The missing middle Concept Note Finance Fair Gerrit Holtland Agri Hub coordinator

The ambition The Growth and Transformation Plan requires: 12% increase in annual level of agri- business investment. 10% annual increase of rural households linked to financial service providers.

The key question: How to finance the investments in agricultural production, processing and marketing needed to combat food insecurity and to foster a broad based agricultural growth ?

Constraints in rural finance Limited access to financial services in rural areas High transaction costs due to small loans, lumpy cash flow, high co­variance, clients live dispersed and poor roads Skills gap in the banking sector; especially a lack of knowledge of the agribusiness sector Low product quality in savings, loans, insurance and payment services. Hg inflation and limited liquidity of banks High collateral requirements and inability to use land as collateral (so illiquid and perishable collateral) Lack of a dedicated regulatory framework for cooperatives.

Types of loans Small loans: up to ETB  For inputs like quality seeds, fertiliser, land preparation small trade at village level  Usually routine activities  Can be covered micro-credit or with equb or via relatives, business connections Medium seize loans – 1 million ETB. Many coops !  Small equipment (processing, tractors), stores  Not routine at local level, so a business plan is needed; collateral and own investment limited  Making business plan is expensive. Who can make it ? Large loans: 5-10 million ETB  Small factories/ dairy farm or poultry unit  Not routine so BP is needed; substantial own capital of entrepreneur

Who serves the missing middle Banks  How to increase the outreach ?  What kind of loans can they offer ?  What are the collateral requirements ?  How to make BPs in an efficient way? MFIs & SACCOs  How to increase the loan seize ?  Can value chain finance be used? How ? Business Development Services:  How to make BDS sustainable ? Rating agencies  How does it work? And who will pays for it ? Third parties: GO and NGO  How to support without disturbing the market ?

The way forward: trial and error The missing middle is plagued with paradoxes and dilemma’s. Many parties are invite to present their services and views We need to explore options as we realise that there is no single solution. There is no silver bullet; there is just a lot of work to be done by many different stakeholders. Let us share our doubts and difficulties alongside our successes, we can start to serve the missing middle.

Thanks for your attention For more information, please visit our website: