1. Agri-Finance
Constraints and Opportunities for
Increasing Competitiveness For 2020
Cocoa Economy
Kakao Konek, Davao City, November 21st 2012

2. IFC Services
Investment Services Advisory Services
• Loans Four business lines:
• Equity • Access to finance
• Trade finance • Sustainable Business
• Syndications
• Investment Climate
• Securitized finance
• Public-Private Partnerships
• Client risk management services
• Treasury services
• Liquidity management
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3. Agriculture Remains an Important Activity in
Emerging Markets
IMPORTANCE OF AGRICULTURE
as major source of livelihood
75% of poor people in developing
countries live in rural areas – 2.1 billion
live on less than $2 a day.
Agriculture is a source of livelihood for
86% of rural people - Jobs to 1.3 billion
small holders and landless workers
2.5 billion households of the developing
world population are involved in
agriculture with low access to finance
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4. Agri-Finance: A Key Global Challenge
LACK OF ACCESS TO FINANCE
to adopt efficient technologies and efficient
resource allocation
India: in 2 states 87% of marginal farmers
surveyed had no access to formal
credit; only 49% of small farmers have
access to institutional finance.
Rural Nicaragua, Honduras and Peru: 40%
of all agricultural producers are credit
constrained.
Africa: less than 1% of commercial lending
goes to agriculture.
Philippines: 75% agri credit provided
informally, agri loans represent just
9% of total lending. Agri credit gap
estimated at Php 252b ($6b)
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5. IFC’s Value Proposition in Agri-Finance
• Global agribusiness knowledge combined with
financial market capabilities
• Access to finance project delivery capabilities:
Global KM with field management capacity
• Ability to combine Investment & Advisory Services
• IFC/WB convening power: the enabling environment
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6. IFC Advisory Services
Agri-Finance
A portfolio of 69 Agri-Finance Projects at IFC
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7. Financial Institutions Reluctant to Participate in First Stages
of Agriculture Supply Chains
Risk generally decreases as chain moves forward
Financial Institution
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8. Agri-Finance
Why Financial Institutions do not finance agribusiness – high risk profile
Cost to serve - Rural financing involves higher
transaction costs than in urban areas
SECTOR FEATURES
AGRICULTURE
Seasonality and loan term structure -
frequently long gestation periods from
planting/livestock birth to harvest/slaughter
Farming heterogeneity & lack of information
range of farm and non-farm income can make the
assessment of loan suitability more complex
Production and yield risks – uncertainty due to
natural hazards (weather, pests etc.)
AGRICULTURE
SECTOR RISKS
Market and price risk – fluctuations in price,
particularly where markets are likely to be
imperfect and information may be lacking
Risk of loan collateral limitations – local
farmers may lack land title or land value may be
low
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9. IFC Agri-Finance Advisory Approach
Supply Chain
SME Banking
Linkages
Microfinance Farmer Training
Crosscutting Agri -
Leasing
Business Agri sector Ag Productivity
expertise in financial
Finance specific
products Eco standards
Insurance knowledge
Water
Sustainable
Energy “Doing Agri
Finance Business”
IFC IFC
Financial Wholesaling Real
Markets Sector
Financial Institution
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10. IFC Advisory Services
Agri-Finance
IFC promotes an integrated approach to agricultural development
Market Access (trader - processor)
Technical Agri-Finance
Assistance
(agribusiness
& Access to firm/ Financial
Technology Institution)
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11. IFC Advisory Services
Agri-Finance
Through a combination of services, farmers receive multiple direct
and indirect benefits
Market Access (trader - processor)
Price risk mitigation
Better access to
Income smoothing
markets/prices
Higher-value
Insurance
products
Long-term assets
Technical Agri-Finance
Assistance
Better practices (agribusiness
& Access to Improved quality firm/ Financial
Technology Institution)
Higher yields
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12. IFC Advisory Services
Agri-Finance
Supply chain finance differs from traditional agriculture lending
Area Traditional Lending Supply Chain Finance
Lending Asset Based Cash flow based; contracts
KYC Relationship Banking Supply Chain
Credit Risk Traditional Assessment, needs Improved systems for risk assessment;
sufficient client information info through supply chain
Risk Mitigation Careful client selection; Portfolio diversification;
insurance / hedging Risk sharing, insurance / hedging
Client Type Larger commercial farmers Smaller commercial farmers
Associations of farmers
Capacity Building Clients are knowledgeable Additional knowledge on technical
and financial topics needed
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13. IFC Advisory Services
Agri-Finance
Agriculture supply chain finance integrates multiple actors
Supply Chain Financing
includes multiple options
BUYER for financing and
/ CORPORATE
contractual relationships
Loan Repayment
Delivery of
goods Risk sharing THIRD PARTY
(DONOR)
INPUT FINANCIAL
SUPPLIER INSTITUTION
Inputs provided to Pre-finance
harvest Disbursement to supplier
farmer, based on
(=> loan to farmer)
loan from FI (+TA)
Financial
Intermediation
FARMER
Technical assistance can be delivered
Technical Assistance by the FI, the buyer or supplier
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14. Philippine Agri-A2F Project
Farmers
• Increase capacity to meet • Improve supply chain
Agri-Agra commitments • Increase income by linkages
• Increase Agriculture improving productivity, • Increase private sector
(Farmers) Loan Portfolio quality, access to markets investments (banks meet
and business skills Agri-Agra Law)
• Increase credit-
worthiness of farmers
Banks Sector
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15. Component 1: Bank & Sector Activities
• Mapping, market assessment and
FI/Sector Level
Bank Level
• Bank diagnostic to determine and
assess current portfolio, products, value chain studies to identify and
processes and procedures, skills assess-
requirements and crop, client, and • Potential crops, market size, key
strategic objectives. players, risks & opportunities
• Current lenders and products, formal
• Provide identified staff training, and informal
whether financial or agriculture • Potential borrowers
• Support development of risk • Potential market share, profitability
mitigating processes and structures, etc
eg crop insurance, risk share • Identification of other bank product
facilities market opportunities
• Support development of enhanced • Establish audit trails for farmer loans
internal processes and procedures through conduits financed by banks
• New agri-finance product (Agra)
development • Additional IFC interventions eg index
• Pilot of new product and monitoring insurance
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16. Component 2: Farmer Clustering
• Organizational development
Agrilinkages
• Supply chain management
Link to Demonstration farms
Activities Lead • Practical learning
Firms
Bank Extension
Financing Services
Technical Training
Business Training Smallholder • Good agronomic practices
• Operational management Farmers • Sustainable practices
• Financial management
Adopt Sustainable Access
Increase Increase
Agriculture Finance and
productivity Income
Practices Inputs
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17. Expected Impacts
Banks
• Build a sound agribusiness portfolio • Farm is managed as a sustainable
Agri-supply chains
based on ‘credit worthy’ farmers and ‘business’
agribusiness firms. • Farmers develop a ‘credit culture’
• Expansion of product portfolio and are more credit worthy and
• High class crop value chains and ‘bankable
clients identified • Increase in farm productivity, net
income
• Improved loan performance
• Increase in capital base • Improved farm practices, sustainable
use of farm land
• Internal processes and procedures
• Improved effectiveness of training
reflect the needs of agribusiness
lending activities / extension services
• Improved farm margins through price
• Enhanced skill set of bank personnel
premiums and cost savings
• Improved control of financial
performance • Improved access to markets through
certified products
• Improved farmer loyalty
• More stable value chain
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