DEPARTMENT: AGRICULTURE REPUBLIC OF SOUTH AFRICA For A United and Prosperous Agricultural Sector...

DEPARTMENT: AGRICULTUREREPUBLIC OF SOUTH AFRICA

For A United and Prosperous Agricultural

Sector

AGRICULTURAL CREDIT SCHEMES: THE

MICRO-AGRICULTURAL FINANCE SCHEME FOR SOUTH AFRICA,

MAFISA

Presentation to Portfolio CommitteeParliament: Marks Building

Cape Town07 February, 2005

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MAFISA: Confidential, not for circulation or quotation


Sector

Presidential Announcement

Re-establish the agricultural credit scheme in the Department of Agriculture

Provide capital to increase support to agricultural activities in the communal land areas as well as other small–scale agriculture.

Leave the Land Bank to deal with the commercial sector Make R1 billion immediately available to start the scheme Work with the financial institutions to implement the

provisions in the financial services charter relevant to the development of small-and medium-farming enterprises

3




Sector

Why the Reversal ?

Enterprises Farmers Enterprises Farmers Farmers

Land BankCommercial Banks

Agricultural Coops

Agricultural Coops

Agricultural Coops

Agricultural Credit Board

Pre-1997

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Sector

Why the Reversal ?

Enterprises Farmers EnterprisesFarmersFarmers


Agricultural Companies

Farmers Farmers Farmers Farmers Farmers Farmers

Rural Micro-Finance Institutions

Rural Micro-Finance Institutions

1998-2004

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Sector

Why the Reversal ?

Enterprises Farmers EnterprisesFarmersFarmers


MAFISA: Micro-Agricultural Financial Scheme for South Africa

Farmers Farmers Farmers Farmers Farmers Farmers

Post 2004

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Sector

Global Microfinance Experience

• Asia– BRI of Indonesia

– BRAC of Bangladesh

– BAAC of Thailand

• Latin America– Bancosol of Bolivia

• Africa– Rural Banks

– Cooperative Banks

• Europe– DGRV of Germany

– Rabo Bank of the Netherlands

– Agricole of France

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Sector

Policy Issues

• Micro-finance demand among the working poor can be met by profitable and sustainable institutions

• Successful commercial microfinance can be carried out by different institutions in widely different environments

• Regulatory authorities must provide an enabling environment if institutional commercial microfinance is to succeed

• Donors supporting the growth of commercial microfinance assist through capacity building initiatives

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Sector

Comprehensive Agricultural Support Programme

The Hungry &

Vulnerable

Household food

security &

Subsistence

Farm & Business

level activity

Agricultural macro-

system within

consumer economic

environment

PILLARSPILLARS

On

& O

ff

Far

m

Infr

astr

uct

ure

On

& O

ff

Far

m

Infr

astr

uct

ure

Mar

ket

ing

&

Bu

sin

ess

Dev

elop

men

t

Mar

ket

ing

&

Bu

sin

ess

Dev

elop

men

t

Fin

anci

al

Ass

ista

nce

Fin

anci

al

Ass

ista

nce

Tra

inin

g &

C

apac

ity

Bu

ild

ing

Tra

inin

g &

C

apac

ity

Bu

ild

ing

Tec

hn

olog

y &

A

dvi

sory

S

ervi

ces

Tec

hn

olog

y &

A

dvi

sory

S

ervi

ces

Info

rmat

ion

&

Kn

owle

dge

M

anag

emen

t

Info

rmat

ion

&

Kn

owle

dge

M

anag

emen

t

AGRICULTURAL SUPPORTAGRICULTURAL SUPPORT

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Sector

Farms and Agribusiness StructureFarms and Agribusiness Structure

IV

III

II

I

Large commercial farms & agribusinesses

Small commercial farms & agribusinesses

Emerging farms and Emerging farms and agribusinessesagribusinesses

Subsistence farms andSubsistence farms and agribusinessesagribusinesses

1st E

cono

my

2nd

Eco

nom

y

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Sector

Socio-Economic Analysis

An estimate of 15 million rural poor people Women-headed households Women, youth and people with disabilities Some form of access to land Have some form of self-employment Earn as little as R600 per month Farming share less than 10% to total HH income Move in and out of the 1st and 2nd economies in pursuit of

household livelihood strategies Are not severely malnourished, hungry or destitute Use credit for high potential areas and high return activities

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Sector

Socio-Economic Analysis Use savings for subsistence farming and low return

productive activities Rely on remittances, wages, disability, pension and child

support grants for production and HH needs Live in remote and dispersed areas with poor infrastructure Participate in but do not benefit from the 1st economy May be creditworthy below and above the poverty datum

line May engage into profitable self-employment investments Use extended families and social networks to manage

production, price and market risks and disasters

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Sector

Business Case More savers than borrowers in a financial system Households save more than they borrow Enterprises borrow more than they save If 10 out of 15 million rural people are savers, then 5 million

rural people should be borrowers If 10 million people save at least R200 per year, then there

should be R2 billion in the rural financial market available for the 5 million rural borrowers

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Sector

Vision

Empowering the rural working poor, small entrepreneurs and farmers to improve their livelihoods

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Sector

Mission

MAFISA is the state-owned scheme that provides access to micro and retail agricultural financial services

to households, individuals and entrepreneurs in the rural areas on a nation-wide, commercial, cost-

effective and sustainable basis

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Sector

Scope

PRIMARY AGRICULTURE

ManufacturersSourcesIntermediariesDistributors:

•Fertilizer•Fuel•Seed•Chemicals•Mechanisation•Animal Feed•Finance•Insurance•Advisory

HandlingStoragePreparationProcessingDistributionTransportation

INPUT MARKETS

OUTPUT MARKETS

CONSUMER MARKETS

VALUE ADDITION

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Sector

Sustainable Livelihoods Framework

VULNERABILITY CONTEXT

•Trends

•Shocks

•Culture

CAPITAL ASSETS

•Natural

•Social

•Physical

•Human

•Financial

Laws Policies IncentivesInstitutions

PROCESSES

TRANSFORMING STRUCTURES & PROCESSES

STRUCTURESGovernmentPrivate Sector

ISRDP

STRATEGIES

• LRAD

• CASP

• IFSNP

• ARM

• AgriBEE

• MAFISA

• Land Care

• Non-NR-based

OUTCOMES

•more income

•more jobs

•better well-being

•reduced vulnerability

• improved food security

•better sustainable use of NR-base

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Sector

Sustainable Rural Financial System

Financial

Services

Stakeholder

participation

Rural Financial

InfrastructureOutreach

Conducive

Policies

Non-Financial

Services

Regulation &

Supervision

Improved

sustainable

livelihoods

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Sector

Financial and Enterprise Viability Cycle

Viable Financial Institutions

Viable Rural Enterprises

Vibrant rural and agricultural economy

Growth

Growth

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Sector

Savings and Credit Household Cycle

Credit: High potential areas and high return ventures

Savings: Subsistence production and low return ventures

Rural and Agricultural

EconomyGrowth

Growth

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Sector

Households’ Savings and Credit Cycle

TIME

A M O U N T LUMP SUM

SAVINGS THROUGH

CREDIT

SAVING

S

21




Sector

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Sector

Strategy

Productive Assets and Technology

Improving equitable access to productive natural resources and technology

Productive Assets and Technology

Improving equitable access to productive natural resources and technology

Empowering the rural working poor and

enterpreneurs in their efforts to improve their livelihoods

Financial Assets and Markets

Increasing access to financial services and markets

Financial Assets and Markets

Increasing access to financial services and markets

Human and Social Assets

Strengthening the capacity of the rural poor and their organisations

Human and Social Assets

Strengthening the capacity of the rural poor and their organisations

23




Sector

Principles

Rural livelihoods strategies; Collaborate, share and reinforce; Use or improve existing resources and efforts; Offer and gain something of value; Specialise in something of value; Service delivery within the 20km target; Target 10 million beneficiaries; Optimise tax-rand value return; and Rural financial services industry benchmark.

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Sector

Beneficiaries

Farm Workers; Farm Tenants Small Landholders; Landless; Food Emergency Beneficiaries; Farm and Labour Tenants; Land Reform and Agrarian Beneficiaries; Small, medium and Emerging Farmers; Household Food Producers; Food Garden Producers; and Rural Micro-Entrepreneurs.

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Sector

Products and Services

Income Level Products

Subsidised Poverty

Alleviation Programmes

Lower Middle

Standard Banking Services

Savings Loans Insurance Transfers

• LRAD• Extension• Infrastructure• AdviceConsultationFacilitationCoordinationMonitoring

Working Poor

Very Poor

• Food & water• Medicine and

nutrition• Social security• Employment

generation• Skills training

Poverty Datum Line

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Sector

Products and Services

Income Level Services

Subsidised Poverty

Alleviation Programmes

Lower Middle

Standard Banking Services

Information and Advice

Co-ordina

tionFacilitation Monitoring

• LRAD• Extension• Infrastructure• AdviceConsultationFacilitationCoordinationMonitoring

Working Poor

Very Poor

• Food & water• Medicine and

nutrition• Social security• Employment

generation• Skills training

Poverty Datum Line

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Sector

Functional Structure

Head officeHead office

District BranchesDistrict Branches

Local BranchesLocal Branches Local BranchesLocal Branches

Village

Branches

Village

Branches

Village

Branches

Village

Branches

Village

Branches

Village

Branches

Village

Branches

Village

Branches

10 million Farm and Non-Farm Customers

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Sector

Competence and Expertise• Economics, politics, legal and social structures and practices;• Policies and regulations of national and regional practices;• Operations and dynamics of local markets, formal and informal;• Extent and types of demand for microfinance;• Clients, their households, businesses and rates of return;• Financial expertise to manage portfolio risk and liquidity;• Treatment of poor clients as valued and respected customers;• Locally effective ways to avoid pressure to direct credit;• PR skills and ability to sell products and services.

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Sector

Institutional Ownership

• Understand the business opportunities of microfinance

• Defined mission and an established governance structure

• Act as commercial shareholders

• Mandate to set interest rates and fees that cover costs and risks

• Active, committed and accountable for the organization

• Capacity to access additional capital as needed

• Avoid or overcome bureaucratic and political hurdles.

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Sector

Organization and Management

• Effective asset-liability management

• Product and services for low-income households and enterprises

• High loan repayment rates

• Monthly income statements and balance sheets for each outlet

• Effective cash management

• Systems of staff recruitment, evaluation, promotion and incentives

• Service locations and opening hours convenient for clients

• High quality supervision, internal control and internal audit

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Sector

Human Resources Development

• Develop a management career track within the institution

• An effective recruiting methods for entry-level positions

• Promotion tracks, career paths and compensation for staff

• Management and staff training programs for microfinance

• Develop a culture of accountability

• Provide staff incentives based on performance indicators

• Combine responsibility, accountability, training and incentives for staff members

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Sector

Corporate Philosophy

• Trust

• Incentives

• Commitment

• Simplicity

• Standardization

• Transparency

• Flexibility

• Accountability

• Profitability

• Staff Training

• Market Knowledge

33




Sector

Loan Products

• Standardization of credit and savings products with flexibility

• Design and price credit and savings products together

• Offer loans to any creditworthy borrower

• Provide loans to individuals or self-formed small groups

• New borrowers start with small loans

• Provide larger loans as borrowers prove capacity to repay

• Most loans are for working capital, with relatively short terms and frequent payment installments

• Make loans only to ongoing enterprises or people experienced in their work

• Borrower training, other than orientation to the loan program, is not required to receive the loan

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Sector

Loan Approval and Disbursement

• Train staff to evaluate the character of borrowers and capacity to repay

• Base loan amounts on borrowers’ repayment abilities from their current income flows

• Simplify loan applications and take credit decisions quickly at the lowest-level outlet

• Borrower transaction cost are relatively low because forms and procedures are simple

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Sector

Loan Collection and Procedures

• Lending institutions bear the credit risk

• Staff who approve loans are responsible for their collecting

• Credit officer monitor borrowers whose loans are in arrears

• Borrowers may re-borrow if they have good repayment record

• Borrowers who do not repay are not permitted to borrow again

• Borrowers can be offered incentives for prompt payment

• Borrowers who miss a payment are visited immediately

• Late payments are recorded promptly

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Sector

Loan Portfolio Management

• Loan accounting and reporting are simple and transparent

• Loan loss reserves and provisions are adequate and regularly reviewed

• Accord priority to delinquency measurement and management

• Outlets that make loans are regularly and carefully supervised

• Make routine and careful estimates of loan demands

• Prioritise and carry out frequent and regular asset-liability management

• Loan portfolios are diversified with regard to enterprise type

37




Sector

Saving Mobilization• Teach staff that the poor do not need to be trained in order to save

• Mobilise savings from people who love or work near the institution

• Loans and savings accounts are designed, priced and managed together

• Savings instruments are not compulsory

• Provide good security, quick and friendly service and effective cash management

• Set interest rates on fixed deposits at or near the rates of the nearest banks

• Train staff to identify potential savers

• Keep savings and deposit accounts confidential

• Make special arrangements to collect savings on payday

• Visit clients regularly at their homes and places of work

• Locally appropriate public relations activities are emphasized

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Sector

Delivery Network and Relationships

MAFISA:

Rural

Financial

System

MAFISA:

Rural

Financial

System

Provincial DFIsProvincial DFIs

Provincial DoAsProvincial DoAs

DBSADBSA

IDCIDC

DonorsDonors

KhulaKhula

BanksBanks

Rural MFIsRural MFIs

User-OwnedUser-Owned

Agri-CoopsAgri-Coops

APEX FundAPEX Fund

Agri-CosAgri-Cos

SAVVEMSAVVEM

Post OfficePost Office

MunicipalitiesMunicipalitiesLand BankLand Bank

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Sector

Financing StrategyFinancing Strategy

PDAs

Agri Coops

Agri Cos

DoA

KHULA

DBSABanks

Traders

MAFISA

Land Bank

Post Office Donors

Provincial DFIs

IDC

FARMING, AGRIBUSINESS & NON-FARM RURAL COMMUNITIES

Local Govt

APEX FUND

MFIs

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Sector

Sources of Funding

MAFISAMAFISA

Operational Income

Investments Grants

Parliamentary Appropriation

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Sector

Phased Implementation Plan

Cabinet approval; Conclude MOUs and SLAs with partner institutions; Develop and launch quick win products in selected areas; Prepare a MAFISA Concept Document; Prepare a MAFISA Business Plan; Establish a statutory basis to establish MAFISA; Appoint MAFISA Board and CEO; Establish MAFISA organisational structure; Gradually expand the MAFISA branch network; Conduct staff training and deployment; Build strong partnerships and alliances; Monitor and evaluate implementation; and Assess impact on the livelihoods of the rural poor.

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Sector THANK YOU

DEPARTMENT: AGRICULTURE REPUBLIC OF SOUTH AFRICA For A United and Prosperous Agricultural Sector...

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Transcript of DEPARTMENT: AGRICULTURE REPUBLIC OF SOUTH AFRICA For A United and Prosperous Agricultural Sector...