access to agricultural finance

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


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


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


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


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

3

2

1

5

4

3

2

1

prof

essi

onal

ism

Do more professional POs have better access to finance?

SCOPE scores


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


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


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


Through the assessments, we can build an ecosystem that graduates POs towards professionalization and links them to finance, markets, inputs or services

5

4

3

2

1

5

4

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2

1

Leve

l of p

rofe

ssio

nalis

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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


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


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


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


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


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

Copyright SCOPEinsight 2014 14

STRATEGIC PARTNERS

Project partner

WE WOULD LIKE TO THANK

Network partner

Project partner


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?

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