financing mechanisms for rural livestock & dairy sector players by ariong abbey
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Financing mechanisms for rural livestock & dairy sector players
Ariong AbbeyTechnical Advisor, Market Access
Land O’Lakes International Development
Financing Mechanisms for Rural Livestock & Dairy Sector Players
Ariong Abbey Technical Advisor, Market Access
Division of Land O’Lakes Inc. founded in 1981, that leverages corporate experience and expertiseOur Vision: To be a global leader in transforming lives by engaging in agriculture and enterprise partnerships that replace poverty with prosperity and dependency with self-reliance.Our Mission: Help farmers around the world improve incomes and quality of life.
Who We Are
Where We Work
Practice Areas Crops Dairy/Livestock Market Access Food Safety and Quality
Assurance Resilience Enterprise Acceleration
What We Do
Gender Environment Nutrition
Cross-cuttingAreas of Practice
Rural Finance inLivestock Development
For livestock owners, animals are: Food Capital A means of transport Crop inputs such as draft power and
fertilizer
Investments in livestock provide the following:
Crop inputs Cash flow through sales Seasonal security (short & long term) Contribution to export earnings
Increasing production
Asset formation
Poverty alleviation
Enhancing income and food security
Creating sustainable rural development
Improved Access toFinancial Services’ Vital Role
Benefits to livestock owners
Rural development
Risk management
Mitigation strategies
The Importance of Effective,Reliable Financial Services
In Uganda, agriculture …forms the main source of livelihood.
Farmers’ Income fromAgricultural Sectors
Common Activities RequiringFinancial Services
Livestock distribution
Purchase of units
Water supply systems
Transportation of produce
Establishment of livestock related microenterprises
Factors CausingPoor Outreach in Rural Areas
Increased transaction costs
The lack of titled physical collateral
Financial products that are not tailored to local circumstances or to client needs
Poor understanding of the local demand
Financial institutions’ failure to adequately assess overall financial risk
Failure to understand and incorporate the priorities, choices and views of livestock and dairy farmers
Credit Delivery
Smallholder livestock and dairy farmers with crossbred cows have higher needs
Borrowers have different needs in different locations
Must make an accurate assessment of farmers’ liquidity position
Functioning and sustainable credit delivery systems are required
Take into account market participation and savings mobilization
Subsidized credit programs have led to misallocation of resources
Previous and Current Channels of Rural Investments in Uganda
Functioning Markets andMarket Linkages
Products that have unpredictable or volatile markets cannot sustain the demand for financial services. When milk yields are high, milk prices often crash and negatively affect dairy producers’ ability to repay loans.
When producers and traders are restricted from accessing markets for their commodities because of disease outbreaks, it negatively affects their ability to borrow or repay.
Market linkages, when well functioning, can improve demand for financial services in that margins are predictable and recovery of credit is easier.
Types of RegulatedFinancial Service Providers
Commercial banks
Development banks
Agricultural banks
Micro deposit-taking institutions (MDI)
Government
Microfinance institutions (MFIs)
Building societies
Credit cooperatives (SACCOS).
Types of Non-RegulatedFinancial Service Providers
In Uganda, agricultural lending by regulated financial institutions increased by 10% in 2012
Commercial Banks: (94% lending to agriculture) Centenary Rural Development Bank DFCU Stanbic
Microfinance and credit institutions: (6%) SACCO’s Uganda Central Co-operative Financial Services LTD
(UCCFS)
Current Opportunities in Agricultural Lending in Uganda
Development partners: Abi-trust Africa Enterprise Challenge Fund (AECF)
Equity Funds: Africa Agriculture and Trade Investment Fund (AATIF) Agri-Vie Agribusiness Fund Annona Sustainable Investment Fund Voxtra East Africa Agribusiness Fund
Guarantee Funds: Agricultural Credit Facility Agricultural Loan Guarantee Company (ALGC) - Abi
Trust
Current Opportunities in Agricultural Lending in Uganda
Uganda Financial ServicesAccess Strand
Where Ugandans Borrow
Financial Products
Financial products— must have at a minimum design features
Working capital loans—livestock farmers may borrow for feed, labor or transport
Term finance—these loans are longer term, normally repaid over a period of several years
Leasing—the borrower receives a loan as the productive asset itself
Cash Management andInsurance Products
Overdrafts
Factoring
Insurance
Credit in kind
Financial literacy
Key Points to Note
The use of financial services—is more efficient when the structure of the loan term is tailored to meet the needs of livestock producers, processors, traders, etc.
Loan duration and repayment—conditions should be related to the size of the loan, the nature of the activity to be financed, the cash flow pattern it generates, and the risks involved.
Focus should be given on saving mobilization—charging lending interest rates on a market basis and financial sustainability of the lending institutions.
The effectiveness of the delivery—of financial services to livestock producers and their enterprises also depends on the legal and regulatory environment in which the finance providers operate.
Improved integration—in the value chain improves access to finance. Modern value chains require traceability meaning farmers and processors working closer together. An integrated value chain enables banks to develop value chain financing (VCF)
Thank you!
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