
National Development Bank
Guarantees 50% of the
interest. 75% for new clients
and women
Motorbikes
Tablets
Foundation
Backers
Cooperatives
Borrowers
Groups
VSLAs
Kiva Account $X

Local Bank Borrowers
Foundation
Guarantors
More Money

LFI/MF
I
SPECIALISED INVESTMENT FUND (SIF)
Development SDGs
Junior Shares
Maturity: 20 yrs
1% Fixed Return
DONORS
Positive Dev. Outcomes
Mezzanine Shares
Maturity: 7-12 yrs
Target: 6m Libor + 3%
DFI’S
Make Money, Do Good
Senior Shares
Maturity: 3-10 yrs
Target: 6m Libor +1.5%
DEV/IMPACT INVESTORS
Liquidity, track-record
Notes
Maturity: 6-7 yrs
Fixed Interest Return
INST. / PVT INVESTORS

Donors
Local Bank Farmers
More Money

Local Bank Farmers
More MoneyGuarantee
TOOLS
Climate Smart Lending Solution

Africa Finance Corporation, African Development Bank (AfDB), Moroccan
Agency for Solar Energy (Masen), BlackRock Alternative Investors, Allianz
Capital Partners GmbH, Willis Group, French Treasury, Denmark’s Export
Credit Agency (EKF), Danish Energy Agency, Brazilian Development Bank
(BNDES), Federal Ministry for Environment, Nature Conservation, Building
and Nuclear Safety, Germany, Deutsche Bank, FMO, Bloomberg New Energy
Finance, Overseas Private Investment Corporation (OPIC), ACWA Power,
Norwegian Investment Fund for Developing Countries, World Bank Group,
IFC, Department of Energy and Climate Change, DFID, Bank of America
Merrill Lynch, Inter-American Development Bank (IDB), Japan International
Cooperation Agency (JICA)
The Climate Smart Lending Instrument is endorsed by:

Thank you
fraser@netpositive-solutions.com

Unleashing Business Opportunities for Sustainable Landscapes
Forest & Landscape Investment Forum
Risk Mitigation Strategies for
FLR Lending
David Odongo - EADB

Content
A. Focal Points for Risk Identification
B. Expected Environment & Social (E & S) Project Performance
Standards
C. Risk Sharing Through Insurance/Partial Risk Cover/Guarantees
D. Lenders’ Typical Generic Project Finance Selection Criteria
E. Applying Lenders’ Typical Project Finance Selection Criteria to
FLR

A. Focal Points for Risk Identification after Confirming Financial Viability
• Able to complete?
• Adequate resources to
complete?
• Implementation
strategy?
• Ability to implement?
•Appropriate Land Tenure & Legal Statutes
•CAPEX requirements – specialized
requirements e.g. infrastructure, machinery,
equipment
•Ecological zone; Tree species; Location;
Acreage/Area; Husbandry Practices;
•Nature of Perils –Climate; Site related – e.g..
Drainage; Fire; Wildlife; Human
encroachment or trespass
• Management skill &
competence relevant
to the project
• Details of key
management & staff
• Governance structure
& policies
Management
Risk
Technical Risk
Completion Risk
Implementation
Risk

B. Expected E & S Project Performance Standards
Project implemented on > 20 acres requires to comply with IFC E & S performance standards
1. Performance Standard 1: Assessment & Management of Environmental & Social Risks and Impacts
2. Performance Standard 2: Labor & Working Conditions
3. Performance Standard 3: Resource Efficiency & Pollution Prevention
4. Performance Standard 4: Community Health, Safety & Security
5. Performance Standard 5: Land Acquisition & Involuntary Resettlement
6. Performance Standard 6: Biodiversity Conservation & Sustainable Management of Living Natural Resources
7. Performance Standard 7: Indigenous Peoples
8. Performance Standard 8: Cultural Heritage

C. Risk Sharing Through Insurance/Partial Risk Cover/Guarantees
In addition to usual commercial insurance, 3 typical options:
1. Multilateral Investment Guarantee Agency – MIGA is part of the World Bank
Group
Cover for potential losses relating to:
i. Currency inconvertibility and transfer restrictions
ii. Expropriation
iii. War, terrorism, and civil disturbance
iv. Breach of contract
v. Non-honoring of financial obligations
vi. Political risk insurance (guarantees) for projects in in developing member countries, covering all
regions of the world.
vii. Long tenor covers - The agency can provide insurance coverage for up to 15 years (in some cases
20), which may increase the tenor of loans available to investors.

2. African Trade Insurance Agency (ATI)
i. Security bonds
ii. Reinsurance
iii. Political Risk Insurance
iv. Political Violence, Terrorism &
Sabotage
3. African Guarantee Fund (AGF)
Usually sough when project implementer is an SME. /SME-
related. 2 main product lines:
1. Financial Guarantees in support of:
i. Loans made by Partner Lending Institutions (PLIs) to
SMEs - on Portfolio/Individual loan basis;
ii. Possible Equity Capital finance for SMEs;
iii. Resource Mobilization Facilitation (.i.e., through
issuance of bonds/notes and lines of credit) by PLIs in
support of SME financing activities.
2. Capacity Development Support to PLIs to enhance their
SME financing capabilities as well as Capacity
Development support to SME Business Development
Support companies and SMEs themselves.

D. Lenders’ Typical Generic Project Finance Selection Criteria
Avoidance
Minimization
Compensation
Low Risk - Suitable
site/technology/methodology
that minimizes risk
Medium Risk – Availability of actions during
project design & execution to manage risk
High Risk – Offset Loss
Lowest Risk -
Common/Preferable
Highest Risk - Worst Case Scenario

E. Applying Lenders’ Typical Project Finance Selection Criteria to FLR
Degradation Level – Low
Cost of Restoration = Low
Level of Investment Risk = Low
Typical Agroecological Zone – High Potential
Typical Source of Finance = Commercial
Banks; DFIs; Fund Managers
Potential Revenue Opportunities =
Crop/livestock Agriculture; Agroforestry
Degradation Level – Moderate
Cost of Restoration = Moderate
Level of Investment Risk = Medium
Typical Agroecological Zone – Medium Potential
Typical Source of Finance = DFI; PE Impact Funds; .
Crowd Funding (Lenders)
Alternative Channels = Private Foundations;
Corporate CSR
Potential Revenue Opportunities = Crop/livestock
Agriculture; Agroforestry
Degradation Level - High
Cost of Restoration = High
Level of Investment Risk = High
Typical Agroecological Zone – Low Potential
Typical Source of Finance = Public
Foundations; Govt; Specialized Funds;
NGOS
Potential Revenue Opportunities = Livestock
(?)

Creating the conditions for
increased investments in
FLR: the role of public
institutions
Winifred Ngangure, Rwanda
Development Board (RDB)

Mitigating private
investment risks in forestry
and agroforestry value
chains: perspectives from a
leading insurance company
Robinah Batamuriza, UAP
Insurance Rwanda Ltd

AGRICULTURE INSURANCE PRESENTATION
On 17th May,2017

PRESENTATION TITLE
MITIGATING RISKS FOR PRIVATE SECTOR INVESTMENTS
IN FLIF: WHICH RELEVANT MECHANISMS AND
PARTNERSHIPS
■ 1. INTRODUCTION.
■ Rwanda has an area of 26,338 km2 with a population of 10,762,085 million (2012
Census). Rwanda is known as the most densely populated sub- Saharan African
Country with its population density of 407 inhabitants per km. Environment and climate
change programmes play an important role in increasing the productivity and
sustainability of key sectors including land, forest management and agriculture.
■ Rwanda’s environment keeps changing as is evident in the extent of land degradation,
declining water quality and quantity, increasingly unreliable climate, slums and a
growing population of urban poor, and a shortage of wood and biomass resources. All
these have affected the quality of life and the national economy.
■ It is in this context that UAP Insurance Rwanda Ltd, has came up with a product
designed to mitigate risks that are associated with FLR.
35

PRESENTATION TITLE
AGRICULTURE INSURANCE
■ We offer both index-based and indemnity agriculture insurance products.
Crop Insurance
 Multi Peril Crop Insurance.
 Weather Base
 Area Yield Index
Forest Insurance
Green House Insurance
36

PRESENTATION TITLE
CROPS INSURED
■ Cereals wheat, maize, soya bean, Rice and Banana
■ Coffee, Tea
■ Tree crop
■ Tobacco
■ All horticultural crops
■ Cut flowers, greenhouses and Irrigation equipment
■ Any other Crop of Commercial value
37

PRESENTATION TITLE
PERILS COVERED ON FOREST
 Fire, lightning, explosion and windstorm
 Flood &/or inundation
 Malicious damage
 landslide
 Damage by wild animals
 Riot, strike and civil commotion
38

PRESENTATION TITLE
EXCLUSIONS
■ 1.The burning of property by order of any public authority.
■ 2 .Subterranean fire and/or peat fire.
■ 3 .Seepage and/or pollution caused by toxic chemicals of fumes.
■ 4 .Fire during Harvesting due to sparks originating from engine exhausts
and/or other hot machinery parts of machinery involved in Harvesting.
■ 5. Malicious, willful act or gross negligence of the Insured, his representatives
or any employee.
■ 6.Theft in any form.
■ 7. Any Tree Crop transports and/or Tree Crop in transit.
39

PRESENTATION TITLE
BENEFITS OF CROP INSURANCE
40
■ Insured farms have greater access to agriculture credit.
■ Insurance cushions farmers against losses by acting as a fallback in event of
a bad crop season.
■ It’s a financial innovation to stimulate investment in Agriculture sector

PRESENTATION TITLE
PRODUCT DESIGN
Product design
• Guaranteed yield basis
Cover options
• Yield cover – (output Value)
• Cost of production cover.
Sum Insured
■ Sum Insured for any crop is based on
value of inputs or pre- agreed market value of harvested crop
41

PRESENTATION TITLE
PRODUCT DESIGN
■ Yield Guarantee:
The percentage below which a claim can be considered i.e. if the Insured
realizes yield that is below that percentage then the Insurer compensates the
difference in the yield.
42

PRESENTATION TITLE
. PREMIUM RATE FOR MPCL /WEATHER BAESD INDEX.
CROP PREMIUM RATE (%) YIELD GUARANTEE (%)
Trees Assessed per risk from 2.5 up to
5
65 - 70
43

PRESENTATION TITLE
UNDERWRITING GUIDELINE
Process of going on cover
 Filled proposal form
 Quotation
 Premium payment
 Crop inspection
 Cover starts
Claim Process
 Peril notification by the insured
 Claim assessment by crop inspector
 Claim settlement at the end of the season/ cover
44

Using Landscape
Partnerships to Reduce
Investment Risk
Sara J. Scherr, President, EcoAgriculture
Partners
Kigali, Rwanda
May 16-17, 2017

Integrated landscape partnerships: from trade-offs to synergies
Healthy forests for recreation
and water retention
Biodiverse, eco-friendly
agriculture and food systems
Fresh, local food
sources
Biodiverse and economically
active coastal areas
Managed
riparian
ecosystems

The ILM Investment challenge
 Asset investments (landscape-friendly)
 Agricultural and other production/value chain activities
 Industry and processing
 Green infrastructure/greening built infrastructure
 Natural resource restoration
 Enabling investments
 Multi-stakeholder platform
 Strategic planning and coordination
 Landscape assessments, monitoring, impacts
 LPFN case studies - $2-4 billion needed per landscape (Naivasha-Kenya,
Namaqualand-South Africa, Atlantic Forest-Brazil)
 Major investment risks: weak track record, longer time frames,
multi-sector, little experience by financiers, small deal size, et al.

What makes it a ‘landscape’ asset investment
 Contributes to multiple elements of landscape sustainability (production,
ecosystems, biodiversity, social), as well as financial returns
 Financial decisions and investment design take into account socioecological
processes, spatial interactions and off-site impacts in the landscape
 Aligns with public land use sustainability
plans/rules
 Aligns with other investments in
the landscape to realize ecosystem benefits
 Monitors and reports on multiple dimensions
of landscape sustainability
 Aligns with Landscape Action Plan developed
through multi-stakeholder process
 sustainability

Photo credit: SAB Miller
SABMiller Colombian subsidiary in landscape partnership

How integrated landscape investments can generate
higher commercial returns
 Reduced business costs
 Land (asset) regeneration
 Capital value appreciation of business on exit
 Long term capital gain from resilient and replicable agroforestry
 Short & medium term cash flows
 Diversified revenue streams
 Value-add to products (e.g., certification)
 Emission reductions or credits
 Payments for ecosystem services
April 4-6, 2017
Landscape Leadership 3-Day Intensive Workshop 51

Coordinating
landscape investment

How landscape partnerships reduce investor risk
 Protect fixed assets and long-term financial interests in the landscape
 Address business risks not manageable alone (water, climate, tenure)
 Address pre-competitive challenges
 Secure ‘license to operate’
 Facilitate co-financing for investments
 Ensure complementary investments
 Strengthen government commitments
 Clear ‘rules of the game’

THANK YOU
54
www.ecoagriculture.org
http://peoplefoodandnature.o
rg/challenge/finance
http://peoplefoodandnature.o
rg/challenge/business-for-
sustainable-landscapes/

Session 6: Mitigating risks for private sector investments in FLR: which relevant mechanisms and partnerships?

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