FINANCING AGRICULTURAL VALUE CHAINS

Transcription

1 FINANCING AGRICULTURAL VALUE CHAINS Our Experience Lois Sankey 30 OCTOBER 2013

2 AGRICULTURE & AGRIFINANCE NIGERIA Agriculture accounts for about 40 per cent of GDP and 60% of employment: Dominated by disorganised and aging small holder farmers (1-2ha), with low productivity levels. No special focus on Agrifinance by MDB s except BOA, FBN, UBN etc Agric lending at below 2% of total loans No Agri-lending expertise in banks In 2011: CBN mandated banks to set up Agrifinance desk CBN/FMARD provided NIRSAL in 2012 alongside CAC s, SMECGS and ACGS NIRSAL mandated to fix 6 pilot value chains, build sector capacity, share risks, incentivise and rate banks, encourage VCF. Modifications to NIRSAL have affected uptake by MDB s Agri-lending has grown but the target is 10% of total lending by Available solutions : mostly credit based solutions Prevalence of collateral based lending Disconnected value chains Lack of credit information on agro-preneurs credit history; Source: IFPRI REPORT;Wakenhorst(2007) From UN Comtrade database 2

3 AGRIFINANCE IN DIAMOND BANK DB is an International commercial bank with focus on Retail banking, with robust MSME platform 212 branches and 408 ATMs(2012), with presence in 5 francophone countries & UK Asset base at USD6.7bn, PBT of USD181m(2012). In 2010, DB took a decision to make a measured entry into Agrifinance and to lend profitability Structure: AFD is a product engine in the middle office, supervised by an Executive director Strategy: We aim to be Differentiated &purely commercial and not reliant on subsidy (NIRSAL, CACs etc.) Target and grow market share from SME s that follow the main investment trends (exports, import substitution, processing and retailing) Build or acquire in-house capabilities in crop agronomy, livestock husbandry, processing technologies and value chains Develop products for specific value chains or parts of value chains as well as the unbanked in remote areas 3

4 IMPACT OF AGVCF TRAINING ON OUR ACTIVITIES Overall impact: We have been empowered to consider lending to small holder farmer groups and other agri SME;s, previously considered untouchable Potential for improved volumes and quality of loans to Agri-SME s Specifically, AgVcF training enabled us : Understand to assess the relative risks per value chain actor per sector in our lending decisions Understand how to us structure and customize financing along the cash flow of individual agribusiness, rather than the one-size fit all approach. Understand and use of the concept of Value. chain mapping as a tool to understanding VC linkages and governance structures for financing decisions and design. Understand the importance of assessing agribusiness proposals based on the value chain relationships for risk mitigation strategies: rather than the traditional Collateral based lending approach. No data/record showing impact per value chain until we deploy the VCFP in process from Ex. WIP Cocoa Farm input financing model 4

5 WHERE WE ARE 4 Directorate Support Desks PORTFOLIO 2012 FYE budget $95.8m Actual FYE 2012 $10.6m 26 Focus Branch Agrifinance desks FYE 2012 Agric NPL 10.4% % Agric NPLs/Total loans 1% 2013 FYE budget $156,2m Actual Sept 13 $74.4m Agric. NPL Sept % % Agric./Total loans Sep 13 3% 2014 FYE budget (additional investment) $112.5m **interest ranges from 17-24% for agric loans 5

6 OUR APPROACH Selected 6 focus value chains of comparative advantage as Pilot for AgVcF. All others to be assessed on a case by case basis and as capacity and industry competence improves. Selected 15 pilot branch locations, commenced staffing and training Target :Grow by 5 branch desks annually from 2015 to a maximum of 35 by 2019 and by 5-10% in volumes to USD 218m(N35bn) about 5% total bank R/A Capacity: a dedicated team focusing on Agrifinance across the VC and build capacity over time. Opportunities: Leverage our robust Retail platform to develop MSME Agrifinance markets and products Partnerships: with catalyst agencies to develop markets and products (USAID, IFC, WCF/Technoserve, Procom, GEMS etc) Processes: Prioritize Development of a basic process flow and lending policy for Agrifinance Challenges hampering AgVcF:- Operational Organizational Technology Market/industry SWOT: leveraging on information to improve and develop our Agrifinance activities. 6

7 OUR PARTNERS INTERNAL FINCON LEGAL CREDIT MONITORING CREDIT ANALYSIS, PROCESSING &ADMIN RETAIL ASSETS MSME PROPOSITION EXTERNAL NIRSAL/CBN FMA&RD IFC PROPCOM IDH/WCF- TECHNOSERVE USAID-MARKETS GEMS1-DFID 7 KEY: Green=Filled: Amber=partially manned

8 OUR VALUE CHAIN FINANCING ACTIVITIES Our VCF products are at developmental stages WIP on 5 VCF products towards pilots in generic products active-acgs & GES Retail Agrifinance products in process based on VCF concepts ACI-Cocoa farm input financing pilot for farmer grps linked to processors.(wc) Mechanization: fee for service (AL) Crop production loans in 6 value chain in 25 target states (WC) 3 partnership agreements with IFC, TCN and USAIDMARKETS2 for AgVcF products. 252 individual agribusiness loans account for the $74.37m Agric portfolio Finished leather goods WC/AL 8

9 SAMPLE: ACI COCOA FARM INPUT FINANCE MODEL TO COOPERATIVES Cooperative 1 Planned implementation 1. Cooperative (Coop) opens bank account and deposits cash guarantee Disburse Exporter/ Processor 2 Diamond bank 4 Agro-input supplier 2. TCN pledges guarantee 3. Exporter pledges guarantee TCN Financial institution pays Agro-input supplier agreed % of value of inputs 5. Agro-input supplier delivers inputs to Coop, which distributes to farmers 6. Coop collects cocoa produced by farmers and delivers to Exporter. Repay Cooperative 6 Exporter/ 7 Diamond 8 Processor bank Agro-input supplier 7. Exporter deducts agreed % for loan repayment and reverses to financial institution (monthly) 8. Financial institution pays agro-input supplier remaining % of input value Call Guarantee Cooperative TCN 9 10 Diamond bank 12 Exporter/ Processor If Cooperative does not repay in full: 9. Financial institution retains Coop s cash deposit 10. Financial institution calls TCN guarantee 9 Agro-input supplier Agro-input supplier cedes right to remaining payment 12. Financial institution calls Exporter guarantee

10 KEY LESSONS A bank needs to make a clear decision to do Agrifinance and design a strategy to do so holistically and profitably. Board and Executive management support is required to set up and run an Agrifinance desk Training and capacity building along the Agrifinance staff value chain should be priority and FI s need to invest in this. The concept of value chain mapping as a tool for agri-lending should be understood and utilized by all Agrifinance teams. Proper understanding of the value chain governance structure is important in dimension lending and risk mitigation. Poorly developed /integrated Value chains are ineffective, thus present increased lending risks Leveraging on value chain relationships in Agrifinance improves inclusion and access to finance for the normally despised missing middle Leveraging on partnerships with catalyst agencies improves access to finance for small holders. 10

11 THANK YOU