Workshop on Establishing an African Agriculture Risk Sharing and Financing Mechanism

12 – 13 July 2016 • Safari Park, Nairobi, Kenya

Agriculture Risk Sharing Facility

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cilityKey facts about Risk Sharing Facility

• X 5-10 Banks Balance Sheet

• Bank capacity in Agriculture lending

• Profitability of Lending to higher risk farmers

• Structures & Organizes Financial Value Chain

Financial Institutions Agriculture sector

• Interest rates for Small Holder Farmers-risk adjusted

• Productivity

• Structures & Organizes Agricultural Value Chain

Technical Assistance

Insurance Products

Success factors

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cilityHolistic approach to agricultural lending

Value chain approach

Interventions of financial pillars

(Direct and indirect levers)

Effect of key agricultural value

chain

Impact on lending

Impact on agricultural development

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cilityRisk sharing mechanism… An innovative approach

to agricultural development

Improve the agricultural value chain

Public Goods support: Roads, irrigation, R&D, storage, price stabilization, etc.

Commodity Products

FarmersAgro

dealersSeed

companiesFertilizer

companiesAgro

processors

Industrial manufactur

ers

Tradeand exports

Seasonal Financing

TermFinancing

• De-risk the financial value chain• Unlock commercial financing for agriculture

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Reduce Risk for Commercial Banks

Leverage excess liquidity into Agriculture

Build Agricultural Capacity of Banks

Increasing Outreach of banks into rural areas

Ensure a systematic change in agricultural lending

Game changer on agricultural development

An in-country RSF will….

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cilityARSF would activate direct and indirect levers to lower the

expected loss levels with increased financing needs

Direct levers

Risk sharing1 •Where a Fund takes on a % of losses reducing risk faced by banks

Insurance2 •Hedges against variability of cash flow improving the farmer’s ability to pay

Technicalassistance

3• Enables better agricultural credit appraisal by lender, reducing risk costs

• Improves borrower’s ability and willingness to pay by teaching financial management

Further incentives4 •Gives banks awards to build long term agricultural lending capabilities (e.g. agricultural credit appraisal)

Indirect levers

Supporting the value chain

5•Value chain investment coordinated to ensure producers have a market for produce and thereby lower expected losses• Encourages states to provide key enablers e.g., infrastructure development

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cilitySharing the risk with the RSF: an example

SegmentShare of loss taken

by fund

Risk sharing mechanism

Large

Pooled

50%

First loss (up to 12.12.5%)

FarmersDeal-based

80%

Agri-business

LogisticsAgri-

business50%

Deal-based

30%Deal-based

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cilityRoadmap for establishing an in-country RSF

Design the facility

Sensitization meetings

RSF pillars

key value chains

policy enablers

Validation stakeholders

Facility establishment

Fund economics and fund size

Actual fund set aside

Roll out

Launch

Actual implementation

Thank you