Innovative Financing and Investment in Agriculture

Presented by Jane KarukuPresident, AGRA

Agriculture is a major source of growth in sub-Saharan Africa

This is despite the challenges of food security and high potential for economic growth.

Agriculture continues to be given low priority for investment;

In Sub – Saharan Africa, agriculture accounts for 70% of labor force and about 30-50% of GDP,

But agriculture receives only about 2-3% of total lending;

Rapid decline in adoption of improved technologies and practices

Growth in the sector has the best chance for reducing poverty.

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MAGNITUDE OF THE GAP

There is a clear disconnect between the role agriculture plays inAfrican economies and access to financing in the sector…..

Agriculture as a share of GDP and commercial bank lending, 20081 (%)

44

% GDP

51

% Lending

31 2825

2924

29 30

22

30

15 12 11 10 8 6 6 4 4 3 1

Malawi Tanzania Ethiopia Sub- Mozam- Uganda Gambia Ghana Kenya Sierra NigeriaSaharan bique LeoneAfrica2

Agriculture is a key driver of most economies in Sub-Saharan Africa,contributing to more than 25% of GDP on average

Ag sector has limited access to commercial bank lending: it receiveson average 2-6 times less credit than its fair share based on GDP

1 2008 reflects latest available data2 Commercial bank lending across SSA is estimated at <10%, with the exception of Malawi, Tanzania and Uganda

SOURCE: IMF; Central Bank data

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However, Banks perceive high risks in lending to agriculture….

Agricultural not viewed by banks as a strategic sector to engage in;

Banks have inadequate distribution networks for efficient lending hence high transaction costs;

Weak credit capacity for agricultural lending;

Few complete and structured agricultural value chains.

Banks experience high transaction costs

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Despite these constraints, measures can be taken to reduce the level of risk perception by commercial banks:

By providing incentives to the private sector to increase investment in agriculture on a more sustainable basis.

By supporting Financial institutions to be more creative and flexible in lending and;

Should consider non-traditional forms of lending.

On the other hand, Farming should be practiced as a business…to attract investments…

Agriculture has the potential to transform Africa into a global leader, so we must explore every opportunity.

We have to start looking at farming in Africa as a business with the potential not to just feed our people but to be an engine for development.

All stakeholders should be involved.

There must be collaboration between the public and private sectors to invest in agriculture and grow economies strategically.

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AGRA and Partners have been making attempts to bridge the financing gap in Agriculture……..

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AGRA and partners have used USD $17 million in loan guarantees to leverage $160 million from commercial banks in Ghana, Kenya, Mozambique, Tanzania, and Uganda…

$5m guarantee Fund

$2.1 M fund

$10M Fund

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Scaling up the Innovating Financing Models….. Country Level Initiatives

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AGRA and Partners Facilitating Impact Investing Initiatives…

AGRA is working with African Governments

The initiatives take an impact investing approach and has combined interventions of risk sharing facilities, Technical assistance especially financial literacy, insurance and bank incentives.

Increasing countries are showing interest in the impact investing model

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Examples of Some Country Initiatives…

The Nigerian Incentive –Based Risk Sharing System for

Agricultural Lending (NIRSAL)

The $500 Million established by Central Bank of Nigeria to

leverage $3 Billion financing

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The Kenyan Incentive–Based Risk Sharing System for Agricultural Lending (KIRSAL)

Kenya Government established a Kshs.5 Billion (about $65m) Impact Investing Fund

The scheme proposes to leverage at least Kshs.50 Billion of financing into Agriculture over the next five years.

The initiative is expected to benefit more than 1.5 million

small scale farmers and producers, and over 10,000 agribusinesses.

Government kicked off this initiative through the Programme For Rural Outreach of Financial Innovations and Technologies (PROFIT) with initial fund of $30 Million supported by IFAD.

Government has set a side a further Kshs.2 Billion (about $25 Million) in this year’s June Budget 2013/14 for this purpose.

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The Tanzanian Incentive –Based Risk Sharing System for Agricultural Lending (TIRSAL)

As part of the Tanzanian Government’s initiative, Marketing Infrastructure, Value Addition and Rural Finance (or MIVARF) Programme, the Government through the support by IFAD has set aside US$20 million in funding for risk sharing facilities.

This is to leverage about $200 Million of financing to Tanzanian Agriculture.

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Facilitating Access to agricultural finance in Ghana…

AGRA is working with Danida in the implementation of Agricultural Value Chain Programme in Northern Ghana

The initiative has set aside $3 Million in respect to sharing facilities that is leveraging $30 Million of term financing to support agricultural equipment for small holder farmers

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Other Countries interested in starting similar Financing Initiatives:

Ethiopia

Zambia

Malawi

Among others

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Key Points

Farming has to be seen as a profitable business

Capacity building; eg Financial literacy, for Farmers, banks, etc

The Agricultural value chain must be de-risked Good Inputs God Agronomy Structured markets Enabling Policy environment Insurance schemes

All players must invest more in Agriculture, Governments Private Sector Farmers Donors

THANK YOU