scaling up agricultural finance - … · some factors affecting agricultural ... farm productivity...
TRANSCRIPT
SCALING UP AGRICULTURAL FINANCE
Can Small Scale farmers be financed on commercial basis by a Financial Institution?
The Case of KCB BANK RWANDA LTD
Presentation profile
1. Rwanda’s Agricultural scene
2. Agricultural Lending
3. Value Chains as a business approach to finance
4. Addressing farmer issues
5. Success stories
Rwanda’s Agriculture Sector Highlightso About 79% of land classified as Agricultural
o More than 80% population engaged in
Agriculture
o Agriculture accounts for a third of Rwanda’s
GDP
o The sector meets 90% of the national food
needs
o Sector generates more than 50% of the
country’s export revenues
o National average holding of 0.76ha: Small
holder farms
Sector Highlights: The future• Agriculture is expected to
grow from 5.8% to 8.5% p.a. by 2018.
• People living under primarily agriculture sector expected to reduce from 34% to 25% with focus on agro processing
• Agricultural exports expected to increase in average from 19.2% to 28% p.a. and imports to be maintained at 17% average growth
Sector Highlights: Government InitiativesAgricultural Policy: Strategic Plan for Agricultural Transformation
Currently at Phase III (2013-2017) with 4 programs.
Agriculture and Animal Resource Intensification
• Soil Erosion Control
• Irrigation and Water Management
• Agricultural Mechanization
• Soil Fertility and Management
• Agricultural Inputs Development
• Nutrition and Household Vulnerability
Research and Technology Transfer, Advisory Services
and professionalism of farming
• Research and Technology Transfer in Agricultural sector
• Extension and Proximity Services for Producers
• Farmer Cooperatives and Organizations
Institutional Development & Agricultural Cross-Cutting
Issues
• Institutional Capacity Building
• Agricultural Communication, Statistical Systems, M&E and Management Information Systems
Value Chain Development and Private Sector
Investment
• Private Sector Investment Promotion
• Development of Priority Value Chains
• Agriculture finance
• Market oriented infrastructure
Some factors favoring agricultural lending in Rwanda
o Government initiatives:
Policy and Strategy on Agricultural Finance
Agricultural Guarantee Funds
Post Harvest Infrastructures
Irrigation and Mechanization Initiatives
o New markets to explore
Large % of population in Agriculture Sector
Some factors favoring agricultural lending in Rwanda (contd.)
• Private ownership of land
• Large % of Agricultural Land to total land
• Two seasons (A & B) per year for food crops and season
C on irrigated land
Some factors affecting agricultural lending in Rwanda
o Smallholder farmers implying
low scale of production
o Weather related risks
o Quality constraints
o High transaction costs
o Lack of strong collateral for
smallholder farmers
o Lack of succession plans
o Side selling culture
o Lack of storage facilities
o Lack of Technology for small
scale farmers (Irrigation system)
o Price fluctuations
o Lack of records (Management
issues): lack of financial
information, no credit history
KCB Business Model : Agricultural value chain financing
o Partnering with different actors
within the value chain:
Agricultural inputs suppliers,
Agricultural Insurance Providers,
Technical Support Providers (technical
assistance, quality assessment),
Processors and buyers among others
KCB Business Model : Agricultural value chain financing (cont’d)
o Promoting Innovation in Agricultural Finance:
Agricultural Insurance Cover, Inventory Credit
Facility among others
o Reducing Agribusiness loan applications Turn
Around Time (TAT) to 24 hours decision.
o Applying Banking Standards: KYC, Credit files,
reporting to Credit Reference Bureau (CRB),
among others
KCB Business Model : Agricultural value chain financing (cont’d)
o Putting in place an Agribusiness
Unit and recruiting staff with
Agribusiness expertise
o Training of all staff involved in
lending on Agricultural Lending
model
Agricultural Lending to small farmers – KCB Business Model workflow
Agriculture financial need
assessment
Risk assessment and mitigation
measures
Partnership formation
Product development
The key is to identify the supply chains & integration with a large number of producers
o Agricultural inputs suppliers: work with companies which supply
seeds, fertilizers pesticides to farmers: the loan for purchasing
these inputs are directly paid to the suppliers
o Identifying farmers under cooperatives : based on the level of
management, crops, season, infrastructures available, experience
The key is to identify the supply chains & integration with a large number of producers
o Identifying services providers: Insurance companies, technical
support provider, quality assessor, among others
o Identifying the buyers of the produce: Specialized buyers at local
level (Government, Private Processors, World Food Program
among others)
Solving the small scale farmer’s issues
Solving farmers’ issues (contd.)
Client Assessment
Legally registered;
Farm Management and/ or Cooperative Management;
Experience in Agricultural operations (minimum 2 seasons)
Experience in banking and lending
Clean CRB report
Improved and certified agricultural inputs use
Market availability and price fluctuation consideration
Competitive advantage of the value chain and cooperative
Client Assessment (cont.)
Operating margins and cash flow consideration;
Agricultural knowledge capacity of management and technical
team;
Farm productivity compared to the national average within the
value chain;
Postharvest handling and storage knowledge and availability of
the storage infrastructures;
Collateral and second source of repayment;
Loan approval and monitoring process
Loan approval process:
Collection of required documents from client (Done by branch)
Loan analysis by agribusiness banker and recommendation by
branch manager
Risk assessment by credit analyst and recommendation for
approval
Approval of the facility at different level depending on the loan
limit
Loan approval and monitoring process (Cont.)
Post approval process:
Legal documentation (offer letter/ loan contract drafting)
Security Registration process;
Disbursement of the loan by disbursement unit;
Monitoring process :
Dairy monitoring of loan performance by RM;
Monthly reporting on loan portfolio performance;
Post disbursement regular visit of the farm/ business;
Portfolio Performance
Increase of loan portfolio from Rwf 200 M (USD 270,000) to Rwf
1.5 Bn (USD2M) per season for small farmers with target of Rwf 3
Bn (USD4M) per season in 2016;
NPL ratio of 1.75% (less than Central Bank of Rwanda NPL ratio
recommendation of 5% )
Migration of portfolio to bad debt of 0.01% per season
KCB Bank Rwanda success stories
o 28,263 smallholder farmers have received loans from KCB under
the model in Maize, beans, rice, soybeans, Irish potatoes value
chains.
o 10 partnerships in place: IFC, AFR, IFDC, RDO, BDF, RWARRI,
SPARK RWANDA, CHAI, MINAGRI, UAP Insurance.
o 5 Loans products designed: agricultural inputs financing,
Inventory credit facility, Contract finance, Invoice discounting
and investment loan facility
KCB Bank Rwanda success stories
o KCBR is the first commercial bank to introduce Inventory credit
facility in Rwandan market.
o KCBR is the first commercial bank to introduce agricultural
insurance on the Rwandan market
The Model creates value to all stakeholderso KCBR smallholder farmers loans increased from Rwf 200 M to Rwf
1.5 Bn per season in 2014 (1 USD / 750 Rwf).
o The side selling has reduced and farmers are now supplying
harvest to cooperatives.
o 61 Cooperatives have been linked to the formal markets
o Cooperatives started building their own storage facilities due to
the increase of sales and profit.
The Model creates value to all stakeholders(contd.)
o Farmers are assured of access to markets: MINAGRI, WFP, local
specialized buyers
o Farmers start doing agriculture as business on commercial basis
o Farmers gained more knowledge from service providers:
Quality of harvest improved, post harvest losses reduced
o The financial records are available to the users
o Farmers are now insured
Summary of key lessons learned Developing new products and services that better meet farmers
needs is important:
The Bank needs to have specific products targeting agricultural value chain operators as agriculture related businesses have their own specificity
Having services and products for agricultural clients is important, but not sufficient to acquire new clients:
Adequate training of staff is critical to enable them to sell loan products to agricultural clients effectively
Address issues quickly to meet customer expectation (dealing with seasonal business)
Summary of key lessons learned Lending to smallholder farmers needs intervention and support from
different stakeholders
The bank does not enough technical and financial capacity to mitigate allinvolved risks in smallholders farmers financing and the support fromstakeholders as risk mitigation service providers are critical.
Bank senior level commitment is key of agricultural finance success
Having agricultural lending strategy, policy and budget allocation is key foragricultural lending initiative success;
Government intervention and commitment to support agricultural sector is veryimportant
Government willing to promote agricultural value chain finance and theinvestments done in agricultural somehow reduced the risks to lend tothe farmers
28
Selected 11 Farmer
Cooperatives
KCB Rwanda
Partner Bank
IFC Portfolio Client
Off-taker Final Buyers
Government of Rwanda
Rwanda Development Organization
5. Technical Assistance
Advisory Services
Sponsor
UAP Rwanda
Crop Insurance
IFC Portfolio Client
3. Direct Payment
3. Direct Payment
Input Suppliers
4. Input (Seeds,
Fertilizer)
6. Maize, Soy Beans8. Payment to
Collection Account
3. Loans
8. Payment
7. Maize, Soy Beans
2. Risk Sharing Facility
Credit Line
1. Origination
Advisory Services
Rwanda Agricultural Board
Rwanda
Cooperative Agency
9. Repayment
SHOWCASE: RWANDA FARMER FINANCING FACILITY
Farmer financing facility with KCB Rwanda in
support of local farmer cooperatives that will
supply maize and soybeans to the DSM plant
through Off-take arrangements.
YES! Small Scale farmers can be
financed on commercial basis
by a financial institution?
George Odhiambo
Head of Business Development & Client Services
KCB BANK RWANDA LTD
A subsidiary of KCB BANK GROUP
www.kcbbankgroup.com
THANK YOU