Embedding finance in the sesame value chain – Humera APF- Value chain W/shop 24 th June 2010

Current Situation Setit Union Shewit Cooperative Fana Cooperative certified Organic Sesame 12 other Cooperatives 2600 Households 6400 Households Selet Hulling PLC

Current Situation – Pre-finance Setit Union 90,000 Ha’s  Input finance required- Birr 290 million Commercial Bank Ethiopia o (Tigray Regional State Government collateral) Commercial Bank Ethiopia o (Tigray Regional State Government collateral) 6 million Selet Hulling PLC o (Own collateral) 1,5 million Shewit & Fana Other coop’s

Farmer pre -finance requirements Average land holding – 10 hectares Input requirements – Birr 3200 per Ha Total requirement – Birr 32,000 per farmer Fana & Shewit receive on average – Birr 58/Ha Other coop’s receive on average – Birr 94/Ha Pre-finance from banking sector – 3%

Where does other finance come from? Personal savings – unknown, but very little Loan Traders – Large proportion +- 80% Finance cost Interest rate from bank – 8,5% per annum Interest rate Selet Hulling – 0% Interest rate Loan traders – up to 40% per month (negotiable)  Farmer pays the cost – reduced income

Way forward How to increase the bank finance? Increased government collateral - CBE - unlikely Buyers input more finance – Personal collateral - limited Pre-purchase contracts - Private sector – contract farming – sesame as collateral

Pre- purchase contracts Europe Ethiopia International bank Setit Union International buyer Local bank Pre purchase contract Collateral Trust Sesame sales Loan Payment

Thank you

What does the triangle look like? Financer (Local and intl Bank) Buyer (Selet hulling PLC) Suppliers (Setit union)

What is the benefit and risks for farmers? Access to finance Export through connectivity Cash for inputs Increase in productivity High price as a result of certification The demand for humera variety is growing

Risk Farmers default Crop failure Crop insurance payments Low price (depending on the nature of the contract)

Is there potential for upscaling? Yes. Only two unions are covered in this scheme and there are 12 others.( in humera) It can be upscaled to other export agricultural commodities

What are the role of NGOs,BDS providers, govt organizations etc? Government: research NGOS like cordaid: finance & BDS service SNV: BDS service, support local research institutes WUR : Research on local seed varieties F & S : BDS service