agriculture risk sharing - african development bank · 2019. 6. 29. · 7 workshop on establishing...
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Workshop on Establishing an African Agriculture Risk Sharing and Financing Mechanism
12 – 13 July 2016 • Safari Park, Nairobi, Kenya
Agriculture Risk Sharing Facility
2 Workshop on Establishing an African Agriculture Risk Sharing and Financing Mechanism
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cilityKey facts about Risk Sharing Facility
• X 5-10 Banks Balance Sheet
• Bank capacity in Agriculture lending
• Profitability of Lending to higher risk farmers
• Structures & Organizes Financial Value Chain
Financial Institutions Agriculture sector
• Interest rates for Small Holder Farmers-risk adjusted
• Productivity
• Structures & Organizes Agricultural Value Chain
Technical Assistance
Insurance Products
Success factors
3 Workshop on Establishing an African Agriculture Risk Sharing and Financing Mechanism
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cilityHolistic approach to agricultural lending
Value chain approach
Interventions of financial pillars
(Direct and indirect levers)
Effect of key agricultural value
chain
Impact on lending
Impact on agricultural development
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cilityRisk sharing mechanism… An innovative approach
to agricultural development
Improve the agricultural value chain
Public Goods support: Roads, irrigation, R&D, storage, price stabilization, etc.
Commodity Products
FarmersAgro
dealersSeed
companiesFertilizer
companiesAgro
processors
Industrial manufactur
ers
Tradeand exports
Seasonal Financing
TermFinancing
• De-risk the financial value chain• Unlock commercial financing for agriculture
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Reduce Risk for Commercial Banks
Leverage excess liquidity into Agriculture
Build Agricultural Capacity of Banks
Increasing Outreach of banks into rural areas
Ensure a systematic change in agricultural lending
Game changer on agricultural development
An in-country RSF will….
6 Workshop on Establishing an African Agriculture Risk Sharing and Financing Mechanism
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cilityARSF would activate direct and indirect levers to lower the
expected loss levels with increased financing needs
Direct levers
Risk sharing1 •Where a Fund takes on a % of losses reducing risk faced by banks
Insurance2 •Hedges against variability of cash flow improving the farmer’s ability to pay
Technicalassistance
3• Enables better agricultural credit appraisal by lender, reducing risk costs
• Improves borrower’s ability and willingness to pay by teaching financial management
Further incentives4 •Gives banks awards to build long term agricultural lending capabilities (e.g. agricultural credit appraisal)
Indirect levers
Supporting the value chain
5•Value chain investment coordinated to ensure producers have a market for produce and thereby lower expected losses• Encourages states to provide key enablers e.g., infrastructure development
7 Workshop on Establishing an African Agriculture Risk Sharing and Financing Mechanism
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cilitySharing the risk with the RSF: an example
SegmentShare of loss taken
by fund
Risk sharing mechanism
Large
Pooled
50%
First loss (up to 12.12.5%)
FarmersDeal-based
80%
Agri-business
LogisticsAgri-
business50%
Deal-based
30%Deal-based
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cilityRoadmap for establishing an in-country RSF
Design the facility
Sensitization meetings
RSF pillars
key value chains
policy enablers
Validation stakeholders
Facility establishment
Fund economics and fund size
Actual fund set aside
Roll out
Launch
Actual implementation
Thank you