managing risk in financing agriculture johannesburg, 1st -3rd april 2009 ‘ managing risk in...

MANAGING RISK IN FINANCING AGRICULTURE

Johannesburg, 1st -3rd April 2009

‘Managing Risk in Financing Agriculture’

M. Malick NDIAYE,Director of Credit and Branches

Senegalese Agricultural Development Bank (CNCAS)

Crédit Agricole Sénégal

OUTLINE

OUTLINE - SENEGAL : BRIEF REVIEW

- AGRICULTURAL CREDIT SYSTEMS

- CNCAS’s APPROACHES ON RISK MANAGEMENT

- RESULTS AND CONSTRAINTS

- LESSONS LEARNT

- CHALLENGES FOR FUTURE ?


Senegal : Small developing country

Senegal : West african country in Sahel region

Superficie : 196 000 km square, Population : 11 milions ( +60% live in rural area, 52% are women ) GDP : 5 000 billions FCFA (1 FCA = 655,957 Euros # fixed rate) Average annual growth rate : 5 - 6% Income per capita : less than 600 $US (SN=PMA) Large share of informal sector in the economy Member of regional and subregional organisations : ECOWAS, UEMOA

Current characteristics of agriculture Low productivity of main productions (peanuts, cotton, rice, vegetables ); Contribution of primary sector on GDP : 15-17% ; Domestic markets are not well organised ; Low revenues for producers and large way of poverty ; But, keep good contribution to the economic growth and poverty reduction.


Agricultural Credit systems in Senegal : historical evolution

Two different periods :

First period : 1960 to 1980 Public extension and credit services providers by SODEVA and BNDS In 70’s : Senegal had been faced a very difficult macroeconomical situation PASA : Agricultural Adjustment Programme Sector (IMF & World Bank) All agricultural extensive services were dissolved (SODEVA, ONCAD)

Second period : 1980 to 2008 1984 : CNCAS is created in a particular context Started activities with two branches : Matam and Dakar Last 20 years : CNCAS’s network is growing fast : 20 branches in 2008 CNCAS is a young financial institution becoming leader in rural financing.

1980’s : MFIs emerging systems in our country 2000 : Commercial banks try to be interested in rural area (competition).


A BRIEF ON CNCAS

FCFA 2 300 millions Shareholder’s Capital 209 Employees FCFA 7 230 millions in Revenues FCFA 539 millions in Net Income FCFA 106 000 millions in Total Assets CNCAS is at the 8th place in national market

banking and the fisrt in rural market financing 20 Branches in different locations ( see country

map below) 13 Banking correspondant (USA, Europe and

Africa).


CNCAS NETWORK


Agricultural credit systems : history and context

In the begining context (Even now) ?

• Mobilize savings as a source of loanable funds.

• How to access to market as source of refinance ?

• Competitive rates of interest on deposits and loans ?

• How to have our loans repaid and make profit ?

• How to manage our risks through portfolio diversification ?


Agricultural credit systems : Major risks

What kind of major risks we face ?

Large informal financial system, Lack of collateral and high risk for investments, Profitable investment opportunities are not directly available, Rural sector is very fragile : unorganized, not sustainable, Clients have a poor credit history or none.

These difficulties explain why Commercial banks were (are-even now) not in rural area.


Agricultural credit systems : major risk identified

Risks at crop production level- Weather risk : drought, flooding (climate change)

- Specific riks : diseases, cricket and bird invasion

Market risks

- Price risk

-Price volatility creates incertitude about the possibility of obtaining enough value from the sales of products to cover production costs.

- Confidence risk

- Consumers are increasingly demanding. Beyong the aspects of quality which are generally well managed by food industry, consumers are raising new concerns about food safety.


Crop production

FINANCING SUPPLY CHAIN MODEL : TOMATO PRODUCTION

Bank Lender & financials services provider

(CNCAS)

Small farmers/tomato production(CNCFTI)

Tomato Processing Company(SOCAS)

Cha

ring

risk,

info

rmat

ion

Fina

ncia

l ser

vice

s Payments through

account

Information on program

me

Production contract

Fertilizers, seed entreprises traders

International, domestic markets

Collateral fund50/50

Loan


APPROACHES DEVELOPED ?

Financial services proposal

• Principle : Flexibility instead of rigid criteria• Account deposit for individual and group farmers• Loans for group farmers (social group solidarity)• Special conditions of financial contracts (interest rate, low deposit mobilization)

Non-financial sercices

Training rural populations particularly farmers and leaders. Intensive participation of CNCAS’s team in meetings, trade exhibitions, annual

reports organised by farmers associations and local development Projects.

To be active member of some farmer’s organisations

CGER (Farmers management center)

To be partner of the government (implementation policy sector, fund raising for agriculture, impact of subsidies on rural credit)


RESULTS

SUCCESS STORIES

Relations between farmers’ organisations and financing performances

CropsCompanies (factories)

Farmers organization

Number of small

organizat°

Number of producers concerned

Average loan/year (M° cfa)

Repayment rate

Global rating

Tomato SOCAS CNCFTI 250 10 000 1 800 99% A+

Cotton SODEFITEX FNPC 1 918 60 000 2 500 95% A

Rice - CIRIZ 850 50 000 2 800 89% B

Peanut SUNEOR CNIA 980 700 000 1 500 85% C

CNCFTI : Collateral fund mobilized 1 CFA per each Kg of tomato bought (0.5 F by farmers, 0.5 F by SOCAS)

CNCFTI and FNPC are both delivering technical and commercial services to their members

Closely partnership (PPP) wich is benefit for all the relevant actors.


Bank/ consumersInternational market

Off shore bank

SGS/ACE/COTECNAInspection Companies

Pool local bankCNCAS

Industries (processing, stock)

SUNEOR

TradersLogistic transport

Small farmer producers(peanuts)

COMM0DITIES

LC

CNCAS

Loans

Loans for inputs

Quality/quantity goods

Collateral

management

Agreement (CMA)

Off shore Loans

Loan

Payment

Payment

Repayment local bank


CONSTRAINTS

CONSTRAINTS

Dependence on government support (subsidies programs)

Committement of Processing Companies is determinant in terms of visibility and getting easily loans and input (seeds and fertilizers) and selling their productions.

Absence of suitable collateral for farmers

High risk of default associated with small operations

Markets fragmentation (low volume of crop production)


LESSONS LEARNT

RISK MANAGEMENT HAS BECOME ONE OF THE MAIN

CONCERNS OF OUR AGRICULTURAL PRODUCERS

• Technical risks of production tend to be increasingly controlled thanks to science and technology. Other types of risk have grown in importance in recent years (price volatility, quality requirements).

PUBLIC INTERVENTIONS ONLY ARE NOT SUFFICIENT AND POLICIES SECTOR MUST BE MORE EFFICIENT

• Among relevant formal financial sector (Central bank, commercial banks, insurance companies), only Agricultural Banks are actively engaged in providing credit to farmers (Support from the government and/or external donors).


CHALLENGERS FOR FUTURE ?

USING MODERN FINANCIAL INSTRUMENTS IS NECESSARY

Commodities in stock are a safe collateral, at least if the stock are safely managed by a credit institute or an independant warehouse operator.

• Crop collateral : small farmers can create crop collateral together for non-perishable produce in proper conditions under joint control with a credit society.

• Warehouse receipts : this gives banks enough comfort to finance transactions, and producers to get engaged in inter-seasonal storage to take advantage of seasonal price changes.

Support regional project on Commodities Stock Exchange in West African Union.


CHALLENGERS FOR FUTURE ?

PROMOTING AGRICULTURAL INSURANCE COMPANY INITIATIVE

• CNAAS : recently created in PPP approach (shareholders capital = 35% public sector 65% private insurance companies).

• Challenge

“Design an alternative, efficient and cost-effective crop failure insurance program that can be easily reinsured and distributed to individual farmers : small, medium and large”.

• ‘A new way in CIMA area’ : first experience in W&C Africa• Operational mechanisms (partenership and products)• Index crop or livestock insurance as collateral to lenders• A pilote is structured with World bank and parteners • Place of microinsurance and reinsurance ?


Developing a program

- Identify significant farmer exposure to weather

- Quantify the impact of adverse weather on their revenues

- Structure a contract that pays out when adverse weather occurs

- Execute contract in optimal form to reinsure the risk in the international markets. (Sustainability of agricultural insurance products)

Donors have large opportunities to support this new initiative.


THE END

THANK YOU


OTHER USEFUL INFORMATIONS

LIST OF ACRONYMS

CNCAS : Caisse Nationale de Crédit Agricole du Sénégal

SODEFITEX : Société de Développement et des Fibres Textiles

CNCFTI : Comité National de Concertation de la Filière Tomate Industrielle

SAED : Société d’Aménagement et d’Exploitation des terres du Delta et du Falémé

SOCAS : Société des Conserves Alimentaires du Sénégal

CNIA : Comité National Interprofessionnel de l’Arachide

ANCAR : Agence Nationale de Conseil Agricole et Rural

SUNEOR : Société Nationale des Oléagineux du Sénégal

CNAAS : Compagnie Nationale d’Assurance Agricole du Sénégal

Website cncas : http//www.cncas.sn

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