Post on 16-Apr-2020
Innovative Financing of AgricultureA case study of Zambia
Agriculture Sector Dialogue Phase III
Joshua Madida Nyoni
Munhamo Chisvo
Kigali, Rwanda, 4-5 December 2014
Purpose of case study
• To describe two cases of Innovative Financing of
Agriculture in Zambia
• Identify salient features that make the two models
succeed or not succeed
• To provide information to participants that will enable
them to work through a real-life problem and address it
• To propose at least 3 questions that should be debated
and discussed at the Dialogue
2A case study of Zambia
What is innovative financing?
• New models that are not widely used yet
• Adaptation of existing models in a developing country
context
• Downscaling models for smallholder farmers
3A case study of Zambia
SOURCES OF FINANCE: SMALLHOLDER FARMERS IN ZAMBIA
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Munda/Lima Facility
• Name of project: Munda (Lima) Scheme
• First season: 2008/9 (expanded to Lima in 2010)
• Model: Direct smallholder lending
• Finance approach: Cash collateral collected through District Farming Associations
• Risk focus: Farmer
• Environment: Low productivity in agriculture and weak business environment
• Financial institution: Zanaco
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Zanaco
DFA
Farmer Group A
Farmer Group C
Farmer Group B
F1 F3 F4F2 F1 F3 F4F2 F1 F3 F4F2
Payment of farmers for produce through DFAs
Management Fee of $100 per Farmer Group
Crop delivery to sell and pay loan
Farmer who is a member of a Farmer GroupF1
MUNDA/LIMA FACILITY
Input Supplier
Agro-processor
Inputs
delivered
to farmers
in groups
Produce
sold to agro-
processors
Management fee Cash collateral 50%
Loan disbursement Loan repayment
Management fee
Munda/Lima Facility …/3
Summary of Performance in 2011/12
• Disbursement: USD4 million
• Reach: 25 DFAs with 4,026 participating farmers
• Hectorage: 10,088 ha
• Maize yield: Increased from 1.5 MT to 3 MT per ha
• Yield increase: Use of hybrid seeds, fertilizers, and adoption of Conservation Agriculture
• Loan repayment rate: 99%
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Strengths
• Interest rate is 11%, competitive
• It is subsidized (it is 5% below base rate)• DFA pays $100 only per group of 160-200 farmers as
management fee to the bank, no further collateral
• Food Reserve Agency early setting of maize price as an incentive for farmers to produce maize for food security
• Low default rate of 1%
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Munda/Lima Facility …/4
A case study of Zambia
Challenges
• Heavy dependency on Zambian Farmers Union
organisational ability through DFAs
• Relies on crop diversification
Potential for expansion
• Approach graduates farmers to bankable clients with a
track record
• The experience gained by farmer reduces the fear of
borrowing
• Agricultural land is not the constraint
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Munda/Lima Facility …/5
A case study of Zambia
Questions for Dialogue
• Can farmer organisation reduce the risk of lending to
small scale farmers such that banks lend with reduced
collateral?
• How should national farmer unions be supported to
better organise smallholder farmers for agricultural
credit?
• How do we ensure that models of innovative financing
of agriculture do not subsidize inefficiencies and create
a dependency syndrome?
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Zambia Emerging Farmer Project (ZEPF)
• Name of Project: Zanaco Emerging Farmer Project
• First season: Pilot in 2009
• Model: Emerging farmer financing
• Finance approach: Emerging farm business finance
• Risk focus: Farmer
• Environment: Low productivity in agriculture and weak business environment
• Financial institution: Zanaco, International Finance Cooperation and Rabo Development (Dutch Bank)
• Technical assistance to farmers: Private sector players
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ZEFP…/2
Main Features• Farmers with at least 3 year track record
• Proven or identifiable enterprise in the farmer
• Adequate equity (threshold?)
• Minimum farm size of between 5 – 100 ha
• Working capital plus investment finance
• Technical assistance:• Fertiliser companies and agricultural line companies (Omnia Fertiliser Co.)• Agri-chemical companies (like Cropserve)• Farmers Associations (like the Poultry Association)• Cooperatives, Dairy Processing Companies (Parmalat, Afgri)• Crop Insurance companies (Zamace- the Agri-Commodity Exchange); and• Business Training Consultancy Firms
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IFC Rabobank
Zanaco
ZNFU
Private Sector Companies:
PS1 Omnia Fertilizer Company
PS2 Crop-serve
PS3 Poultry Association
PS4 Dairy Companies (Parmalat, Afgri)
PS5 Crop Insurance companies (Zamace- the Agri-Commodity Exchange)
PS6 Business Training Consultancy Firms
PS1 PS3CroPS2vie
PS6PS5PS4
Contractual relationship with
Private Sector Extension
Services Providers
F1 F3 F4 F7F5 F6F2 F8 F9 Fn
Farmers:
Farmer 1
Technical advice
F1
Loan
Repayment
Farmers
ZEFP …/4
Summary of Performance as of 31 December 2011
• Disbursement: USD4.5 million
• Reach: 123 farmers
• Loan size: USD2,000 – 12,000
• Enterprises: Sugar, rice, maize, piggery, dairy, poultry
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ZEFP …/5
Strengths
• Portfolio diversified to include value chain financing in sectors with strong market linkages
• Adequate and timely access to finance
• Adequate and timely access to technical assistance which was made available by ZNFU/Rabobank and IFC
• Customers able to run their farms as businesses
• Availability of skilled agricultural staff that were hired and trained especially for the new tasks taken by the Bank
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ZEFP – Results Achieved …/6
16
Financed
Agric.
Sector
Yield before
interventio
n
Yield after
intervention
2008/09
Yield after
intervention
2009/10
Yield after
intervention
2010/11
Dairy10 l
/cow/day
12,5 l /cow/day 16 l /cow/day 17.2 l
/cow/day
Poultry75% peak
production
80% peak
production
90% peak
production
93% peak
production
Maize 2.38tons/ha 5.2 tons/ha 5.8tons/ha 4.9tons/ha
A case study of Zambia
ZEFP …/7
Challenges• Not all emergent farmers belong to ZNFU or other
associations which give them exposure to other group activities
• The cost of agri-finance capacity building has to be shared between willing partners yet this is not always available
Potential for scale-up• The level of support to individual farmers is much higher in
this model than in the first one, making the potential for expansion relatively limited in terms of farmer numbers to be covered.
• The high yield increases have been confirmed to be large enough at the prevailing producer prices to enable those involved to repay their loans
• The level of technical assistance required to achieve the high returns is high
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Questions for Dialogue
• What are the critical elements for success of innovative
financing models?
• What are the main roles that governments should play
to support innovative financing of agriculture?
• Do our governments have the needed capacities to
support innovative financing of agriculture? How can
these capacities be built?
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Issues for Reflection
• Policy unpredictability and crowding out of private
sector
• Inadequate farmer management information
• Inadequate farmer training
• Farmer fear of approaching formal banking sector
• Crop marketing challenges
• PSTAD and value chain approaches
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Thank you