Presentation on theme: "Calvin Miller - Senior Officer, Rural Finance"— Presentation transcript:
1 Calvin Miller - Senior Officer, Rural Finance Holder of M.S in Agricultural Economics, currently Senior Officer for Rural Finance in FAO, has over twenty-five years of worldwide experience in economic development, in the design, implementation and evaluation of financial services programs and institutions, production and marketing, and institutional development.Has extensive experience in agricultural value chain development and finance for both national and international markets.Has worked as the Country Manager of MEDA in Bolivia and carried out many international consultanciesMr. Miller provided leadership and technical support for over 200 CARE micro and small enterprise, and agriculture and natural resource projects in over 40 countries.He also founded and developed, MicroVest
2 Perspectives of Value Chain Finance in Africa Agri Forum: Value Chain Finance ConferenceNairobi, Kenya 16 – 18 October, 2007Calvin MillerFAO Rural Finance Senior OfficerRome, Italy
3 Presentation Profile The changing agricultural scene Using strategic alliancesValue chains as a business approach financeInnovationsAddressing riskLessons and policies
4 New Agriculture Driven by Dynamic Markets World Dev. Report: DeJanvry
5 An Evolving Agriculture: Supermarket vs Subsistence Farming with Open Markets and Cell Phones Market integration and specificationConglomeration of market leadersOpen trade with international y regional competitionSegmented demand with stringent standards and conditionsInstant access to informationBut also,Subsistence agriculture, food aid and HIV-AIDSLa fuerte entrada de los supermercados
6 Stages of Agricultural Finance Donor Microfinance Era(1980 a 2000)Rapid, small working capital loansGroup lending approachesFocus on non-agricultural activitiesForces groups savingsSeparation of financial services and business support services.High cost of microfinanceAgricultural Credit Era(1950 a 1985)Directed production creditSubsidized creditHigh transaction costs of lendingHigh loan lossesGovernment and donor refinanced lines of credit through agricultural banks and othersInformal family and trader finance for small farmers
7 Stages of Agricultural Finance (cont.) Commercialization of MFIs(2000 to present)Formal MFIsLittle subsidyMultiple ProductsExpansion and competitionNew technologiesInterest by capital market investors and lendersValue Chain Finance (2005 to present)Strategic focus on market potential of businessesLinkages among suppliers, producers & marketing companiesGrowing importance of standardsGreater use of risk mitigating toolsGrowing integration between banks and businessGrowing use of new technologies.Many banks, finance companies and MFIs are adapting their credit methodologies and adopting technologies to help them configure products that are adequate, efficient and profitable. Other organizations are seeing their traditional agricultural portfolios become standardized, and have diversified their portfolio risk across crops and products. This workshop will explore new trends in agricultural credit methodologies and risk diversification strategies that MFIs are applying and how this is shaping their overall growth strategies.
8 Some underlying challenges affecting rural finance DemandHow to increase economic opportunities?How to build farm management capacity?How to mitigate risk?SupplyHow to cost-effectively introduce flexible and longer term loan products?How to promote effective management?How to mobilise support for sound financial markets?How to increase economic opportunities for the rural poor?How to build management capacity – of rural entrepreneurs to use finance effectively?How to mitigate risk – production and price risk in agriculture?How to cost-effectively introduce more flexible and longer term loan products?How to lower costs and promote effective management – of diverse rural Financial Institutions?How to mobilise support – for sound interventions in financial markets and not ones based on political expediency?
9 Multiple Services; Multiple Providers MFIsCommercial BanksOverdrafts/Credit LinesTransfer PaymentsMarketing CompaniesCredit Unions & SACCOSSavingsLoansInsuranceInsurance CompaniesDifferent institutions and businesses provide differing but overlapping services and products – each is competitive in some areas and less so in others; Hence, stategic alliance linkages offer increased efficiency and competitiveness.InputsSuppliers and TradersLeasingFamily / FriendsEquipment Companies
11 3. Agricultural Value Chain Finance Linking finance with agriculture and agribusinessAligning and structuring finance with the chainMedium and LargeExporters and WholesalersProcessorsCollector/TradersFarmers & Producer GroupsStrategic engagement for common benefitInput Suppliers
13 Value Chain Finance Flows Enabling business & financial environmentFinancial and Information flowsInputsProductionProcessingDistributionConsumptionPhysical flowsFinance and supporting services
14 4. Technology Innovation Communication Technology M-PESA–Kenya; G-Cash--PhilippinesPurchases & salesCommodity pricesMoney transfersPaymentsPoint of Sale AccessATM & Smart CardsThe Economist, 15/02/07
15 Product and System Innovation Risk management tools; futures, hedgingWarehouse receipts financeFactoring y securitizationContact farming and outgrower schemesFacilitation Models (Ej. DrumNet)Integrated Models (Ej. LA-FISE)
16 5. Risk Analysis – Incorporating New Elements Client /business capacityRepayment capacitySecurity coverageCash flowMarket growth and riskCompetitivenessEstabilidad• Capacidad empresarial• Conducta de repago• Reputación en la comunidadFrom supply-driven “how we lend” to client driven “how can we structure finance to address client needs and risks”
17 Tools to Mitigate Market Risks Use of futures and optionsWarehouse receipts as well as warehouse storage capacityMarket information servicesContract farmingInsuranceAccess to technical assistanceSome risk management tools are more practical for agro- industries and wholesalers, but can stabilize prices and reduce risks for all producers and bankers.
18 6. Banks: New Perspective toward Agriculture Banks should invest money & knowledge in the agribusinessmarket trend knowledgeunderstanding of key risksalliance and linkage opportunitiesButBankers are not technical advisorsHelping farmers & agribusinesses achieve their goalsBusiness and Loan CounselLoans and ServicesConsultationLoan Analysis
19 Reality: New Mitigants are Required MeasuresMethodologyPrice RiskUse of market basedprice instrumentsCouple with LoanHedge own portfolio or LoanUse microfinance institutionsUse international Banks and brokerage houses as partnersCrop/Weather RiskIndex based weatherinsuranceRely objectively on specific weather eventsCompares yield to measurable, objective, correlated riskNeed conducive policy and regulatory environmentUse innovativestructuresCapture cash flowsUse “organized” intermediate agenciesCollateral RiskTA providers play a key role in ‘importing’ innovative successful practices
20 Government: Policies to Support Value Chain Finance Business capacity building and market integrationContract farming and out grower schemesTechnical capacity in market norms and standardsCommodity exchanges and active futures marketsInsurance innovation, data collection and initiationMarket information and accessInfrastructural investmentProduct and service innovation and diversityTechnology adaptation and accessProducer capacity building – Farmer field schoolsOrganization and business capacity buildingSupport contract farming – contract compliance; negotiation; client protection
21 Key Factors for Consideration market and industryclient and strategic partnersfund the chain at most strategic pointsinsure effective and transparent partnershipsinnovate with new technologies and productstake advantage of the value chainanalyze and structure loans properlyoffer timely, multiple and flexible financial servicesfocus on the client and businessUnderstandingAdministrationRiskServiceEl negocio financiero es un negocio de la información y conocimientoLa estructura y plazos deberá ser reflejo de la cadena; el análisis y evaluación en función de la eficiencia y competitividad de la cadena y los actoresSe debe tener formatos adecuados de analizar la información del cliente en forma completa y rápida y tener analistas que entiendan la problemática del agricultorEl banco puede ser banca como asesor de información y hasta eslabones de contactos para los clientes, como por ejemplo con eslabones con proveedores, empresas compradores y fuentes de información de riesgos e oportunidades. Además, se requiere servicios eficientes, a tiempo y en condiciones adecuados
22 FAO, Agricultural Department www.fao.org/ag Rural Finance Learning Centre