AgFiMS Tanzania 2011 Agri-business Workshop Irma Grundling, Trevor Kaseke 7 December 2011

Workshop objectives … Share the headline findings of AgFiMS Tanzania 2011 Sounding board in terms of the interpretation Way forward??

The problem … Smallholder & agri-business finance perceived as risky There is lack of financial services suited for agriculture Limited penetration of financial services

AgFiMS objectives The overall aim - A survey to: Assess the need for financial services and support Assess factors prohibiting access to financial services Facilitate interventions to address the need AgFiMS has two complementary components: Demand side component Supply side component To quantify the degree and type of finance provision

Objective Land-size or turnover-based selection criteria applied ?

AgFiMS Tanzania 2011 sample  Representative sample of 626 EAs drawn by NBS  Listing & screening exercise provided the sampling frame  face-to-face interviews were conducted with agribusiness owners  interviews with producers  104 interviews with processors  256 interviews with service providers  The survey is representative at:  National, urban-rural, and agricultural zonal levels (including Zanzibar) for producers  National level for processors and service provide

Size & Scope of the AgFiMS Tanzania 2011 identified Agribusiness Market

AgFiMS Tanzania 2011 Market SegmentTotal AgFiMS qualifiers Number of qualifiers % qualifying Producers - farmers selling more than they consume and earning an income from cash crop, food crop or livestock farming % Processors % Service Providers % TOTAL % +- 7m farming households +- 5m households with farming as main income source

AgFiMS Tanzania 2011

Geographical Distribution demonstrates zonal differentiation Food crop producers Cash crop producers Livestock farmers 50 farmers

Geographical Distribution ProcessorsService Providers 20 Businesses

AgFiMS Tanzania 2011 Business Profile

Business Profile Most agribusinesses focus on crop farming as main source of income

Business Profile Most livestock businesses focus cattle as main source of income

Business Profile Service providers are mainly retailers

AgFiMS Tanzania 2011 Business Owner Profile

Business owners demonstrate entrepreneurial characteristics

Business owners manage their money wisely and are willing to take calculated risks

Business owners make sound financial decisions

AgFiMS Tanzania 2011 Business Environment Is the environment conducive for these entrepreneurs to achieve business success?

‘Ownership’ of land is a perception for most producers More than 90% producers claim land ownership although less than 10% have title deeds

Most producers use more land than they ‘own’; Lack of capital affects productivity for 1 in 5

Lack of access to irrigation systems and reliance on natural water resources further inhibits productivity

Although the level of access to infrastructure is not conducive for business activities, mobile phone access provides connectivity

Limitations in the business environment seems to result in distressed sales Preferred Market? Distressed sales? 12% sell on contract 10% sell all products on contract

Agribusinesses have virtually no coping mechanisms to rely on when faced with business risks

Income diversification offering protection? 86.1% diversify their income sources

Business risks have to be consciously managed for agri-businesses to be perceived as a viable potential market for financial institutions

AgFiMS Tanzania 2011 Support Services

Lack of access to networks and information support increases vulnerability

Group membership is limited Cash crop farmers most likely to form groups for farming activities (44%)

AgFiMS Tanzania 2011 Financial Business Operations

Levels of income %

Financial management BankedBusiness owners who have or use any product or service from any commercial bank for the purpose of the agribusiness Served by formal non- bank and/or semi-formal non-bank financial institutions Business owners who have or use any product or service from any regulated or registered financial institution which is not a commercial bank (e.g. SACCOS, MFIs) for the purpose of the agribusiness Formally servedBusiness owners who are banked AND/OR who are served by formal non-bank and/or semi-formal non-bank financial institutions for the purpose of the agribusiness Informally servedBusiness owners who use informal mechanisms to manage the financial matters of the agribusiness. This would include services offered by agricultural associations or groups, input providers, VICOBAs, VSLAs, ROSCAs etc. Financially servedBusiness owners who are either formally AND/OR informally served for the purpose of the agribusiness Financially unserved/excluded Business owners who are neither formally OR informally served for the purpose of the agribusiness

Sound financial decision-making does not result in high levels of financial inclusion for agribusinesses

Multiple financial strategies – A matter of choice or no options? BankedServed by non-bank formal and/or semi-formal institutions Unserved (55.6%) Informally served 43.5%

Landscape of access…

banked … What do they use banks for?

use MFIs, SACCOs & Insurance… What do they use it for?

use the informal sector … What do they use it for?

Financial behaviour …

78.5% business owners save but most prefer to save at home rather than putting their money in a bank

1 in 3 business owners borrowed money/ took credit for the business during 2010/2011 Informal Sources Formal/semi- formal Sources Friends/fam10.2% Informal32.6% Friends/fam & Informal25.5% SACCO/MFI4.2% SACCO/MFI & Informal12.5% SACCO/MFI & Friends/fam1.1% SACCO/MFI & Informal & Friends/fam2.2% Bank3.8% Bank & SACCO/MFI0.3% Bank & Informal5.6% Bank & Friends/fam0.5% Bank & SACCO/MFI & Informal0.8% Bank & Informal & Friends/fam0.6% Bank & SACCO/MFI & Informal & Friends/fam0.2%

Quantifying the amount of credit in the AgFiMS market Bank SACCOs MFIs SACCOs MFIs Informal Friends/ family 4% business owners 7% business owners 27% business owners 14% business owners USD 36m 68.9% of credit 11.7% of borrowers USD 6m 12.2% of credit 21.3% of borrowers USD 8m 15.1% of credit 79.3% of borrowers USD 2m 3.8% of credit 40.2% of borrowers ASSUMPTIONS Once-off per source Ts 3,1m Bank Ts300k SACCO/MFI Ts100k Informal Ts50k Friends/family ASSUMPTIONS Once-off per source Ts 3,1m Bank Ts300k SACCO/MFI Ts100k Informal Ts50k Friends/family USD 52m

Financial needs.... ‘Capex’, ‘operational expenditure’, ‘business assurance’

Agri-businesses finance inputs themselves…

What is keeping agri-businesses out of banking?

What keeps agri-businesses from borrowing?

Collateral... What do agri-businesses have to offer?

AgFiMS Tanzania 2011 Identifying Development Needs

Perceived obstacles to growth

Key capacities for Agri-businesses Usage of financial services & products Accessing credit Access to/usage of credible financial advisory resources Access to/usage of credible business advisory resources Access to/exposure to appropriate agricultural advice/support Access to networks &support structures; coping mechanisms

ClusterSize Social capital Agri info Business advice Financial advice Usage of credit Usage of financial services & products Long term Short term development Opportunity Agri-business development clusters

Key capacities for formal financial services usage Access to infrastructure Access to markets Access to/usage of credible financial advisory resources Access to/usage of credible business advisory resources Access to/exposure to appropriate agricultural advice/support Social capital – Access to networks &support structures; coping mechanisms

Financial inclusion development clusters ClusterSize Access to infra- structure Access to markets Financial advice Business advice Social capital Intensive care (ICU) Development Opportunity95000

AgFiMS Tanzania 2011 Evidence-led Intervention Approach?

Capacities needed for formal financial services usage Access to/usage of credible financial advisory resources Access to/usage of credible business advisory resources Access to/exposure to appropriate agricultural advice/support Access to/usage of credible financial advisory resources Access to/usage of credible business advisory resources Access to/exposure to appropriate agricultural advice/support Access to networks &support structures; coping mechanisms Information Structure/organisation Infrastructure & access to market

Info Hub BUSINESS ADVICE Financial management principles Record keeping; Debt management; Income diversification; Cash flow management Strategic business decisions Competitive edge; Pricing; Marketing; Contracting; Group/networking Risk management Price; Weather; etc. BUSINESS ADVICE Financial management principles Record keeping; Debt management; Income diversification; Cash flow management Strategic business decisions Competitive edge; Pricing; Marketing; Contracting; Group/networking Risk management Price; Weather; etc. AGRI RELEVANT INFO Inputs Sources, pricing, credit/advance, security., risks Process Preparation, prevention, remedial, labour, best practices Yield Storage, transportation, timing, surplus/demand & price AGRI RELEVANT INFO Inputs Sources, pricing, credit/advance, security., risks Process Preparation, prevention, remedial, labour, best practices Yield Storage, transportation, timing, surplus/demand & price FINANCIAL ADVICE Products, services & requirements Financial education Financial advice Investments; debt; insurance Long-term; short-term planning FINANCIAL ADVICE Products, services & requirements Financial education Financial advice Investments; debt; insurance Long-term; short-term planning STRUCTURING/FORMING GROUPS How Requirements; Obligations; Responsibilities Management Structure STRUCTURING/FORMING GROUPS How Requirements; Obligations; Responsibilities Management Structure Establishing info hubs as a first step

INFORMATION HUB VALUE CHAIN PLAYERS GOVERN- MENT RESEARCH INST RESEARCH INST ACADEMIC INS NGOS FINANCIAL INST FINANCIAL INST BUSINESS INST BUSINESS INST PRICING AUTHORITY PRICING AUTHORITY DONORS/ INVESTORS DONORS/ INVESTORS AGRI BUSINESSES AGRI BUSINESSES 2-way Information sharing 2-way Information sharing

INFORMATION HUB VALUE CHAIN PLAYERS GOVERN- MENT RESEARCH INST RESEARCH INST ACADEMIC INS NGOS FINANCIAL INST FINANCIAL INST BUSINESS INST BUSINESS INST PRICING AUTHORITY PRICING AUTHORITY DONORS/ INVESTORS DONORS/ INVESTORS AGRI BUSINESSES AGRI BUSINESSES OPPORTUNITY DEVELOPMENT OPPORTUNITY DEVELOPMENT Benefits for all role-players

-TECHNOLOGY-BASED -FACE-TO-FACE -SEMINAR/CONFERENCE INFORMATION HUB Platform....

-SUSTAINABILITY through SHARED RESPONSIBILITY -Give & take -INFO SHARING RULES & ETHICS INFORMATION HUB Rules of the game...

-TECHNOLOGY-BASED -FACE-TO-FACE -SEMINAR/CONFERENCE -SUSTAINABILITY -RESPONSIBILITY -INFO SHARING RULES INFORMATION HUB -TECHNOLOGY EXPOSURE FOR AGRIBUSINESSES -INTEREST GROUP MEMBERSHIP/NETWORKING -MICRO CREDIT SYSTEM / CREDIT BUREAU OPPORTUNITY More than an info hub....

Thank you