1. OFID – AGFUND Symposium, Vienna, 05-06 June 2012
The Role of Donors in Accommodating the Basic Needs of Poor People through Microfinance in Agriculture
Michael Hamp
Senior Rural Finance Advisor
IFAD’s Role, Experience and Emerging Lessons in Rural Microfinance

2. IFAD – a Snapshot
IFAD has lent and granted over $ 12 billion for agriculture and rural development programmes in developing countries.
Project size varies from $ 200,000 grants to $ 70 million loans
Traditionally targeted the poorest rural populations
Has reached about 350 million poor rural people
Major supporter of community designed and managed institutions and farmer organizations
Makes use of government and local stakeholder systems rather than managing projects itself

3. Financial access in rural areas
2.7 billion people around the world have no access to formal financial services
Over 90% of people in rural areas lack access to financial services

4. Rural Microfinance FINANCIAL MARKET
Rural finance: Financial services used in rural areas by people of all income levels
Agricultural finance: Financing agriculture-related activities, from production to the market
Microfinance: Financial services for poor and low-income people
FINANCIAL MARKET
MICRO
FINANCE
RURAL FINANCE
AGRICULTURAL FINANCE

5. IFAD’s Rural Finance Policy - key principles
Support access to a wide variety of financial services, including savings, credit, insurance, leasing, remittances and payment systems
Promote a wide range of financial institutions, models and delivery channels
Support demand-driven, market-based approaches in collaboration with the private sector
Develop and support long-term strategies focusing on sustainability and poverty outreach
Promote an enabling environment for rural finance

6. Partner Financial Service Providers
FORMAL
INFORMAL
Public, Private,
Cooperative
Banks
Non-Bank
Financial
Institutions
NGOs
MFIs
Community
Based
Financial
Organizations
Slide courtesy CGAP

7. Rural Finance as Part of IFAD Operations
Programme Management Department
Policy and Technical Advisory Division
Financial Assets, Markets and Enterprises - FAME - Unit
Rural Finance
Core Business
Rural Economic Development
(VCD, Private Sector)
Rural Finance Special Facilities
(FFR and WRMF)
Economic & Financial Analysis

8. IFAD Rural Finance Programme
Policy and Technical Advisory Division
Financial Assets, Markets and Enterprises - FAME - Unit
Rural Finance Sector: Loans and Grant Programmes
one of the world’s largest, lender in Rural Microfinance for poverty reduction
net new commitments 2010: $705 m ($44m of total as grants = 6%; 5% of all funders)
commitment by level of FS: $634 m retail, $35m market infrastructure,$35m policy
commitments by region: 35% SSA; 40% APR; 18% NEN; 6% LAC
commitment by purpose 80% on-lending; 20% Capacity Building
approximately 16% of IFAD’s investment portfolio
(CGAP 2011 Cross-Border Funder Survey, incl. 20 largest MF donors & investors)
ODA according to OECD’s Development Assistance Committee (DAC), 29 donors reached an aggregate distribution of $12.0 billion in funding flows focused on Smallholder Farming for 2009 and Onward. Out of the $12.0 billion, $2.3 billion or 19%, is focused on providing access to markets or financing to smallholders in Africa, $1.0 or 9% in Asia, and $0.6 or 6% in Latin America.

9. 33 Years Experience in Rural Microfinance
Facing the challenges of financing small-scale agriculture
Operating a self-sustaining rural MFI
High information & transaction costs
Private sector approaches crowded-out by subsidized & targeted lending
Dispersed populations
Poor infrastructure
Seasonality of agricultural activities
Few collateral assets
Risks of farming (price, production, …)
30 m borrowers
from IFAD assisted MFIs
US$ 200 average loan size
15 m voluntary savers
US$ 127 average savings
women account for 83% (24 m pax)

10. 33 Years Experience in Rural Microfinance a) focusing on agricultural lending challenges
Reaching rural clients efficiently and cost effectively: taking banking services to the people via ICT applications
Maintaining liquidity in agricultural dependent regions amid seasonal income cycles: building loan analysis and repayment schedules on revenue flows from all farm, labour and business activities, incl. remittances
Mitigating covariant agricultural risk: using specific methodologies for micro-level index insurance applications
Adapting loan products to meet the specialized needs of rural borrowers: securing loans by contractual agribusiness payments, warehouse receipt system, etc.
Overcoming poor lending practices and improving repayment culture: fostering group-based savings and lending techniques, combined w/. financial education
Developing technical capacity at the local level: devoting substantial resources to staff training, development of sound practices and procedures

11. 33 Years Experience in Rural Microfinance b) focusing on IFAD’s competencies
Banking beyond branches
Replicating Targeting Ultra Poor
Managing price risks (commodity exchange, warehouse receipt system)
Enhancing the value chain financing methodology
Promoting and consolidating decentralized community-based financial systems & linkages
Flexible disbursement & repayment schedules (seasonality)
R&D in weather and yield index insurance (WRMF) and productive use of payment services and rural remittances (FFR)

12. Emerging Lessons in Rural Microfinance
Portfolio risk is highly diversified
Delinking loan uses from repayment sources – treat the entire farming household
Loan terms and conditions are adjusted to accommodate cyclical cash flows in bulky investments
Character-based lending combined with technical criteria in selecting borrowers, setting loan terms and enforcing repayment
Mechanisms to build assets, prepare for life events and emergencies
Contractual arrangements reduce price risk, enhance production quality and help guarantee repayment
Financial service delivery piggybacks on existing institutional infrastructure or is extended by using technology
Member-based MFIs can facilitate rural outreach and financial deepening
Index insurance can protect against the risks of agricultural lending
To succeed, rural microfinance must be insulated from political interference

13. Weather Risk Management Facility
Francesco Rispoli
Policy and Technical Advisory Division (IFAD)
Emily Coleman

14. Weather Risk Management Facility
Joint initiative of IFAD and WFP since 2008
Objective: increase access of small and vulnerable farmers to a wide range of risk management tools that improve rural livelihoods, promote agricultural development & food security
WRMF activities to date
36 weather index insurance (WII) programmes evaluated and reviewed (analysis of opportunities, challenges and good practice with WII)
Two pilots conducted in Ethiopia and China
Technical guide on WII developed
Evaluate/develop/use specific remote sensing methodologies*) for micro-level index insurance applications in W-Africa (B. Faso, Senegal) *)

15. Financing Facility for Remittances
Promoting innovative remittance markets and empowering migrant workers and their families
Promoting innovative remittance markets and
empowering migrant workers
and their families

16. Key figures US$ 22 million multi-donor programme
Almost 50 innovative projects
More than 40 countries
170 partners worldwide
Europe
Albania
Kosovo
Moldova
Romania
Near East and
the Caucasus
Georgia
Asia and the Pacific
Bangladesh
Cambodia
China
India
Indonesia
Kazakhstan
Kyrgyzstan
Laos
Malaysia
Nepal
Philippines
Sri Lanka
Tajikistan
Uzbekistan
Vietnam
Latin America and
the Caribbean
Bolivia
Colombia
Costa Rica
Ecuador
Haiti
Jamaica
Paraguay
Peru
Africa
Benin
Burkina Faso
Cameroon
Ethiopia
Ghana
Madagascar
Malawi
Mali
Mauritania
Niger
Senegal
Sierra Leone
Somalia
Uganda

17. Scaling up successful models (example)
The Diaspora Investment in Agriculture initiative
Encouraging the global diaspora to invest in sustainable agricultural projects with real potential for impacting the lives of poor rural people
Enabling diaspora investors, diaspora organizations, and actors on the ground to build the capacity necessary to undertake cross-border investments and gain access to markets for traditional products
Stimulating agricultural production and reducing import dependency in order to enhance food security
Secretary of State Hillary Clinton and IFAD President Kanayo F. Nwanze launched the DIA initiative at the Global Diaspora Forum 2011, at the US State Department in Washington D.C. on May

18. Discussion