1. PRACTICAL INNOVATIVE FINANCING MODELS FOR EBA-DRIVEN AGRICULTURE JOHN WAKIUMU PROGRAM OFFICER, INNOVATIVE FINANCE ALLIANCE FOR A GREEN REVOLUTION IN AFRICA (AGRA)

2. 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 2 AGRA CREDIT GUARANTEE SCHEMES

3. 3 CountryProjectFacility (USD $) Amount Leveraged (USD $) No. of Farmers so far reached Loan Duration (Months) Interest rate GhanaSARI CARD100,000300,0004,5001215% MaliMicrodose500,0004,500,0006,6551012% MaliMission Sahel160,0001,120,0002781215% MaliMaize intensification 200,0001,200,00010,0001012% NigerMicrodose100,000600,0006,0002413% TanzaniaAri-Uyole50,000100,0002,000612% SUPPORT TO AGRA PROGRAMS

4.  In 2008 AGRA partnered with the Government of Kenya and IFAD to establish a credit guarantee scheme with Equity Bank.  The partners placed $5 million in the bank in order to leverage $50 million in lending  The results were outstanding: 70% of the lending went to 50,000 smallholder farmers, 30% to 1,500 large scale farmers and 594 SMEs.  The repayment rates were 94%.  No claim was made by the bank.  The Equity Bank model was the basis for the design of PROFIT 4 THE EQUITY BANK MODEL

5. Challenges on the lender 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 Challenges on the borrower side  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 5 CHALLENGES

6. Learning points on the lender side  Risk sharing can leverage about 10 times.  It is possible to lower interest rates to smallholder farmers.  Enhancing bank capacity is important Learning points on the borrower side  Value chain approach critical  Smallholder farmers need financial literacy.  Farmers organized in groups are more likely to attract providers of finance. 6 LESSONS LEARNED

7. Learning points on the lender side  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. 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. 7 LESSONS LEARNED

8. 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. 8

9. 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

10. FINANCING EBA-DRIVEN AGRICULTURE  EBA-driven agriculture could adopt the NIRSAL model to upscale its financing across the continent. Given that this model advocates for investment by African Governments, it could use public and private financing mechanisms to support ecosystem- based adaptation including:  Pro-poor public-sector budgeting adjusted to incorporate climate change risk and adaptation  Design and application of climate change risk finance mechanisms, and  Social safety nets enhanced to support vulnerable groups, especially women, impacted by climate change 10

11. FINANCING EBA-DRIVEN AGRICULTURE This approach can also be an investment gateway for EBA-driven agriculture in Africa. This will be achieved through:  Promotion of the NIRSAL model adapted to ecosystem-based agriculture across Africa;  There are currently on-going discussions with Governments of Ghana and Kenya for the design of GIRSAL and KIRSAL  Engagement development finance institutions/donors and other organizations to provide risk sharing/credit and technical assistance support to targeted beneficiaries using an EBA-driven approach  Ensure that engagements are strategic and holistic to achieve maximum impact 11

12. FINANCING EBA-DRIVEN AGRICULTURE African Governments have a role to play to ensure that this innovative financing mechanism has the enabling space for every country to benefit from as well as farmers and others to scale up different approaches including EBA driven agriculture. This will include the following:  Implementation of incentive structures by Ministries of Finance and national and subnational planning bodies designed to effect behavioral adjustments by the public and private sectors such as:  Regulatory and fiscal incentive structures adjusted/expanded in relevant institutions, including key sectoral ministries and sub-national governing bodies, to stimulate climate change risk reduction by the private sector and households.  Social safety nets to support vulnerable groups impacted by climate change. 12

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