access to agricultural finance
DESCRIPTION
Nairobi 16 July, 2014 at the Fin4Ag Conference.TRANSCRIPT
Copyright SCOPEinsight 1
SCOPEinsight is supported and funded by:
ACCESS TO AGRICULTURAL FINANCE
The challenge and opportunity of the decade
Fin4Ag Conference14 - 18 July 2014
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CHANGING DIETARY DEMANDS
RISING MIDDLE CLASSES
GROWING WORLD POPULATION
AGRICULTURE ACCOUNTS FOR: 80% of livelihood in rural
areas, 20% of GDP in developing countries
THE WORLD NEEDS A PRODUCTIVE AGRICULTURAL SECTOR to ensure food security and alleviate poverty
GLOBAL DEMAND FOR SMALLHOLDER CREDIT
450bn $
FARMERS NEED ACCESS TO FINANCE, INPUTS, SERVICES to become professional and implement sustainable practices
AGRICULTURAL FINANCE GAP
AGRICULTURAL PRACTICES ARE UNSUSTAINABLE
The agricultural sector needs to become MORE PROFESSIONAL AND MORE SUSTAINABLE to increase productivity
LESS AND LESS AND LESS ARABLE LAND...
TOO LOWPRODUCTIVITY
& PROFESSIONALISM
Producer organizations (POs) need access to finance, markets, inputs and services to invest in their farms and fields and increase production levels in a sustainable way
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SOURCE: Compliments of AGRA: CIA - world-fact book, Central bank of Congo, Central bank of Nigeria, Central bank of Kenya, Central bank of South Africa; BCEAO – Annual Report 2008. Complemented with SCOPEinsight analysis and research (2011)
% Contribution of agriculture to total GDP
% Contribution of agriculture to employment
Outstanding loans to agriculture as % of total loans in country
Although agriculture forms the backbone of many countries’ economies, the agricultural sector is heavily underfinanced
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This agricultural finance gap exists as a result from barriers on the demand and supply side
Barriers on the demand side
Many unprofessional POs Small loan sizes Lack of collateral Lack of access to inputs, labor,
markets, finance, services Too much focus on the technical side
of farming, too little on business side Insufficient and uncoordinated support
in reaching professionalism
Barriers on the supply side
Profitable alternatives Bad past experiences Lack of knowledge Unfavorable regulations High systematic and firm-level risks* High operational costs* Lack of (risk management) tools
?
?Return
Risk
Risk free return
agriculture
Systematic risk gap
Firm level risk gap
Operational cost gap
Corporates
SME
Agribusiness Smallholders
traditional se
ctor
Risk/return matrix for FIs
Systematic risks apply to every entity in a sector and are difficult to predict or prevent (weather, crop failures, etc.)
Firm-level risks apply to individual organizations and can be mitigated at reasonable costs (poor governance, poor production capacities, etc.)
High operational costs are caused by poor quality and availability of information, costly credit analysis processes, high monitoring costs, etc.
© F4A 2013
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In order to close the gap and increase access to finance, markets, inputs and services POs need to improve their level of professionalism
Small MSME segment that: •Lacks access to finance, markets, inputs and services•Lacks collateral•Requires small loan sizes•Is insufficiently supported in reaching professionalism
Majority of unprofessional and unorganized farmers
Only a few organized farmers with large production levels
The current agricultural sector
“BUSINESSESS WANT TO DO BUSINESS WITH OTHER
BUSINESSESS”
Organized, > avg production
Potential but requires significant investments
Unprofessional, unorganized farmers, low yield
5
4
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1
5
4
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2
1
prof
essi
onal
ism
Do more professional POs have better access to finance?
SCOPE scores
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Currently, the professional POs find it difficult to find financing even if they are professional: The Missing Middle
Loan requirements of POs
≤ € 50.000
€ 50.000 - € 150.000
€ 150.000 - € 350.000
€ 350.000 – 400.000
≥ 400.000traditional
Coverage by financial Institutions
Commercial banks & funds
MFIstraditional
NBFIs & funds
Ecosystem of Training Providers
International Development Banks /Donors
Capacity building
SCOPE assessment
Producer Organizations
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The SCOPE - How do you measure PO professionalism and robustness?
The SCOPE assessment methodology:
•9 chapters•31 subchapters •Over 200 control points
In a range of 1 to 5 the business potential, professionalism and bankability of producer organizations in agriculture, dairy/livestock, aquaculture and forestry are scored.
The SCOPE tool measures professionalism and forms a common
language between different actors
1. Profile
Primarily aimed at access to finance and markets. Provides data, information and benchmarking to (potential) business partners:
•Financiers•Value chain players
2. Assessment report
Primarily as input for business development services (BDS). Provides insights and benchmarking for improvement and graduation for:
•Producer organization internally•Training providers
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The SCOPE Basic – improving the performance of producer organizations
Objective
•Providing input for capacity building and internal strengthening of the producer organization•Gap analysis •Graduating to the SCOPE Pro
Target group
•Less professional producer organizations•Low levels of maturity•Aggregated farmers
Characteristics of the Basic assessment
•Subset of the SCOPE Pro•Second party assessment (eg. training provider)•Quality check by SCOPEinsight•Limited data collection•No documentation collection
Agricultural sectorLe
vel o
f pro
fess
iona
lism
5
4
3
2
1
SCOPE Pro
SCOPE Basic
The Basic tool is co-developed with the IFC and is currently piloted in West Africa
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Through the assessments, we can build an ecosystem that graduates POs towards professionalization and links them to finance, markets, inputs or services
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4
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Leve
l of p
rofe
ssio
nalis
m
Linking point Markets ServicesInputsFIs (banks,
MFIs, NBFIs)Building track record
Better terms of access
Links to inputs, finance & services
Advanced Agribusiness Graduation
Higher professionalism
Assessment & benchmarking
Assessment
Insight in strengths and weaknesses
Basic Agribusiness Graduation
SCOPE Basic assessment
SCOPE Pro assessment
There is a need for an ecosystem of training
providers to support this graduation system
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The ecosystem transforms the agricultural sector to a more profitable and sustainable sector where POs reach their full potential and have access to finance, markets, inputs and services
Organized, >avg production
Potential but requires significant investments
Unprofessional, unorganized farmers, low yield
Highly organized farms; optimal yield
Organized SME farms: higher yield, close to optimal
Unprofessional, unorganized farmers,
low yield
5
4
3
2
1
5
4
3
2
1
prof
essi
onal
ism
• Majority of unprofessional and unorganized farmers;
• Unprofessional middle segment that lacks access to finance, markets, inputs and services;
• Few organized farmers with access to finance, markets, inputs and services.
• The less professional farmers are stimulated to graduate upwards;
• Relatively professional middle segment with access to finance, markets, inputs and services;
• Professional and organized POs reach the top segment.
The current agricultural sector The future agricultural sector
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SCOPEinsight’s data can for example show the relation between access to finance and professionalism
There is a clear relationship between access to finance and professionalism (as expressed in SCOPE scores)
A significant part of POs across all levels indicate to have a long term loan need
Financial and internal management seem strongest indicators. Financial performance is weak across the board.
POs that had some kind of loan in the past
56%Loan needs average (median) (EUR)1.0-1.5: 15,000 (15,000)1.5-2.0: 46,000 (26,000)2.0-2.5: 23,000 (9,000)2.5-3.0: 260,000 (51,000)3.0-3.5: 396,000 (117,000)3.5-4.0: 542,000 (187,000) 4.0-4.5 : 4,200,000 (744,000)
Most POs have a long term loan need
irrespective of their level of professionalism
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Which needs of the Financial Institution can SCOPEinsight fulfill?
Credit Initiation & Analysis Process
Monitoring services under development.
SCOPEinsight provides information that is essential in the first phases of the credit analysis process.
Screen prospective customers in order to identify the highest quality prospects
Collectdata for analysis of risk associated with prospective customers
Analyzerisk associated with prospective customers
Structureproposed credit facility, using risk analysis as the basis
Preparewell-documented credit analysis package
Monitorand manage the credit risk
Providing a professional pipeline
Lowering the operational costs
Lowering the firm-level risks
Bridging the gap to rural areas
Making agriculture accessible
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Total assessments done: 333until June 2014
Focus countries
(Past) project countries
Legend
CENTRAL AMERICA
One of five finalists in Access to Finance Challenge ANDE-Argidius with program “Creating a mainstream market for agricultural finance by profiling producer organizations”.
EAST AFRICA
PPP program with Dutch Embassy in Kenya “Finance for Agriculture F4A” together with partner Financial Access and (local) implementation partners.
India20
Uganda16
Rwanda1
Kenya161
Ethiopia30
Nigeria4
Ghana22
Côte d’Ivoire11
Guinea8
Guatemala25El Salvador
3Peru10
Bolivia3
Honduras19
Headquarters The Netherlands
Office Kenya
Office Guatemala
Regions of Operation
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DONOR PARTNERS
Network partner Assessments Ethiopia Assessments Bolivia & Peru Assessor companies
Assessments Guatemala Portal developer Partner F4A Project partner
Assessments Central America Partner F4A Assessments West Africa
Assessments Guinea Basic tool Partner F4A Assessments Kenya
Project partner Kenya Project partner Kenya Partner F4A
Partner F4A Assessments West Africa Assessments Central America
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STRATEGIC PARTNERS
Project partner
WE WOULD LIKE TO THANK
Network partner
Project partner
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Please do not hesitate to contact us for more information:
www.scopeinsight.com
@SCOPEinsight
SCOPEinsight
[email protected]+31 (0) 30 234 82 73
Thank you for your attention
Any Questions?