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NATIONAL MICROFINANCE BANK PLC “FROM FARM TO FOOD!” (Sustainable Lending to Agriculture in Tanzania: Challenges & Opportunities for the Financial Sector)

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Presentation on theme: "NATIONAL MICROFINANCE BANK PLC “FROM FARM TO FOOD!” (Sustainable Lending to Agriculture in Tanzania: Challenges & Opportunities for the Financial Sector)"— Presentation transcript:

1 NATIONAL MICROFINANCE BANK PLC “FROM FARM TO FOOD!” (Sustainable Lending to Agriculture in Tanzania: Challenges & Opportunities for the Financial Sector) Presented by Mark Wiessing 1

2 About NMB Presented by Mark Wiessing Privatised in 2005, listed 2008 From savings and payment “factory” to broad based universal bank Key segments:  Retail: Personal, Micro enterprises, SME  Wholesale: Corporate, Institutional, Government / Public sector, Agribusiness Key Products:  Liabilities: Current and Savings, Fixed Deposits  Lending: Salaried Workers’ Loans, Overdraft, Short Term Loans, Capex loans  Transactional: Payments, Trade, Collections  Treasury: Forex, Money Market NMB Plc – COFI Presentation: November

3 About NMB Presented by Mark Wiessing Distribution:  170 branches (25-30% of all bank branches in Tanzania)  600 ATMs (35-40% of all ATMs in Tanzania)  60,000 e-money cash points  NMB Mobile (1 million users) Total assets of $ 2.2 bi, total loans $ 1.1 bi, Market cap $ 1.3 bi Our Passion:  Financial Inclusion: 2 million customers  Rural Presence: 60% of branches are in rural areas  Agriculture and agribusiness: 26% of total loans are in food and agribusiness!! NMB Plc – COFI Presentation: November

4 From farm to food: The Recipe Presented by Mark Wiessing NMB Plc – COFI Presentation: November 2014 “Ingredients” Land Rain / Irrigation Farmer Input supplies Off taker Processor Trader Retailer Consumer 4

5 From Farm to Food: The Recipe Presented by Mark Wiessing NMB Plc – COFI Presentation: November 2014 “A well equipped kitchen” “Enabling Environment” Planning (the rains always start at the same time!) – Follow Crop Calendar As little Government intervention as possible, as much as needed Reliable input suppliers and strong off-takers (i.e. traders, processors..…) 5

6 From Farm to Food: The Recipe Presented by Mark Wiessing NMB Plc – COFI Presentation: November 2014 Clear “Cooking Instructions” Coordinated value chain actors – Chain leaders required Genuine & timely delivery of inputs Good Agricultural Practices especially on agronomy support Storage and market infrastructure “Serves” The world, population 7 billion – 9 billion by 2050! 6

7 Presented by Mark Wiessing NMB Plc – COFI Presentation: November 2014  “Farmers up in arms over “fake” seeds from agents”  “Unscrupulous importers force Kenya to hold up maize purchases from Tanzania”  “Adulteration of tobacco leaves irks councillors ”  “Crack down on illegal sugar imports on cards”  Cotton farmers threaten to strike over high seed prices but Government refuses to yield”  “Government stance on grain surpluses lacking market this week”  “Farmers assured over sale of surplus maize” 7 Recent Headlines

8 Presented by Mark Wiessing NMB Plc – COFI Presentation: November Recent Headlines “Invest more in agriculture, appeals Minister”

9 Presented by Mark Wiessing NMB Plc – COFI Presentation: November Mn Ha’s of Arable land - only 25% being utilized for agri-production Out of 44Mn Ha’s; 29Mn Ha’s are suitable for irrigation – only 1% irrigated 80% of the 45Mn Tanzania population earn living from Agriculture activities 28% of the Country GDP is contributed from Agriculture sector 7% expected economic growth Higher imports than exports indicates available Demand TZ among few Countries in Africa with highest agri-investment potentials 9 Tanazania’s Compelling Statistics: Macro

10 Presented by Mark Wiessing 16.8% of rural households use improved seeds - hence TZ farmers realizes less than 40% of world average yields 19.3Kg/Ha average fertilizer application rate as compared to 150Kg / Ha world average 92% of TZ farmers still use hand hoes and farm on average of Acres 6.5% of rural households have access to credit resulting to lack of WC to buy inputs, farm preparations and other costs 24% of the rural people have access to reliable all season roads - hence higher costs of transportation on average 83% of mkt. costs 35-40% post harvest losses due to little or no storage infrastructure 10 Tanzania’s Distressing Statistics: Micro NMB Plc – COFI Presentation: November 2014

11 Presented by Mark Wiessing ;; 11 Slowest Growing Sector NMB Plc – COFI Presentation: November 2014

12 Presented by Mark Wiessing NMB Plc – COFI Presentation: November 2014 Farm level  Lack of economies of scale  Rain fed, vulnerable to weather risk  Infrastructure / transport  Lack of affordable inputs  Low penetration of machinery  Low prices post-harvest  Lack of collateral/land title/capital  Lack of financial documentation  Lack of skills  Lack of understanding bank requirements  Weak cooperatives Institutional level  Unpredictable government services  Political intervention in agri markets  Lack of supporting legislation (e.g. warehouse receipt law contract enforcement) Bank level  Lack of understanding of agriculture markets  Large distance between bank branch and farmers  Mismatch in financial products and sector needs  High perceived risk in financing agriculture  Lack of long-term funding 12 Main obstacles for access to finance in agriculture

13 NMB Agriculture lending 13 Input Supplies Crop Farming Post-Harvest Transport & Processing Distribution & Export Retail & Marketing Pre-Harvest Finance Warehouse receipt collateral management Presented by Mark Wiessing 26% OF NMB TOTAL LOAN PORTFOLIO IS IN FOOD & AGRIBUSINESS AS AT END OF 2013 Post - Harvest Working capital Trade finance

14 NMB Agri-lending approach Presented by Mark Wiessing Corporate farms Commercial farmers Emerging farmers Commercial smallholders (cash crops) Subsistence farmers Traditionally bankable Traditionally unbankable Relationship approach, lending and capex needs, cross sell trade, forex Retail / SME approach with "agri twist" lack of financials, need for benchmarking, technical assistance on agro & financial skills Scheme based approach (eg out grower schemes), use coops for coordination and aggregation Via SACCOs, coops, saving based loan schemes, etc

15 NMB Agri-lending approach Strategic partnerships with leading chain actors Distribution network close to VC actor to borrower & monitor loans Modern / upgraded creditworthiness criteria (6 Cs – Character, capital, capacity, collateral, conditions, & credit history) Recruit strategic partner’s with capacity for agri-production support throughout the season Tri-partite agreements with leading chain actors to facilitate purchase of crops and pay on behalf of the farmers directly to bank Ensure support services, technical advice, on-going visits and monitoring Cash flow and knowledge based lending unlike purely asset based Need partners for risk sharing for more business opportunities Presented by Mark Wiessing

16 NMB Plc – COFI Presentation: November 2014  Dedicated agriculture team at Head Office  Dedicated agri loan officers in selected branches  Well defined primary agriculture segments:  Corporate, commercial  Emerging  Smallholder, outgrower  Selected crops only:  Cashew  Tobacco  Coffee  Rice  Sugar  Food and agri research team (FAR)  NMB Foundation for Agricultural Development (NFAD) 16 NMB Agri lending approach

17 Presented by Mark Wiessing NMB Plc – COFI Presentation: November 2014 Tobacco Crop input finance to 120 Amcos (with 200 to 300 farmers per group) Cashew Input finance, asset finance and warehouse receipt finance to 180 Amcos (with 200 to 300 farmers each) Outgrower Schemes Input finance based on offtake / contract farming agreements Sugar (10 associations with 1,000 members each) Paddy (18 associations / Amcos with 100 to 200 members each) Barley (20 emerging farmers) Commercial / corporate farms Only a handful of real commercial and corporate farms Some serve as nuclear farms supporting clusters of outgrowers 17 NMB Experience

18 Presented by Mark Wiessing NMB Plc – COFI Presentation: November  Satisfactory performance, though higher than average NPLs  Most Amcos credit facilities are approved without financials but with robust due diligence on planted acreage, input validation and coordination with input supplies and offtakers  Several value chain incidents have had significant impact o Tobacco: power struggles between PCs, Apex and Unions resulted in sideselling and frauds o Cashew: dispute on market prices, “bail-out” at higher than market prices resulted in sideselling and frauds o Rice / sugar: duty free imports and reported smuggling can significantly impact prices and result in severe adverse impact on commercial farms and outgrowers NMB Experience (continued)

19 Presented by Mark Wiessing NMB Plc – COFI Presentation: November Outreach 1,092 AMCOS, SACCOS, Farmer Organizations & associations trained Total of 291,607 members trained 6,306 Leaders trained Structure Training (governance, record keeping, cash flow preparation, loan management) Grants (dam construction, seedlings, computers) Delivery Through branches and NFAD dedicated officers in key agri-zones (visit farmers in their farms) Issues Effectiveness of governance training is low if not coupled with better agronomy standards NMB Experiences – NMB Foundation

20 Presented by Mark Wiessing NMB Plc – COFI Presentation: November Research topics & papers released End to end value chain analysis: cashew, tobacco, coffee, sugar, rice…. Etc Detailed seasonal crop budgets for loan officers Market outlook and trends for key crops Internal sector guidelines NMB Experiences – Research

21 Presented by Mark Wiessing NMB Plc – COFI Presentation: November Key Outcomes / Learnings Value chain structures Too many players along the value chain? 5 national initiatives, 9 crop boards, 32 support institutions, at least 50 NGOs Complex value chains, uncoordinated: need to simplify and empower value chain leaders to coordinate Value added / production cost breakdown Unempowered farmers remain at the bottom of the pile in uncoordinated value chains All making money, except farmers? Well managed chains generate more returns to farmers Industry structure Many small scale projects Few commercial farmers despite huge potential NMB Experiences – Research

22 Presented by Mark Wiessing NMB Plc – COFI Presentation: November 2014 Experiences / Challenges Food is politics! Politics drive policies Commodity market system interventions - Price setting (floor prices) Export restrictions or duty free imports Regional / District Interventions Regional & District authorities intervention in commodity and input financing systems High cess charges not going back to support famers or infrastructure (storage, roads) Frauds / Collusion from service providers and partners Collateral management losses Warehouse receipt operators confiscating bank owned stocks to pay for AMCOS warehousing bills Overestimation of inputs needed by farmers (side selling of inputs - frauds!) 22 Summary

23 Presented by Mark Wiessing NMB Plc – COFI Presentation: November Value Chain delays Not following specific crops calendar to catch up with the farming seasons Late signing of input supply contracts Late signing of offtake contracts Late issuance of ECGS guarantees Late disbursement of loans! Politics Borrowings at PCS vs Apex / Union level Internal power struggles within Amcos Industry structure Fragmented industry structure Multiplicity of NGO projects and initiatives focused on poverty reduction Lack of scale, not enough attention to professional farming and wealth creation Summary (continued…)

24 Presented by Mark Wiessing NMB Plc – COFI Presentation: November Summary (continued….) ECGS and other guarantee schemes Issuance delays Payout delays Complexity in reporting Credibility of guarantees is crucial especially for the financing of the bottom of the pyramid!! Scale: – Mobilisation of agricultural loan officers over large distances is costly – Lack of standardisation, multiplicity of exceptions – Uncoordinated value chains create risks

25 Presented by Mark Wiessing NMB Plc – COFI Presentation: November Lessons learned in agri financing Approach agriculture as a business and not as a social sector Knowledge is key so invest in agri sector knowledge and systems Segment the market in sectors and customer segments and adjust your financing approach accordingly Focus on payment capacity, financials, collateral and guarantees comes second State owned agri banks don’t work (too many debt write-offs & recapitalisation) Commercial banks with rural stakeholders seem appropriate model Be close to your customer, e.g. via rural branch network Be careful with going down market (e.g. smallholders) too fast Capacity building (e.g. of coops) can enhance the bank’s risk management Work closely with traders and processers since they know the reliable suppliers Farm blocks work: Large nuclear commercial farms and outgrowers

26 Presented by Mark Wiessing NMB Plc – COFI Presentation: November 2014 Committed to agriculture despite challenges Differentiate social schemes (poverty reduction) versus commercial & emerging farming (wealth creation) Active engagement with stakeholders, including GOT, value chain partners (extension services, off-takers…..etc), guarantors Supportive of any initiatives improving the fate of farmers: o Better farm gate pricing o Higher yields o Encourage increased acreage / scale 26 Way forward for NMB

27 Presented by Mark Wiessing NMB Plc – COFI Presentation: November Way forward for NMB


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