Agricultural Value Chain Finance and Agroinsurance. European Microfinance Week 2016 November 17, 2016 Luxembourg

Transcription

1 Agricultural Value Chain Finance and Agroinsurance European Microfinance Week 2016 November 17, 2016 Luxembourg

2 Speakers 2 VCF Introduction Connecting Companies Warehouse Receipt Lending Hotels in VCF with Crop-in-the-Field Building scale in agricultural insurance Michael Kortenbusch Managing Director BFC Mariel Mensink Senior Program Officer ICCO Terrafina Microfinance Bart De Bruyne Financial Consultant Independent Jonathan Agwe Senior Technical Specialist IFAD Patricia Richter Social Finance Expert International Labour Organisation

3 Value Chain Financing Why? 3 Bank Additional sales channel Improved risk mitigation Cost reduction Cross-selling Farmer Improved liquidity Discounts from suppliers Lower transaction costs Lower collateral requirements Aggregator Reduction of cash payments Improved competitiveness Business growth Financing function transferred to bank Sharing benefits is key to success

4 Analysing VCF Feasibility VC Mapping 4 Processor Driven VC Input Supply Driven VC goods finance information Processing & Distribution Farmers Farmers Bank Suppliers Bank

5 VCF Concept Design Product Example (Armenia) 5 Loan amount: EUR 150 3,000 Interest rate: from 0% Disbursement fee: 3% Loan maturity: 6 12 months No collateral No site visit

6 Conclusion 8 Attributes of successful value chain finance schemes: Feasibility analysis Workable concept Implementation excellence

7 Agricultural Value Chain Finance and Agroinsurance

8 2016 Rural finance session with corporates

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10 3 Rural Finance working with Corporates: the context Research Trend: Dutch or Dutch based international companies want to source their produce from small holder farmers. The Dutch government is stimulating this specific window for public private partnerships, especially for Dutch based companies. It appears that finance in the chain is critical not only for smallholders but also for other actors in the chain.yet finance is often forgotten in the original program design. NPM:meeting September to hear from companies who want to link to smallholders two cases are presented: Heineken and Fair Trade International

11 Heineken: What, where & how? 49.2% in 2015, 60% in ,000 tons of agri-raw materials 24 value chains in 11 countries + Cote d Ivoire (rice) 5 live PPP projects Tunisia: Sugar Sierra Leone: Sorghum*, Sugar Nigeria: Sorghum, Cassava*, Sugar DRC: Rice*, Sugar South Africa: Malt Barley* Lebanon: Malt Barley, Sugar Egypt: Malt Barley, Grapes, Sugar, Rice Ethiopia: Malt Barley*, Sugar Rwanda: Maize*, Malt Barley, Sugar Burundi: Sorghum*, Malt Barley, Sugar La Réunion: Sugar *Public Private Partnerships LIVE CLOSED

12 HEINEKEN PPP roles MINBUZA OTHERS Partnership catalyst Co-funding (3-5 yrs) Brewery investments Encourage 3rd party investors (maltings) Local propositions Long term off-taker Co-funding (3-5 yrs) Embassy network Local government NGOs and other value chain actors Best practice sharing Challenge & support NGOs Organisation & training Value chain linkages Others Financing Input providers Collection & transport Processing

13 Some Key Challenges PROJECT CHALLENGES Finding the right partners Organising farmer groups Quality seeds and inputs Better productivity & quality Compliance: side-selling Logistics and processing Project > business as usual FINANCING CHALLENGES Range of different finance needs - inputs, working capital and capital projects For different players - Across the full value chain From different sources traders, nucleus farmers, MFIs, commercial banks - Heineken??? Not preferred

14 Fairtrade s scope We offer a wide range of fair-trade food and drinks to the consumer through developing international fair-trade supply chains For consumers: national promotion organizations in 26 countries Fair-trade products available in over 100 countries (>1800 in The Netherlands) For producers: 74 producer countries

15 Triodos Sustainable trade fund supports the coconut chain of Fair Trade: The agricultural value chain from farm to fork

16 Our finance builds on and strengthens the value chain Value creation for rural households

17 MA s: organic and/or fairtrade coconut products from Sri Lanka Triodos pre-finances sourcing and processing of coconut milk. Local company can fulfill its export contracts. Credit line grows with the company from EUR 200,000 in 2013 to EUR 500,000 in Company is growing from a local family business to a multinational company with diversified shareholders. FT/organic coconut milk has a stable market. Small holder finance is still an issue, especially now that the bussiness is growing

18 Discussion issues: 1. What would you advise to companies who want to work with smallholders?? 2. What should be the role of companies in providing finance to smallholders? Should they collaborate or compete with financial service providers?

19 Mariel Mensink, Rural finance advisor ICCO Terrafina Microfinance Hamburgerstraat 28a, 3512 NS Utrecht The Netherlands T +31 (0) E : mariel.mensink@icco-cooperation.org NpM, Platform for Inclusive Finance Hamburgerstraat 28a, 3512 NS, Utrecht, the Netherlands T: E: info@inclusivefinanceplatform.nl W:

20 Agricultural Value Chain Finance and Agroinsurance

21 WAREHOUSE RECEIPT LENDING (CRÉDIT WARRANTAGE) Warehouse receipt lending is a loan where the collateral is a securely stored harvest of non-perishable agricultural products with foreseeable price fluctuations. (Also inventory credit)

22 TOOL BOX WAREHOUSE RECEIPT LENDING All formats and tools, used in Mali, Burkina Faso, Rwanda and Burundi 1. Preparation 2. Analysis 3. Implementation 4. Evaluation Product card Procedures Conservation committee trained Etc. Cooperative Assessment Matrix WRL Costing calculations Producer MFI Warehouse inspection Formats and documents: Receipts Inventory Contract Ledgers

23 CLASSIC WAREHOUSE RECEIPT LENDING INSIGHTS Advantages for producers Access to credit for small holders Informed sales decisions, instead of farm-gate prices Multiple income moments from harvest sales Advantages for MFIs Easy to commercialize collateral Good repayment rates Rural penetration without climate risk exposure Food security harvest remains within villages

24 RISK MANAGEMENT CONSERVATION MARKET GOVERNANCE FRAUD FO capacity assessment? Insurance? Credit as % of stock value Calendar limitations Visits through superiors and audit Transactions on farmers accounts CASH MANAGEMENT QUICK DISBURSEMENT Credit line / contract before storage Link to payment services through MFI accounts.

25 MFI roles in multi-actor setting? SUSTAINABILITY: in loan officer days Loan assessment Warehouse inspection + conservator capacity analysis Financial transaction facilitation Warehouse oversight and management (opening moments) Financial education Warehouse repair management conservation training Searching markets Etc.

26 SOCIAL PERFORMANCE ISSUES WRL with farmers, their cooperatives or traders? Farmers prefer immediate payments because of lack of trust in FO Who gets speculation benefits? When managed through FO: tendency to increase storage and marketing costs? Advantages of multiple income moments? Loan use?

27 Key points for reflection 1. Joint warehouse management (2 locks) or a professional warehouse operator? 2. How to assure complementary conditions beyond MFI role? What can donors do? How about warehouse maintenance? How about training conservation committees and conservation quality? How about market monitoring? 3. Social aspects: impact considerations Producer involvement in speculation? Profit calculation and reflections on profit distribution? Loan for which needs?

28 Agricultural Value Chain Finance and Agroinsurance

29 Hotels in VCF with Crop-in-the-Field as Collateral and Raising Appetite for Agro Insurance: echoes from the field in the Seychelles Agricultural Value Chain Finance and Agroinsurance Panel November 17, 2016; Luxembourg Jonathan N. Agwe (PhD) Senior Technical Specialist Inclusive Rural Financial services

30 Special Features of the Seychelles Agricultural Market Space Population: 97 K; Seychelles Archipelago of 115 islands in the Indian Ocean Tourist destination: 250,000 tourist per year HIC: Per caput GDP = $13, (in 2015) equivalent to 108 percent of the world's average but not yet translating quickly to rural poverty reduction Food importation: > 95% for the tourist industry Land tenure: Public leases (5-15 years) Tourism-led economy generates resources for State subsidy programs: including subsidized agricultural finance schemes subsidized IR < 7% compared to market rates > 12% yet on-lending subsidized schemes to smallholder farmers require collaterals but land is leased!!

31 Special Interventions Boosting Niche Smallholder Agricultural Production: Fruits and Veggies in the Seychelles Agricultural produce market organization Unstructured excess ungraded produce/loose VCs/no contractual arrangements in open daily markets Structured/tight VC/Contract farming but sometimes side-selling!! Mandated local content by GoS (Ministry of Tourism) Revised hotel classification 5 Star Hotel - 20% local content of their culinary and premium priced competitively Subsidies schemes in favor of farmers but: No appropriate collaterals/securitization by FSP (all 7 commercial banks, despite managing public subsidy schemes) No famer groups; no coops; only individuals; so, group lending possibility Clustering for aggregation/bulking/market power Efficiency gains Economies of scale Innovations in inclusive rural finance Smart Collateral - Crop-in-the-field now used as collateral to access financing from off-takers (hotels, supper markets, etc) Niche agricultural intra-vcf Market-driven demand for crop insurance/non financial services (business skills; extension services -GAPs, post-harvest handling, grading, access to better remunerative markets, etc.)

32 Some models of IFAD project-supported 4Ps analyzed for the research report Brokering Development: Enabling Factors for 4Ps in AgVCF AgVC Studies & Promotion: Discuss the findings on how 4Ps can be designed and implemented to achieve more sustained increases in income for smallholder farmers and broader rural development. Case studies on export crops Oil Palm in Kalangala, Uganda: an oil palm growers trust is providing finance to smallholder producers Tea in Rwanda: includes financing from BRD to cooperatives Rubber in Indonesia: a sort of VCF in the form of revolving funds Maize in Ghana: includes District Value Chain Committees (DVCC), similar to chamber of commerce, which facilitate access to finance AgVC promotion of local non-export but niche crops Project in the Governatorate of Siliana, Tunisia CLISSA Project in Seychelles (example for Main Panel on Nov. 17)

33 Thank You

34 Agricultural Value Chain Finance and Agroinsurance

35 Building scale in ag insurance through bundling with financial and non-financial services Agricultural Value Chain Finance and Agroinsurance Panel November 17, 2016 Patricia Richter Social Finance Expert International Labour Organisation

36 What is bundling? What is the rational behind? Marketing/contracting technique that offers complementary goods or services as a package deal Bundled items are distributed at a price that is attractive (< total of individual selling prices) IMPORTANT: insurance is intangible => hard to explain and build trust Forms of bundling: Several financial products of same institution One / several financial products AND one / several non-financial services

37 Bundling across the value chain

38 Bundling with inputs Insurance in the bag Opens bag on planting, finds card inside SMS unique code to short code Get farm location from SMS and monitor satellite imagery for that location Farmer can replant and harvest the same season Compensation sent to Farmer via M-Pesa Germination fails after 21 days without rain New Segment for insurer: builds trust Farmers insured grew from 200 to 350k over 4 years 34

39 Bundling embedded in the VC NWK Zambia 51,827 farming households insured Economic value insured of approximately USD 1.5m for weather index insurance and USD5.2m for life insurance

40 Bundling with value-add services VAS provided through mobile phones as farmers received: Weather forecasts and alerts Crop market prices Claims-related updates => VAS need to be relevant and need to be used to have an impact

41 Potential risks involved in bundling Insurance product may not be properly explained to farmers; Adding insurance to cost of inputs/loans may adversely affect competitiveness; Additional insurance related duties may be a burden for aggregator; Additional non-insurance services may be a burden for insurers; Cost of insurance may be difficult to justify if strict caps apply to lending rates for banks/mfis; Aggregators may not perceive the business case of bundling insurance; Bad experience with insurance can affect reputation of aggregator for non-insurance services; etc. * Adapted from Gilles GALLUDEC

42 Bundling makes insurance tangible and can improve value for all! Better outcomes for clients: access to credit, additional services, better price Insurers: trust of the market, higher scale and renewals, lower costs Aggregators: higher customer loyalty, enhanced core business, commissions

43 Agricultural Value Chain Finance and Agroinsurance