0. Years of Financing Agriculture
103
Years of Financing Agriculture
LAND BANK
CCARDESA YOUTH IN AGRICULTURE SUMMIT
JANE MASILELA
(05 AUG 2015)

1. CONTENTS Background Target Market Approaches WFF Lending Model
Strategic Partners
Benefits to Emerging Farmer
Successes and Challenges

2. BACKGROUND
Historically the Land Bank has faced challenges which contributed to not meeting its developmental mandate particularly financing Black emerging farmers
Some of the challenges to financing black emerging farmers included;
Onerous collateral and security requirements
High cost of funding based on risk, resulting in high interest rates
High rates of defaults resulting from little or no support to the farmers
Little or no integration of the agricultural value chain for emerging farmers
A lack of dedicated focus to emerging farmers
Solutions
The Bank reviewed its business and operating models, emphasising outcomes and development impact, improve service delivery and setting achievable and sustainable targets
A business unit focused on emerging farmers was established
Its business model is assist black emerging farmers to become established commercial farmers through the provision of tailored financing solutions (finance and non-finance solutions) which encompasses the following key pillars to ensure sustainability:
- Cash flow lending based approach
- Concessionary funding and interest rates
- Non financial support (end to end on farm support for comprehensive support)
- Cashless disbursement

3. TARGET MARKET

4. APPROACHES WHOLESALE FINANCE FACILITY DIRECT LENDING
Revolving loan facility for up to 5 years and administered by Intermediaries (established) – facility is only for primary agricultural purposes
Funds are on-lent to intermediaries at a concessionary interest rate - (making funding for them affordable so that the benefits thus derived can be passed on to the main target beneficiaries who are the emerging farmers/agri-businesses);
Financial support of 4% is offered to intermediaries after each disbursement to cover operational costs and allows them to fix the rate at 4% to beneficiaries
Beneficiaries are provided with end to end business support
The objective of all of the above is to create commercial farmers/businesses within 5-7 years
Walk-in clients (encourage individual lending)
Go through branch network
Products offered:
- Short Term
- ISF
- ISF Livestock
- Medium Term
Products offered at concessionary rate
Cash Flow lending approach used
Demand driven approach ( offtaker agreements required upfront)
Mentorship a key requirement
Repayment structured in line with production cycle
Applicants must have access to land (lease, PTO or own)

5. Cost of direct lending = 8% based on:
WFF LENDING MODEL
Estimated cost to lend of 8%
Concessionary rate of 4%-8%
Financial markets
Land Bank
Intermediaries
Emerging
Farmers
Lending from FM at 6%+
Cost of direct lending = 8% based on:
Government Support Model
Financial markets
Land Bank
Intermediaries
Emerging
Farmers
On-lend to farmers at a 4-6%
Lending from FM at 7%+
On-lend to intermediaries at >2%
Reimburse 4%
Reimburse 4%
DAFF
Land Bank contribution to subsidy
7% less 4% = -3% subsidy to developing farmers
“RETAIL EMERGING MARKETS”

6. STRATEGIC PARTNERS National Treasury and DAFF
WFF is funded through the Bank, NT and DAFF funds
Ensures that emerging farmers received subsidised interest rates and comprehensive support
DAFF contributed R50m million over the last three years
National Treasury through DAFF has provided an allocation of R100 million over the MTEF as support to the REM programme
Non-financial support extended on technical, managerial and financial support at no cost to the farmer to safeguard the success of their enterprises
MGK , AFGRI, AFRICOM, COTTON SA and TECHNOSERVE
Bilateral agreements entered into through Memorandum of Agreement to provide after-sales support (value added services)
Production input providers
Provide on-field farm support
Provide technical support to ensure effective utilisation and management of products
Skills transfer on best practise
Costs to provide support are incurred by service products
Quarterly reports provided to Land Bank on progress of each farmer

7. BENEFITS TO EMERGING FARMERS
1. Cash Flow lending approach
Lending model focuses more on repayment ability of enterprise
Traditional forms of security are not a prerequisite, however mitigants such as cession on proceeds of sale minimises the risk
2. Affordable funding
Financing at concessionary rates with incremental pricing to adjust to market related price at exit in year five (rate varies between 4-8%)
3. On farm end to end support
3.1 Farmer support
Business plan development
Soil sampling
Managerial skills
Financial skills
3.2 Market access support (demand-driven approach versus supply-driven approach)
Securing off taker agreements upfront (quantity and quality is discussed beforehand to ensure realistic cash flow)
3.3 Supplier management support
Inputs suppliers are integrated into value chain system to ensure quality inputs are provided
3.4 On field support (mentorship)
Technical skills (application of best farming practise)

8. Successes and Challenges
Milestones
REM has seen significant growth since inception:
Currently sitting on a total loan book of approximately R490m
REM has 0.78% NPL’s .
This is a leading indicator of sustainable finance model.
Development and Social Impact
REM has assisted over 250 projects and
benefited over employees.
More than 900 individuals have been provided with skill transfer programmes(financial managerial technical)
Over 2000 persons provided with on the job training through the REM projects.
One of the projects financed contributes to 5% of total sugar cane industry output in South Africa
Challenges
Sustainable Funding

9. Years of Financing Agriculture
103
Years of Financing Agriculture
THANK YOU
JANE MASILELA
LAND BANK:REM
RELATIONSHIP MANAGER
TEL: +27(0)
CELL: +27(0)