Innovative tools and methodologies to overcome barriers in agribusiness financing Massimo Pera, Agricultural Finance Expert, FAO Global Expert Meeting on Agriculture and Agro-industries Development towards Sustainable and Resilient Food Systems Victoria Falls, 25 April 2017

Main Barriers How to overcome them High risks (and weak management and mitigation strategies) ? Lack of collateral High costs (transaction costs, deferred payments) Low profits/lack of capacity to assess business opportunities Standardized general products that do not fit to the complexity of the agribusiness environment

World total demand and supply of grains and oils seeds (in trillions of MT) 1000 500 1500 3500 3000 2500 2000 Supply Demand Source: WASDE, USDA Volume (trillions of MT) Year Agribusiness responds to growing global demand

Total export value of different commodities in Asia, LAC and Africa (in millions of USD) 10000 20000 30000 40000 50000 60000 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Latin America 80000 70000 60000 50000 40000 30000 20000 10000 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Africa 12000 10000 8000 6000 4000 2000 1993 1994 1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cereals Fruits and vegetables Meats Source: FAOSTAT

Agricultural capital stock in Asia, LAC and Africa (in million of 2005 USD) Latin America and the Caribbean 820000 800000 780000 760000 740000 720000 700000 680000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Asia 2200000 2150000 2100000 2050000 2000000 1950000 1900000 1850000 1800000 1750000 1700000 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 600000 500000 400000 300000 200000 100000 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Africa Source: FAOSTAT

Total vs. formal use of savings and credit in LAC in 2011 and 2014 (% rural population) Savings informal market Credit Informal Market

Total vs. formal use of savings and credit in South East Asia in 2011 and 2014 (% rural population) Credit Informal Market Savings informal market Source: FINDEX, 2014

Total vs. formal use of savings and credit in sub-Saharan Africain 2011 and 2014 (% rural population) Savings informal market Credit Informal Market Source: FINDEX, 2014

Access to finance limitations: Outreach Variety Adequacy Affordability Each of these limitations provides the formal financial sector with an opportunity to better serve rural areas and agriculture in the future Pioneering formal financial institutions are demonstrating that it is possible to deliver rural and agricultural financial services profitably when knowledge from value chain agents and informal service providers is leveraged

For products and services with a high value proposition New availability of qualitative and quantitative data (new platforms, IT, etc.) VC analysis, mapping, client-centered design Cooperation with actors working closer to potential clients and holdingwith informational and risk management advantages, to reduce non financial costs Understanding operations of all public and private actors in the focus region helps find ‘win-win’ collaborative arrangement to reduce product delivery costs Subsidies should be used for specific finite interventions to generate the products or when expansion can occur with a fixed public commitment

Inventory credit in Tanzania Existing relations with off-takers are used to link to new farmer groups and monitor market dynamics Source: Adapted from Baregy and Hoogeveen, 2009 Leverage public interventions to improve productivity, offering guidelines on market needs Can monitor those that are registered in the TWLB Leverage Rabobank Foundation to develop managerial capacities;

Going beyond real collateral: Credit Agricole du Maroc

Bringing together public and private partners: Indupalma in Colombia

Client proximity, new technologies and delivery channels: the success of Kilimo Salama in Kenya, Tanzania and Rwanda

The leading role of the public sector: the CADENA programme in Mexico Federal Government State Government Private insurance companies Public insurance company Eligible farmers in insured areas 80-90% of premium 10-20% of premium Indemnity for area insured Cash transfers Source: FAO, 2014

Main Barriers How to overcome them High risks (and weak management and mitigation strategies) Partnerships, proximity, leverage on existing information, outsource technical assistance Lack of collateral Collateralization of assets, advanced credit scoring systems, client proximity High costs (transaction costs, deferred payments) Identification of alternative delivery channels, identify technical/institutional partners to bear non financial costs Low profits/lack of capacity to assess business opportunities Improve assessment techniques, leverage on local knowledge, make use of new platforms, big data Standardized general products that do not fit to the complexity of the agribusiness environment Follow a client-centred design process, assess interactions among value chain actors, do not apply the “one-size-fits-all” rule.

THANK YOU FOR YOUR ATTENTION Massimo Pera, Agricultural Finance Expert, FAO Global Expert Meeting on Agriculture and Agro-industries Development towards Sustainable and Resilient Food Systems Victoria Falls, 25 April 2017