aga 2012__ presentation by roland gross
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Breakout group 1 on finance for food__ "Rural Finance - Yesterday, Today, Tomorrow"TRANSCRIPT
Seite 1
Rural Finance
Yesterday – Today - Tomorrow
Breakout Group Finance for Food
Global Donor Platform for Rural Development
Roland Gross (Deutsche Gesellschaft für Internationale
Zusammenarbeit (GIZ) GmbH)
January 2013
Seite 2
1. Introduction
2. Old and New Paradigms in Rural Finance
3. Emerging Approaches and Services in Rural Finance
4. Potential Role of Partners
5. Examples from German Development Cooperation
6. Impact Measurement in Rural Finance
7. Further Readings
Overview
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1. Introduction - Recent Trends in Rural Development
Increasing demand for food/ agricultural products due to:
• Growing population
• Migration to urban centres
• Emerging urban middle class with changing consumption patterns
• Growing demand for biofuels
Increase in private sector investments into international value chains in
agriculture and forestry
• Due to increasing demand and prices for agricultural commodities as well as
liberalization of agricultural trade in the last decades
Reduction of transaction cost for doing business due to availably of IT
technologies also in rural areas
Emerging opportunities for FI and businesses in rural
areas
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1. Introduction - Different Categories of Rural Clients
500 mill. smallholder agricultural dependent households with different
financial needs
• 300 mill. subsistence households (savings, health& life insurance)
• 165 mill. commercial households in “loose value chains” (small loans, savings,
health& life insurance, payment services)
• 35 mill. commercial households in “tight value chains” (loans, crop insurance,
payment services)
Commercial SME farmers, traders or processors
• Widely underserved by commercial banks, due to
• High transaction cost (small loans, remote locations, bad infrastructure)
• High risk (production, marketing, price etc., lack of collateral)
• Financial products needed: loans, crop insurance, leasing
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1. Introduction - Rural Finance and Related Areas
Rural finance: Provision of financial
services to households and
enterprises in rural areas
• Loans and savings
• Payments and money transfers
• Insurances
Agricultural finance: Provision of
financial services for agricultural
production mostly in rural areas
Microfinance: Provision of financial
services to poor people in urban
and to a lesser extent in rural areas
h
Urban
Finance
Rural
Finance
Microfinance
Agricultural Finance
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2. Old and New Paradigms in Rural Finance
60s to 80s: “L’age d’ or” of agricultural development banks
• Provision of financial services mainly by national development banks
• Investments in Green Revolution technologies (HYV seeds, pesticides etc.)
• Interest rate caps, lending targets for sectors/commodities set by government
• Lack of appropriate risk management, lending technologies and governance
structures in development banks
• Frequent interference by politics
90s: Liberalization and
emergence of microfinance
• Closure of many state
development banks in the
course of structural
adjustment/ privatization
• Pioneers of microfinance
extent banking services to
until then unbanked people
(Grameen, ACCION)
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2. Old and New Paradigms in Rural Finance - The Microfinance
Revolution
90s/2000: Microfinance institutions start providing banking services to poor
people
• Innovative lending technologies and improved risk management
• Financial intermediation was hoped to foster economic development and reduce
poverty
But limited impact in rural areas:
• Financial products were not flexible enough for the needs of the rural population
and interest rates were high for some loan purposes, part. agricultural production
loans
• Activities of microfinance institutions and commercial banks remained
concentrated in high-potential urban areas and on trade activities, outreach to
rural areas was limited
• Other financial products than loans, i.e. savings or insurance often neglected by
MFIs
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3. Emerging Approaches and Services in Rural Finance
Diversification of existing financial services
• Loans, deposits, insurance, trade loans, money transfers and remittances
• Adaption to the needs of rural and agricultural borrowers
Development of innovative financial services with private sector companies
• Value chain finance, warehouse receipts
Access to international investment funds and private investors
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3. Emerging Approaches and Services in Rural Finance –
Different Actors Serving Different Clients
Providers of informal finance services
• Traders, processors etc.
Microfinance institutions
• Professional member based financial services (cooperatives, village banks, etc.)
• New information technologies reduce transaction costs and increase outreach of
service
State Banks
• Serving different groups of clients according to political objectives
Commercial banks
• Due to increased commercial activities in rural areas
• Development of products specifically designed for rural borrowers
National and multinational agribusiness companies
• Providing capital for complex modernisation projects and agricultural machinery
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3. Emerging Approaches and Services in Rural Finance - Other
Success Factors for a Modern Rural Finance Approach
Conducive legal and regulatory framework
• Both for financial institutions and rural enterpriese
Finance combined with business development services (loan plus)
• Practical/ technical support for agricultural producers (introducing best practices
in production, transport, storage, processing etc.)
• Linking farmers to markets (e.g. by supporting inclusive business models,
contract farming etc.)
Provision of financial services via modern technologies
• Reduction of transaction costs and information gap can lower interest rates
• Availability of financial services in remote areas
Take a undogmatic view on subsides
• Subsidies legitimate for institution building, R&D, piloting of products
• Particular subsidised instruments proven to be useful (guarantee mechanisms)
• Interest rate subsidisation only within clearly defined limits – politically risky
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4. Potential Role of Partners
Governments to implement consistent rural finance policies
• Balancing out the interests of finance and real sector policies
• Providing an adequate regulatory framework for the financial sector
• Using smart subsidies for infrastructure and institutions with development tasks
Private sector to take investments
• Large scale investments that increase productivity in agricultural production
Development partners to provide capacity building
• On various levels: policy, institutions, banks, entrepreneurs/producers
• Knowledge management
• Recent multi-donor initiatives:
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5. Examples from German Development Cooperation
Rural financial institutions programme India (GIZ-TC) • Working with self-help groups and cooperatives
• Focussing on institution building and financial literacy
• Reaching almost 100 mill. members
Financial systems development programme Uganda (GIZ – TC) • Supported introduction of new MF law
• Supported establishment of credit bureau
• Supports introduction of new financial products via MFIs and cooperatives
AATIF (KfW – FC) • Regional Fund for investment into agricultural value chains
• Fund can be used for refinancing, equity
• TA component for capacity building for FIs and agricultural producers
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6. Impact Measurement in Rural Finance
Impact can be measured on different levels
• Macro/ political level
• Institutional level
• Household level
Impact can have different dimensions
• Income/ employment
• Health/ education
• Empowerment
Various methods to measure impacts
• RCT
• Qualitative measures
Results from specific studies difficult to generalise
• Setting difficult to compare
But impact measurement helps to improve financial
services
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7. Further Readings
Agricultural Finance – Trends, Issues and Challenges
(BMZ/GIZ, Dr. Frank Höllinger, 2011) [link]
Scaling Up Access to Finance for Agricultural SMEs - Policy Review and Recommendations
(GPFI/IFC, 2011) [link]
Subsidies as an Instrument in Agriculture Finance: A Review
(The World Bank et al., Richard L. Meyer, 2011) [link]
Agricultural Value Chain Finance - Tools and Lessons
(Calvin Miller and Linda Jones, 2010)
IFAD Decision Tools for Rural Finance
(IFAD, 2010) [link]
Policy Brief on Agricultural Finance in Africa
(AU, GIZ, BMZ, MFW4A, 2012) [link]
KfW Symposium 2010: Finance for Food - New Agricultural and Rural Finance
[link]
Agricultural Finance Revisited
(FAO & GTZ), 1998 [link]
Making the most of agricultural investment (IFAD, FAO, Sonja Vermeulen and Lorenzo Cotula,
2010) [link].
Competitive African Cotton Initiative (COMPACI) Background document (DEG, GIZ, Aid by trade
Foundation, Cotton Made in Africa, 2012) [link]
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Example: Promoting Competitiveness of Diversified Cocoa
Smallholdings in Nigeria, Cameroon, Ghana, Côte d’Ivoire
Implemented by GIZ on behalf of BMZ with co-funding of World Cocoa Foundation (WCF) a
component of the Cocoa Livelihoods Program (CLP) and the Bill & Melinda Gates Foundation.
Farmer Business School (FBS) modules tackle access to financial services plus cost-profit
calculations for cocoa and food crops (maize and cassava), farm management for food security
and balanced diet, professional organization.
Impacts: 38 to 62% of the surveyed farmers - according to the country – have opened saving
accounts and constitute the collaterals to access loans.
Farmers (72% women) respond to loans with high adoption rates of improved techniques as
technical and entrepreneurship training are preconditions for access and partnerships with input
suppliers are part of the innovation to ensure supply of quality inputs. Reimbursement of the loan
is beyond 96%.
FBS farmers have more than doubled their annual income from non-cocoa products
(regional average: 230 USD per household; Nigeria: 414 USD per household, i.e. 436 % increase
over baseline).
De-risked financial products for cocoa and maize: The loans cover the financing of certified
seeds of improved varieties, approved chemical inputs, technical and business skills training and
GPS measurement of farm plots.
For more information see: http://www2.gtz.de/wbf/4tDx9kw63gma/ACI-CompACI-
SCB%20presentation%20V4.pdf.