bank aus verantwortung sources of funding and support system for value chain finance: lessons from...
TRANSCRIPT
Bank aus Verantwortung
Sources of Funding and Support System for Value Chain Finance: Lessons from KfW ExperiencesJohannesburg, 15.11.2012
Dr. Thomas Duve, Director Africa supra-regional
2Sources of Funding and Support System for Value Chain Finance
Content
1 In brief: KfW and KfW Development Bank
2 Support for Value Chain Finance
3 KfW’s perspective and leading questions
In brief: KfW and KfW Development Bank
4Sources of Funding and Support System for Value Chain Finance
More than 60 years of KfWFinancing with a public mission
• Promotional bank of the Federal Republic of Germany• Founded in 1948 as
Kreditanstalt für Wiederaufbau• Shareholders: 80% Federal Republic,
20% federal states• Headquarters: Frankfurt am Main
Branches: Berlin, Bonn and Cologne• Representative offices: around 70 offices and
representations worldwide• Balance sheet total at end 2011: EUR 494.8 billion• Financing volume 2011: EUR 70.4 billion• Around 4,763 employees (2011)• Best rating: AAA/Aaa/AAA
5Sources of Funding and Support System for Value Chain Finance
KfW BankengruppeA bank with a wide array of functions
Promotion of developing and
transition countries
International business
Promotion construction
of new housing and modernisation
as well as education
Promotion SMEs, business founders,
start-ups
Financing municipal infrastructure projects and global loans
We promote Germany
International project and
export finance
We ensure internationalisation
We promote development
Promotion of environmental and climate protection
Business Area Mittelstandsban
k
Business Area Privatkundenba
nk
Business Area Kommunalbank
Business AreaExport and Project
Finance
Business Area Promotion of
Developing and Transition Countries
Domestic promotion
Financing Volume 2011: 50.9 bn EUR Financing Volume 2011: 13.4 bn EUR
Financing Volume 2011: 4.5 bn EURFinancing Volume 2011: 1.2 bn EUR
KfW Ipex Bank
KfW DEG
KfW Development Bank
6Sources of Funding and Support System for Value Chain Finance
Worldwide presence Over 70 representative offices
0
1000
2000
3000
4000
5000
6000
1948 1950 1960 1970 1980 1990 2000 2010 2011
KfW employees
7Sources of Funding and Support System for Value Chain Finance
Balance sheet total vs commercial banksin EUR billions (2011)
2164
662
495427 396 373
166
0
500
1000
1500
2000
Balance sheet total vs promotional banksin EUR billions (2011)
759
495472
421
274 262
69
0
100
200
300
400
500
600
700
800
KfW BankengruppeA large promotional bank worldwide
8Sources of Funding and Support System for Value Chain Finance
International business: we promote developmentKfW Development Bank
Governments, other governmental and non-governmental institutions in developing and transition countries, and bilateral and multilateral donors
Task
As development bank of the German Federal Government, we provide support and advice for reform processes and investments in developing and transition countries.Objectives
• Climate and environmental protection• Promotion of the financial sector• Sustainably improvement of economic and social conditionsPartners
EUR 4.5 billion
Financing volume 2011
EUR 28.5 billion, 1,884 projects in over 100 countriesPortfolio
9Sources of Funding and Support System for Value Chain Finance
Budget funds (2011: EUR 1,614 million)
Financial Cooperation (FC)
2. FC development loans2.1 Mixed financing2.2. Composite financing2.3. Reduced-interest loansBudget funds: EUR 134 millionKfW funds: EUR 1,579 million
3. FC promotional loans EUR 996 million
KfW funds (2011: EUR 2,575 million)
1. 100% budget funds1.1 Grants: EUR 1,336 million1.2 Loans at IDA conditions:
EUR 133 million1.3 Loans at FC standard
conditions: EUR 12 million
Concessionary Financing
KfW Development BankHow we finance our programs and projects
Mandates 2011: EUR 343 mn
10Sources of Funding and Support System for Value Chain Finance
KfW Development BankBilateral and regional cooperation
› Support for national poverty reduction strategies
› Strengthening and developing democratic institutions at provincial level
Agreements with Countries
› Encouraging regional integration is a focal area of Germany's development cooperation
› Consultations in strategic dialogue with the partner organizations to provide joint support and finance for specific programmes and projects
Funding of regional institutions
11Sources of Funding and Support System for Value Chain Finance
KfW Development BankFinancing volume by region and by sector
Financing volume by regionin EUR millions (2011)
Financing volume by sectorin % (2011)
417
626
172
134
232
895
182
574
79
448
98
66
66
3
88
20
33
397
Asia
SubsaharaAfrica
Europe andCaucasus
Latin America
Middel East /North Africa
Transregional
Budget Funds KfW Funds Mandates
31%
25%
23%
4%
17%
Social infrastructure Financial sectorEconomic infrastructure OtherIndustry and production
501
400
535
812
874
1,411
Financialsector25%
Socialinfrastructure
31%
Economicinfrastructure
23%
12Sources of Funding and Support System for Value Chain Finance
Financial Sector DevelopmentProjects in more than 87 developing and transition countries
Direct investmentIndirect investment*
Direct AND indirect investment*Selected investments by: ProCredit, Access, Finca, Advans, EFSE, Regmifa, MEF, ICF
13Sources of Funding and Support System for Value Chain Finance
Financial Sector Development Our financing products
Elaborate products (in order to mobilize private resources)
• Structured finance, e.g.• Microfinance Investment Funds• Issuance of local bonds• TCX, local currency exchange fund
• Deposit insurance schemes
Basic products•Credit lines•Guarantees•Equity•Technical Assistance
Bank aus Verantwortung
Support for Value Chain Finance
15Sources of Funding and Support System for Value Chain Finance
Specific Challenges for Financing Agriculture remain high
● Frequently poor quality of value added products,
● low quality of local suppliers due to lack of management capacities
Quality
● High cost to build knowledge on crop cultivation in Africa to identify viable market opportunities
● High costs of necessary tailor-made financing solutions; Standardization of financial products beyond microfinance difficult due to specificities of each crop and substantial differences across Africa
● High costs to reach into rural areas (distances and infrastructure)
● High risks in complex market structures
● High risk exposure to weather hazards and disease
● Lack of collaterals● Manage country/currency risks
Finance
● Frequently no link to public markets
● Lack of on-time delivery based on market demand
● Complexity and product-specific Variety of trade patterns
Value Chains
16Sources of Funding and Support System for Value Chain Finance
Agricultural Financing within the value chainThe different layers
Financing within the Value Chain
Financing through Savings
Family workOther income
Producers ProducerOrganizations
Local Traders+ Processors
ExportersIntern. Traders+ Processors
Input CreditInput Credit / Contract farmingWarehouse Receipt financing
pre-export trade financing
Financing from Financial Institutions
Short/medium termFinance
MicrofinanceMedium term
FinanceMedium/Long term
FinanceEquipment Finance
Export Finance
Equipment Finance
Value-Chain Financing – linking more actors in the Value Chain
17Sources of Funding and Support System for Value Chain Finance
Support Financial Institutions with regard to: • Identify progressive farmers in specific value chains• Learn on farmer’s investment needs to improve value addition (equipment, processing, irrigation)
• mid- and long-term loans and accompanying technical assistance to structure adequate financing products
Financial institutions need to understand product-specific characteristics of value chains
Financial institutions need to know how to build collaborations with small progressive farmers and aggregators in value chains
FIs need to finance small and medium farmers
Over 70% of agricultural output is produced on farms of 1 to 5 ha
Input suppliers, producer organizations, processors and offtakers are engaged in value chains (pre-financing of production) = > potential aggregators
A new generation of younger, more educated agro-entrepreneurs is emerging
Key trends in African countries Implications for agri-finance
Promotion of agriculture / food security through banks A new approach for German Financial Cooperation
18Sources of Funding and Support System for Value Chain Finance
ImplicationsHow to combine the best in agri- and rural finance
Target clients
› Farmers who are part of stable, profitable value chains› Rural households with ag and non-ag incomes› Range of poor and non-poor customers
Multi-products as platform for profitability
› Broad-based savings, insurance and payment products› Loans to progressive farmers with strong market links› Loans and payments to/through agribus, dealers, coops
Distribution channels and key collaborations
› Strategic, limited use of bank branches, leveraging› Leverage strategic collaborations with agribusinesses, agro-
dealers, companies with strong rural distribution networks
Need to know how to
› Deliver cost effective, responsive credit, savings, insurance, payment products
› Do cash flow appraisal of rural households› Build high yield collaborations and distribution channels
19Sources of Funding and Support System for Value Chain Finance
Lessons from leading countries
For each, identify the extent to which these countries, and the key private sector players, have been successful in adding value to the basic commodities, and the strategies deployed.
Provide comparisons in production, productivity, exports and value chains with leading emerging market exporters and where relevant, other African countries.
Derive conclusions for the commodity value chain in the targeted country.
Analyze the value chains, strategies, business models, key players and trends among the global leaders in each commodity group with particular attention to emerging markets.
Bank aus Verantwortung
KfW’s perspective and leading questions
21Sources of Funding and Support System for Value Chain Finance
KfW‘ PerspectiveCurrent approaches
› A debt investment fund focussing on investments into the agricultural sector for the benefit of the poor. › Target: agricultural farms as well as agricultural businesses along the entire agricultural value chain which will
be financed indirectly (financial institutions) or directly. A dedicated effort is to support contract farming arrangements
› A public-private-partnership working on market-oriented terms
Regional level: Africa Agriculture and Trade Investment Fund (AATIF)
Increase small farmers’ productivity, incomes and capacity to repay Help financial institutions mitigate risks in agri-finance
Provide financing for small farmers and value chain companies
Bilateral level: Nigeria and Uganda
› Interventions still in the planning phase› Focus on agricultural value chains with the potential to reach out to small farmers› Support to the agricultural sector through the cooperation with financial institutions
22Sources of Funding and Support System for Value Chain Finance
Leading Questions for Agrifinance Interventions
Additionality:› Avoid crowding-out of private sector - subsidized lending does not bring
additionality› Address specifically smallholder farmers and SMEs – but not exclusively
Adress Social and Environmental Issues:› Clear line on Land issues: involve people on the ground › Ensure proper guidelines› Monitor compliance to guidelines
Manage Financial risks:› Cooperation with “aggregators” within the value chain › Needed: ability to structure more complicated financing contracts
Bank aus Verantwortung
Thank you for your attention!
24Sources of Funding and Support System for Value Chain Finance
Africa Regional ProgrammesDr. Thomas DuveDirector
KfW BankengruppePalmengartenstrasse 5–960325 Frankfurt am Main
Fon +49 69 7431-3449Fax +49 69 [email protected]
Contact information
25Sources of Funding and Support System for Value Chain Finance
Disclaimer
This document is provided for information purposes only. This document may not be reproduced either in full or in part, nor may it be passed on to another party. It constitutes neither an offer nor an invitation to subscribe or to purchase securities, nor is this document or the information contained herein meant to serve as a basis for any kind of obligation, contractual or otherwise. In all legal systems this document may only be distributed in compliance with the respective applicable law, and persons obtaining possession of this document should familiarise themselves with and adhere to the relevant applicable legal provisions. A breach of these restrictions may constitute a violation of US securities law regulations or of the law applicable in other legal systems. The information contained in this document is historical and speaks only as of its date. KfW disclaims any intention or obligation to update or revise the information contained in this document. By accessing this document you acknowledge acceptance of these terms.