Access to Finance in Agriculture Presented on : Hawasa Finance Fair Hawasa University,College of Agriculture March,2014 1

1, Establishment:  Cooperative bank of Oromia is registered in accordance with article 304 of the commercial code of Ethiopia and licensed by NBE.  CBO is mainly(63%) owned by cooperative societies. 2, Mission:  To Provide full-fledged and customer responsive banking service for cooperative societies, other entities, and individuals with special emphasis to agricultural and agro-based businesses financing, and to maximize shareholders’ value through use of competent and disciplined employees, visionary leaders, and modern banking technologies. 2

3, CBO’s Financing Priority: Agriculture and agro-processing Cooperatives business activities Export oriented activities. 4, Key figures about CBO; As of December31,2013  Asset= birr 7.5 billion.  Capital= birr million.  Loan portfolio = birr 3.2 billion  Coops’ Loan = 27-30%  Recovery rate= 98.5%  Branch network=97 3

5, CBO’s Cooperatives /Agricultural Financing Experience. 5,1 Credit products : Working capital loans. Investment loans. 5.2, CBO Finances different farmers cooperatives and Other agricultural operators: - Multipurpose FCUs - Producers FCUs - SACCO Unions - Dairy FCUs - Coffee FCUs - Primary coffee cooperatives societies - Others. 5.3, Cooperative businesses / services activities Financed:  Production activities:  Agricultural produce marketing activities  Mechanization.  Agro-processing/Manufacturing activities.  Agriculture allied activities. 4

6. Agricultural Input Financing 6.1.Financial products:  Saving: - Regular saving - Commitment saving - Non-interest bearing - Minors saving  C Credit : Agricultural input loan - Fertilizer purchase - Seed purchase - Agrochemicals purchase 5

Agri. Input Financing cont…… 6.2. Lending Mechanism - Select eligible primary cooperative societies - Conduct discussions with them - provide them with necessary and guiding formats to be used for loan request. 6

Agricultural Financing cont…… 6.3. Lending Requirements: - Application /request letter - Well prepared loan amount request with respective purpose. -List of eligible cooperative/ (member) farmers with their respective loan request amount and purpose. - List of farmers started at least commitment saving,out of the selected ones, and their respective saving type and amount. - Support letter from the respective government office Loan processing and Disbursement.  Electronic loan process as arranged with KFT 7

7. Evaluation and Approval of loans to cooperatives Societies.  Reliable information mainly, qualitative ones to “judge the risk” in granting loans to the applicant cooperatives.  About the locality and commitment of the leaders.  Value and competence of the manager.  Members trust and participation.  What have been the trends in the cooperative’s key financial position and performance?  Are the cooperative’s projections reasonable and supported by documentation and historical information?  How the cooperative’s loan requested amount matches with the purpose of loan and the potential of the area?  How much credit does the cooperative really need?  When will this money be needed and when will the loan be paid?  How well will the cooperative utilize and repay the loan? 8

 This is mainly to critically understand the governance and management practices of the applicant cooperative and to carefully check its credit history.  The bank mainly focus on the cooperatives’ ability to repay than on their financial position. 9

8, Challenges 8.1, Customer Information: Difficulty to get reliable financial and other information from the cooperative borrowers. Difficulty to access qualitative information required to “judge risks” with the end users of the loan. 8.2, Weak financial position of cooperative societies: Highly limited capacity to provide margin money: Limited equity contribution. 8.3, High collateral risk: No fixed assets with most of the cooperative borrowers 10

8.4, Lack of insurance and hedging: Lack of crop insurance scheme to protect the (cooperative member) farmers and the bank against incurring losses. 8.5, Perception on input loan. Associated to past experiences 8.6 Poor governance ad management 0ractices with Cooperatives 11

8.6, Limited lending capacity of the banks. Liquidity problem. Limited branch networks in some distant localities. Huge and seasonal loan demand. Most of the applicant cooperatives totally depend on the bank for financing. Traditional agricultural produce price payment pattern:  The existing practice is that cooperatives pay their members full of the agreed price immediately. Limited refinance facilities provided for banks committed to agricultural lending. 12

God Bless You!! 13