Agri-Hub Zambia

Promoting farmer entrepreneurship

One issue that came out during the APF Multi Stakeholder Meeting was the need to improve access to (value chain) finance.

 

Most APF members have something to offer in this regard, be it knowledge, services or finance. SNV, Cordaid, Woord en Daad, KIT and WUR feel that a series of practical workshops focused on access to finance can be concrete actions to implement the value chain specific action plans and/or to sharpen them further.

It will also be a good opportunity to start an action learning process.

 

Which type of finance for whom?

In all segments of the chain, there is need for a specific financial product, with a specific purpose.

  I              Producer Organisations (producers) need inputs before they start growing/ rearing their crop/ cattle and cash once their produce is ready. Possible ways of addressing the needs of the producers are:

¨        Self-finance by the producer organisation (e.g. by raising shares); +low costs, no collateral, - limited amount possible, - trust and discipline needed in the groups

¨        Linking to Micro Finance Institutes and Credit Associations for        financial product for input provision; +higher amount possible, dealt with specialised organisation, -high costs, -low probability of rural MFI product in Zambia, -often collateral needed

¨        In kind loan from company (inputs in trade for selling produce); +easy arrangement, - dependency on company (price for product might not be optimal)

¨        Mobile banking services should be included in a rural finance approach. Being able to do money transfers to suppliers of inputs and/or receive money from buyers is an essential and efficient service in areas where there are no banking services.

¨        Warehouse receipt?

¨        Rural finance goes beyond financing inputs. Farmers also have a need to invest farmer implements, irrigation systems, etc. and investment finance is different from financing inputs/crop financing.

 

II             Traders need trade finance to be able to buy the produce (plus transport etc) and can pay it back once they have sold the produce

¨        Loan of bank; + higher amounts, - lengthy procedures, - difficult conditions (collateral). However overdrafts on current accounts are straightforward and quick but expensive though.

¨        Loan of MFI; + procedures more of less ok, -relatively high costs, - low amounts

 

III            Processors need (trade) finance in order to buy enough produce to make the calculation adding value and selling profitable. They also are in need of finance for long term investments (e.g. improvements of factory etc)

¨        Loan of bank; + higher amounts, - lengthy procedures, - difficult conditions (collateral)

¨        Loan of MFI; + procedures more of less okay, -relatively high costs, - low amounts

¨        Loan of development organisation; +lower costs, + better conditions, -lengthy procedures

¨        Loan of non banking institutions like leasing corporations and financial intermediaries. (lease / equity finance)

 

IV           Wholesalers and exporters also have financial needs but they usually have access to commercial capital. That is why we will leave them out of the scope of this workshop.

 

For documentation we refer to the Theme page:

http://apf-zambia.ning.com/page/access-to-finance

 

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I am convinced that any model for sustained agri-business finance needs to ride on a firm entrepreneurship development platform.

Let me start by quoting from the recent research & presentation by PROFIT (entitled rural/value chain finance)

"PROFIT recommends banks improve their agricultural portfolios:
- Banks should train lenders in the fundamentals of agricultural economics in Zambia;
- Create specialised agricultural units with in-house agricultural risk assessment skills; and
- Engage the agricultural sector to improve understanding, increase information flow, and assess risks;
- Develop and test new financial products and lending approaches to spread, manage and mitigate risks.”
- Develop the agricultural insurance market & hedging mechanisms that explored the use of international lines of credit; and
- Risk mitigation to improve financial management in the sector

PROFIT observed that agricultural finance can be profitable in Zambia if specialised, innovative approaches are adopted as banks in other countries had demonstrated."

Picking it up from the last sentence above, which sums up much of what is discussed earlier, I think that we don't seem to be addressing issues of mindset in most of our efforts.

This is clearly a more complex realm to operate at. There are also greater perceived possibilities of not being able to easily count the numbers that many intervenors often want to pick up at the end.

There is need to facilitate shift towards a more entrepreneurial mindset at different levels in the finance chain.

The supply side seems unsure of how to move into the agricultural sector in such a way as to make money whilst adequately managing risk. Because of this, they seem to opt to stay out or tread so carefully that nothing really happens for them or for anyone else for that matter. It ends up being a cost-adding process that is soon discontinued!

The demand side has two main challenges:
1. They are still struggling with being able to clearly identify agricultural opportunities to exploit profitably (that is assuming they have indeed already seen agriculture as big business). The opportunities are certainly there, but it is often we the intervenors that clearly see them. We then try to show them to our target groups - which is, in my view, where we often miss it. We need to help them walk through the process we went through before arriving at a stage where we can see the opportunities. This is what entrepreneurship development does.

2. They don't seem to be able to place finance in its proper place - as a catalyst. It is often taken for granted that, with a bit of financial management training, rural farmers will learn how to work with money (in agribusiness) to make more money. This ability is not a matter of financial management but mindset - linked to the level of entrepreneurship.

On the regulatory/policy/practice front, we have a landscape that does not seem to encourage innovation in agriculture and in the provision of finance. It is often difficult to see long-term thinking in the way government intervenes (or, in some cases, doesn't) in the agricultural sector.

There just seems to be this lack of conviction with regard to the deep and vast opportunities available for all in a well-financed and functioning agribusiness sector. I use the phrase " lack of conviction" and not "lack of clarity". A lot is clear. But why is it not translating to action?

Way forward:

Improving access to finance through the development of shared or commonly-held conviction of the potential opportunities that exist in a well-resourced agri-business sector.

I see a two-step process for achieving this
1. A demonstrative process that can showcase that this is possible. Identification of an appropriate combination of players from the demand, supply and regulatory sides that can, through a facilitated process, come to a common position and also be able to see each others perspectives/challenges.
2. Documentation of this process and dissemination with the view of enabling replication at a larger scale.

Let me stop here for now

We received this documentation via the Royal Netherlands Embassy:

- Demand-side analysis of access to financial services for businesses in Zambia, June 2010

- The profile and productivity of Zambian businesses, June 2010

 

Attachments:

Please find this highly interesting report by Fore Finance

 

Attachments:

Dear all,

My colleague Wim Goris started up an discussion on the Kampala Principles on the special Finance ning.

Please have a look and add your opinions and experiences too.

Christel

Please find this concept proposal to organise an event toward November 2011:

 

Market Place event in Zambia: Linking farmers to finance
Draft concept note

Background
It has abundantly been proved in studies and during reflections that the actors of the agriculture sector have poor access to finance, especially the smallholder farmers, but also other actors within the value chains, Within the Agri- Pro Focus platform in Zambia, a working group has been set up to address this challenge.
Apart from the lack of suitable financial products on the side of the service providers, and the lack of capacity of clients to meet the requirements, there is obviously an information gap between service providers and potential clients. Banks and MFI’s don’t have time to go and move throughout the villages to inform and prepare their potential clients about the requirements and conditions. Farmers fear to contact the service providers. Hence the lack of communication prevents bankable farmers to access the existing services and the lack of dialogue between both sides generates mismatch between expectations of farmers and the offers of the institutions.

The Agrifinance group of APF decided to organize in 2011 at least 1 market place event to facilitate dialogue between the financial service providers and the agriculture actors, especially the farmers. ZATAC will explore the feasibility of such an event in the XX region and prepared with Woord & Daad and Cordaid a draft concept note to initiate the process.
Purpose of the market place
Bring together financial service providers and potential clients to share information and dialogue in order to improve access to finance for actors in agriculture in the XX region.
Objectives
• To share information on the products of the financial service providers, and have a dialogue on their affordability and appropriateness for financing agriculture.
• To learn from good practices where the financial services match with the needs of farmers, processors and traders.
• To have better insight in the capacity and readiness of farmers and other value chain actors to access formal financial services and define the gaps.

Concept of the market place

The market place is an event of one or two days where financial service providers and potential clients will meet, dialogue, discuss and possibly do business.
The activities of the market are yet to be defined concretely around many questions.
On the focus of the event:
- Which actors of the value chain will the event target besides the farmers?
- Which service providers will be invited on which criteria? (banks, MFIs, SACCO’s…)
- Will the event focus on specific commodities?
On the methodology:
- Will there be possibility for the participants to discuss face to face their applications for a loan with individual service providers? And used as learning cases for others. The follow up will be used to document the process
- Will there be a workshop-like session where some concrete applications will be studied and discussed for learning (business plan, requirements and conditions of some service providers)?
- Will there be a forum for information and discussion on a number of issues relevant for the region, e.g. finance through contract farming, mobile banking services, warehouse receipt systems, role of microfinance, etc.?
- Will there be a presentation and discussion on best practices?
- Can we include a competition element?
- How can we make it part of a process? Action learning?
On the follow up:
- The event should not be a one off activity, but the first step in a regional process leading to other initiatives to narrow the gap between financial demand and offer. How and by whom?
- How to document the initiative for broader spread out of the achievements and lessons learnt?
Etc, etc.

Process to concretize the market place event

- The concept note will be finalized in order to mobilize interested actors in Zambia to support the organization of the event.
- A steering committee will be set up to define the concrete set up of the market event. The committee will integrate interested actors from the farmers organizations, service providers and support institutions. APF will try to get support of Knowledge institutions to assist us with the process design.
This committee will concretize the design of the market place event (content, date, choice of the participants, guide the implementation process, make a budget and assure resources, etc.) and the role of the committee members.
- Is there a need to prepare the event by mapping on beforehand the financial service providers in the region to make the selection of participants?
- External support can be sought for the implementation, e.g. including master students of Mulungushi University (as WUR-Alterra has built a relationship with the university) and/or contract a consultant. Can KIT (Royal Tropical Institute of the Netherlands) give support?
- The Agrifinance group of APF will follow up and give feed back to the process in the chosen region.

Timing

- Feed back on the draft concept note during the meeting of the Agrifinance group on 20 September 2011.
- Circulate the concept note and forming the steering committee in September.
- First meeting of the steering committee 2nd half of September.
- The market place event will probably take place in November 2011, preferably around the NABC trade mission to Zambia (6-10 Nov) (see http://apf-zambia.ning.com for details).

Mobile Banking expands at Standard Chartered: http://www.ruralfinancenetwork.org/pages.php?p=58&r=0&optio...

Dear all,

Thank you all for reading and/or contributing to the discussion on this ning. Time to share follow-up:

  • I mentioned the Dutch debriefing event (30 August). Here are the minutes. These minutes and comments on Kampala Principles were also shared with MFW4A- the organizers of the Zipping farmers and finance event.
  • The MFW4A follow-up included an event in Addis Ababa Ethiopia: Making Finance Work For Africa 2011 Partnership For Africa, held 15 and 16 september. Participant Christine Ngugi is kindly sharing her notes of the Addis event (attached).
  • Read more about the preparations for a MFW4A AgFin working group that will work on finance policy recommendations; support/link to CAADP plans; and finance knowledge management.

Have you been at the Addis conference? Any questions to participants? Feel free to share your views too !

Kind regards,

Wim Goris

Christel Schiphorst said:

Dear all,

My colleague Wim Goris started up an discussion on the Kampala Principles on the special Finance ning.

Please have a look and add your opinions and experiences too.

Christel

Hai Christel

FnB has come up with loans agriculture loans that would be given to farmer to buy equiment chemicals and seed the farmers would only access such a service if l go on the ground l write a report to the bank after l advise the farmer on what crop he /she needs to buy and l put out r progrem of the farmers on chemcals and budget for them

Agri-ProFocus said:

Dear all,

Thank you all for reading and/or contributing to the discussion on this ning. Time to share follow-up:

  • I mentioned the Dutch debriefing event (30 August). Here are the minutes. These minutes and comments on Kampala Principles were also shared with MFW4A- the organizers of the Zipping farmers and finance event.
  • The MFW4A follow-up included an event in Addis Ababa Ethiopia: Making Finance Work For Africa 2011 Partnership For Africa, held 15 and 16 september. Participant Christine Ngugi is kindly sharing her notes of the Addis event (attached).
  • Read more about the preparations for a MFW4A AgFin working group that will work on finance policy recommendations; support/link to CAADP plans; and finance knowledge management.

Have you been at the Addis conference? Any questions to participants? Feel free to share your views too !

Kind regards,

Wim Goris

Christel Schiphorst said:

Dear all,

My colleague Wim Goris started up an discussion on the Kampala Principles on the special Finance ning.

Please have a look and add your opinions and experiences too.

Christel

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