Challenges)of)Agriculture) Lending)in)Lebanon

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1 Challenges)of)Agriculture) Lending)in)Lebanon

2 History of Agriculture Lending! Between 1950 and 1980 all agriculture strategies were to increase food and crop production! Governments and donors resources were poured into agricultural development banks and agriculture credit programs! Provide subsidized credits to small farmers! Access to credit would stimulate agricultural production and improve rural income distribution

3 Approach failed for the following! Agricultural banks were created for political purposes and did not operate as viable financial institutions! Many agricultural credit programs were poorly designed and failed to consider the high cost that are associated with agricultural lending! High risk required frequent rescheduling of overdue loans, undermining the loan recovery efforts and the loan repayment discipline

4 Rural Clients: wrong assumptions about small farm household! Research on rural household has shown that even small farmers save! Rural people are able to pay market interest rates! Small farmers tend to be risk adverse and are conservative in their decision making! Interdependency exists between the farm and the family household

5 Credit risks in agricultural lending " Production and Yield Risks: Yield uncertainty due to natural hazards, unpredictable weather severity, and pests and diseases " Market and Price Risk: Price uncertainty due to market fluctuations is particularly severe where information is lacking and where markets are imperfect " Risk from Changes in Domestic and International Policies: have a impact on both borrowers and lenders

6 Cost Specific to Agricultural Lending " Dispersed location of rural clients make the provision of formal financial services costly " Inadequate rural transportation infrastructure increase the cost of loan appraisal, loan monitoring and enforcement of loan repayments " Seasonality nature of agriculture and the relative long periods before crops can be sold have direct implications for the financial costs of the lender

7 Reducing Costs on Agriculture Lending " Close Contact with local organizations and networks provides relevant client information " Diversification of the agricultural loan portfolio in terms of location and lending purposes help to balance the uneven staff work load due to the seasonality in agriculture lending " Heterogeneity of farming needs to be considered in planning of the agricultural loan portfolio

8 Managing Agriculture Loan Portfolio Risks " Collaboration with NGOs which know farmers well, reduces client information costs and risks of lenders " Start in production zones that present low risk; then gradually be expended to more risky areas " Loan portfolio diversification serves to protect agricultural lenders against risks " Close monitoring of market and exposure to lending risks is essential for agricultural lending

9 Agriculture Borrower Eligibility Criteria " 3 year experience in the agricultural production " Live in easily accessible areas with low agricultural production risks (adequate and secure access to water) " 30% self finance of the total farm investment " Market price information and ready access to outlets " Multiple household income sources

10 !!!Agricultural!!!!!!!Sta,s,cal!!!!!!!!Informa,on!!!!!!!in!Lebanon!!

11 Farmer Household in Lebanon " Total number: 177,700 " Plant Production Farmers: 153,713 " Livestock Production Farmers: 15,799 " Poultry Producers: 2,005 " Apiculture Producers: 6,183 " Fishermen: 6,500 " Total Small Household Farmer: 165,711 " 75% of the farmers have less than 10 Dunms " 95% of the farmers have less than 40 Dunms " 34% have agriculture as the only source of income, and 64% have other sources of income

12 Challenges for Agriculture in Lebanon! Lack of official support and discipline, contrary to the surrounding countries in the region! Farming as a household activity is declining! Lack of skilled and specialized labor! Agriculture supply companies are business driven, with no extension services! High transportation costs! Uncontrolled whole sale markets! Very strict regional and international markets

13 Challenges for Agriculture in Lebanon " High costs of inputs (seeds, pesticides, & fertilizers) " Lack of subsidy on energy " Lack of proper infrastructure for export markets " Lack of laboratories for product analysis " High prices of agricultural land " Lack of land property titles in many areas " Absence of contracts with agro-processing industries " Political disputes and instability " Lack of competitive edge with agriculture in the regional countries

14 Recommendation for Developing Agricultural Loan " Agriculture expert in the loan appraisal committee " Loan officer from rural/ agriculture committee " Start with a sector that has least risk for testing the loan product " Strict criteria for selecting the loan applicants " Heterogeneity in agriculture production

15 Recommendation for Developing Agricultural Loan " Production/Market intelligence " Good contact with official decision maker " Updated with regional and international policies " Updated with export markets and regulations " Informed with agriculture production for specific sectors and areas " Following up on the agricultural agenda

16 Agricultural Loan Marketing and Outreach! Key producers! Cooperatives! Development programs! Vegetable and fruit markets! Input suppliers! Service providers

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