AGRA INNOVATIVE FINANCE INITIATIVES Presented during Youth in agriculture Summit for southern Africa durban 3rd - 6th august 2015 Qureish noordin ,John Wakiumu and Rebbie harawa jwakiumu@agra.org

Another BIG BANG!!! Youth will be attracted to the agricultural sector if access to affordable finance is made possible The Kenya Youth Enterprise Development Fund (YEDF) list of borrowers shows that youth is very interested in borrowing for farming. Opportunities along the Agricultural Value Chain (as was demonstrated by various speakers –transport, export trade, leasing, agro-dealership, post harvest losses management, value addition, ICT etc) Youth as SMEs

Innovative financing Bundle of services including: Funds/credit to farmers and VCAs Risk sharing facilities/credit guarantees Technical Assistance Capacity building to lenders and borrowers (financial literacy, farmer aggregation, business plans etc) Business Development Services (BDS) especially to SMEs

AGRA IF Initiatives Risk sharing facilities/guarantees to Banks (leverage funding from Banks/MFI) Grants: (start ups, expansion, capacity building/students training) Matching funds/grants (AECF)

AGRA IF Initiatives Input credit schemes (SACCOS, Cooperatives, FOs, Agro-dealers) Out-grower input financing (Private schemes/ Anchor farms, Off takers) African Fertiliser and Agri- business Partnership (AFAP) – Pretoria SA Africa Enterprise Challenge Fund (AECF)

Challenges on the lender side Challenges on the borrower side Small-scale agriculture too costly and risky to serve Poor distribution networks-mostly urban Capital, capacity and operational constraints for rural MFIs Lack of low-cost, innovative service delivery mechanisms Bank staff not trained adequately on agricultural lending Lack of innovative products SHFs unable to obtain the critical financial services Risky, disorganized, low-return nature of smallholder farming. SMEs struggle to obtain sufficient working and investment capital Capacity building to de-risk SHFs and VCAs lacking Limited capacity of FBOs to negotiate better terms for credit and reduce transaction costs

SUCCESSFUL MODELS FOR FINANCING AGRICULTURE Successful financial models work best when both the financial (supply side) and agricultural (demand side) value chains are strengthened. Strengthening the financial and agricultural value chains as well as the delivery mechanisms between them will improve access to finance, leading to increased food security and farm incomes. Capacity building, market linkage and branchless banking interventions for value chain actors and financial institutions and use of innovative ICT tools are key to successful financing of agriculture.

Between 2009 and 2014, AGRA’s Innovative Finance Unit together with development partners have utilized US$17.1 million in credit guarantees to leverage $160 million in credit to value chain actors in Kenya, Uganda, Tanzania, Mozambique, and Ghana

KILIMO BIASHARA (AGRA/GoK/IFAD LENDING SCHEME) Purpose: Address national food security and agricultural income challenges by increasing access to financial services and capacity building thereby increasing productivity and small holder farmer incomes. Funded by: AGRA ($2.5 million), IFAD and Government of Kenya ($2.5 million) Leveraged $50 million in loans over 5 years Results Achieved to Date $26.31 million in loans disbursed by Equity Bank to 43,775 smallholder farmers, 1,513 large scale farmers, and 407 agribusinesses 94% repayment rate; Equity Bank chose not to claim from the guarantee. Equity Bank changed tact: employed 200 agribusiness graduates AGRA is the main implementer of Kilimo Biashara

PROFIT PROFIT (Program for Rural Outreach, Financial Innovations and Technologies) Purpose: Increase incomes of smallholder farmers, pastoralists, fishermen, women, landless laborers, and the youth by offering rural poor households systematic and sustainable access to a broad range of financial services, coupled with the necessary capacity building. Components of PROFIT Risk Sharing Facility (to leverage $100 million in Lending: $10.0 million Financing of MFIs (for on-lending): $7.5 million Innovation Facility: $2.0 million Technical Support Services: $7.0 million Program Management: $3.3 million Funded by: IFAD and Government of Kenya Results Achieved to Date: $7.5 million disbursed to 4 MFIs $1.5 million in loans disbursed by 4 MFIs to 2,000 farmers Risk Sharing Agreements signed with 4 banks, lending to commence AGRA is the main implementer of PROFIT

Country Windows of the Impact Investing Fund NIRSAL AGRA developed and provided technical support for the design of the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) Leveraged $500 million investment in NIRSAL by Central Bank of Nigeria (CBN) NIRSAL has five pillars: Risk Sharing Fund ($300 million to leverage $3 billion in lending) Technical Assistance Fund ($60 million) Insurance Facility ($30 million) Bank Incentive Mechanism ($100 million), and Bank Rating ($10 million). Naira 53.6 billion ($334 million) in loans have been extended as at February 2015

KIRSAL (Kenya Incentive-Based Risk Sharing System for Agricultural Lending) Purpose: Increase financial inclusion and access to finance by smallholder farmers and other value chain actors. Funded by: Government of Kenya (GOK) Funding Amount: Kshs 5 billion ($55 million) annually for 5 years for a total of $275 million Results Achieved to Date Discussions finalized with GOK and funds allocated in GOK’s budget. PROFIT will be scaled up into KIRSAL. Design of KIRSAL will be the next phase of the partnership AGRA’s Role: AGRA will design KIRSAL and facilitate the setup of GIRSAL PLC to manage the fund

GIRSAL (Ghana Incentive-Based Risk Sharing System for Agricultural Lending) Purpose: Increase financial inclusion and access to finance by smallholder farmers and other value chain actors. Funded by: Government of Ghana (GOG) Funding Amount (to be determined) Results Achieved to Date Completed review of existing national agricultural finance schemes funded by GOG as requested by GOG; To hold discussions with the Minister of Food and Agriculture and the Governor of the Bank of Ghana and their senior officials To hold stakeholder discussions and explore harmonization of existing schemes into GIRSAL with additional funding from GOG AGRA’s Role: AGRA will design GIRSAL and facilitate the setup of GIRSAL PLC to manage the fund

BIRSAL (Burkina Faso Incentive-Based Risk Sharing System for Agricultural Lending) Purpose: Increase financial inclusion and access to finance by smallholder farmers and other value chain actors. Funded by: Government of Burkina Faso (GOB) Funding Amount (to be determined) Results Achieved to Date Completed review of study of the Burkinabe agricultural finance landscape conducted by IFAD and other research as requested by GOB; To hold further discussions with Ministry of Agriculture on a framework for the design of BIRSAL based on the outcome of financial landscape studies AGRA’s Role: AGRA will design BIRSAL and facilitate the setup of BIRSAL PLC to manage the fund

No. of Farmers so far reached SUPPORT TO AGRA PROGRAMS (Grants for input credit schemes) Country Project Facility (USD $) Amount Leveraged No. of Farmers so far reached Loan Duration (Months) Interest rate Ghana SARI CARD 100,000 300,000 4,500 12 15% Mali Microdose 500,000 4,500,000 6,655 10 12% Mission Sahel 160,000 1,120,000 278 Maize intensification 200,000 1,200,000 10,000 Niger 600,000 6,000 24 13% Tanzania Ari-Uyole 50,000 2,000 6

LESSONS LEARNED Learning points on the lender side Learning points on the borrower side Risk sharing can leverage about 10 times. It is possible to lower interest rates to smallholder farmers. Enhancing bank capacity is important Value chain approach critical Smallholder farmers/youths need financial literacy. Farmers/youths organized in groups/business groups are more likely to attract providers of finance.

LESSONS LEARNED Learning points on the lender side Learning points on the borrower side Farmers need risk management products to cope with weather & market condition fluctuations. Risk sharing facilities have enabled previously unbanked farmers to access credit – small-scale farmers received about 60% of total borrowing. Risk sharing facilities can have impact – increased income through increased productivity. Lending to higher risk farmers can be viable business for the bank. Microfinance institutions (MFI) can play an important role in financing farmers that commercial banks consider too risky to finance.

More opportunities Special youth funds : Kenya Youth Enterprise Development Fund Diaspora money: appropriate policies and ring fence % for youth (US 40 billion but experts believe 3 times higher due to informal transfers Use of non-financial instruments for credit worthiness (incl knowledge, mentorship/placement certificates, innovation etc)

Way forward AGRA to enhance support to youth initiatives along the AVC Technical Assistance to existing youth funds/initiatives Resource mobilisation for special programs on youth (IITA/AGRA proposal to AfDB, FISFAP Mastercard Foundation) Continue working with partners in Southern Africa including CCARDESA to enhance opportunities for affordable financing to youth SMEs/businesses

ASANTE SANA