Making Finance Work for Africa (MFW4A)

Conference Zipping Finance and Farming in Africa – Harnessing the

Continent’s Potential

Contents

Foreword 01

Introduction – global momentum for 03 agricultural finance

Challenges and opportunities of agricultural 07finance in Africa

Business cases – examples of existing initiatives 13

Policy working groups – policy support for 23 agricultural finance

Kampala Principles 27 Moving beyond Kampala 29

Annex 30

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Authors:

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Pictures:

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p. 21: © ASUSU

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p. 15: © canstockphoto.com/Baloncici

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Design:

Alexandra Müller

Eschborn, December 2011

Abbreviations

AFD Agence Française de Développement

AFRACA African Rural and Agricultural Credit Association

AgFin Agricultural Finance

AGRA Alliance for a Green Revolution in Africa

AUC African Union Commission

BMZ Ministry for Economic Cooperation and Development (Germany)

CAADP Comprehensive African Agriculture Development Programme

COCOBOD Ghana Cocoa Board

FAO Food and Agricultural Organization

FBS Farmer Business School

GDP Gross Domestic Product

GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit

IFAD International Fund for Agricultural Development

KfW Kreditanstalt für Wiederaufbau

MDG Millenium Development Goals

MiDA Millennium Development Authority in Ghana

MIFED Microfinance et Développement (Cameroon)

MFI Microfinance Institution

MFW4A Making Finance Work for Africa

NAIC Nigerian Agricultural Insurance Corporation

NEPAD New Partnership for Africa’s Development

NGO Non-governmental Organization

OFID OPEC Fund for International Development

OI Opportunity International

SME Small and Medium Enterprise

UCFA Uganda Coffee Farmers Alliance

U-IMCEC Union des Institutions Mutualistes Communautaires d‘Epargne et de

Crédit (Sénégal)

UN United Nations

UNCDF United National Capital Development Fund

WB World Bank

WTO World Trade Organization

ry services.

services.

1

In June this year, more than 300 participants gathered in Kampala to zip Finance and Farming in Africa.

Why zipping? The conference title conveys its objective: for the African continent to harness

its indisputably vast agricultural potential, financing is necessary and financial institutions need

to get involved. Thus, the financial and the agricultural sectors need to work closely together.

The zip represented a continuous thread throughout the conference. Discussions on

existing business cases demonstrated interlocking points between the two sectors – and

showed where the zip can lock. Policy debates explored the factors that impede the intro-

duction of an enabling environment for agricultural finance – and looked at how to make

zipping farming and finance easier.

The main outcome of the conference is the Kampala Principles, 11 policy guidelines

suggesting the actions most urgently required to foster the effective provision of financial

services to the agricultural sector in Africa in the context of the Comprehensive Africa

Agriculture Development Program (CAADP). They also have the power to reach beyond

the African context and to represent the African voice within the international discus-sion on agricultural finance. The G20 subgroup on SME and Agricultural Finance welco-

med the Kampala Principles and integrated them as substantial input into the G20 Paper

»Scaling Up Access to Finance for Agricultural SMEs - Policy Review and Recommen-

dations«, which was launched at the G20 summit in Cannes, France. Members of the

MFW4A Task Force on Agricultural Finance in Africa, functioned as a leading technical

review team of the G20 policy paper. Furthermore, during the “African-G20 dialogue

on Agricultural Finance” session held during the Kampala Conference, African policy

makers articulated their views which strengthened the G20 policy recommendations.

We believe the Kampala Principles provide a solid foundation to improve the environ-

ment for agricultural finance in Africa. This in turn can increase opportunities for milli-

ons – both in income creation and food security.

This report is intended to provide an insight into the lively discussions of the conference,

the business cases presented, and the elaboration on the Kampala Principles.

We hope you will find reading it fruitful!

October 2011

Stefan Nalletamby Tumusiime Rhoda Peace

Project Coordinator Commissioner for Rural

Economy and Agriculture

MFW4A African Union Commission

The critically increasing regional and global

demand for food poses serious challenges

to African agriculture as well as providing

significant opportunities for economic develop-

ment. The continent will witness an unprece-

dented population growth in years to come.

Sub-Saharan Africa’s population is expected

to more than double by 2050, reaching 1.7

billion people and making it roughly equal to

the expected combined populations of Europe,

North America and Latin America at that time.

With its vast amounts of cultivable land, and

the significant scope to increase productivity,

the continent is endowed with the resources

to both service its own demand and to take

advantage of rising global market potential.

Despite this potential, Africa depends on

food imports: the food trade deficit amounts

to US$20 billion. A massive increase in the

production and productivity of the continent’s

agriculture is needed to turn Africa from a net

food importer into a net food exporter. Apart

from enhancing food security, a thriving agri-

cultural sector could also become a catalyst for

the continent’s development by providing busi-

ness and employment opportunities. In Sub-

Saharan Africa, agriculture generates on average

34 % of Gross Domestic Product (GDP) and

employs 64 % of the labor force, making it the

largest source of employment. Further, agricul-

ture is twice as effective at reducing poverty as

other sectors and therefore crucial to achieving

the Millennium Development Goals (MDG).

There is therefore a wide consensus that the

sustainable growth of the agricultural sector

is central for development to succeed on the

African continent.

Access to finance is key to unleashing Africa’s

agricultural potential and funding the growth

of the sector. However, as agriculture is subject

to high systemic risks, both from the environ-

ment (e.g. drought, flood and disease) and mar-

kets (e.g. price volatility, trade policy barriers,

dumping, transport and logistical challenges),

engaging with the sector has traditionally been

challenging for financial institutions. Reliable

data on crop cycles, yields and weather is scar-

ce, and financial institutions can seldom call on

specialized staff. As a result, financial institu-

tions are often unable to adequately conceptu-

alize and assess risk and therefore are unable,

or reluctant, to develop sustainable financial

products for actors in the agricultural value

chain. Consequently, agricultural clients, from

smallholders to large agricultural businesses,

often lack access to adequate financial services

and therefore face severe growth constraints. An

adequate policy framework is a major building

block to creating a conducive environment

for financial institutions to develop and put

in operation effective financial products for

agricultural clients.

Introduction – global momentum for

Background – rising demand

The rapidly growing world population coupled with incre-asing per capita food consumption in emerging econo-mies, in particular in the Middle East and Asia, has seen the global demand for food surge. Recent food crises and food price volatility further underscore the need for sustainable and reliable agricultural production, which according to estimates needs to increase by 70 % by 2050 to feed the world’s population. Access to finance is widely considered key to agricultural growth. Agricultural finance is therefore a national and international develop-ment priority.

3

5Leveraging momentum

Efforts on different levels are testimony of the com-mitment to enhancing the framework for agricultural finance. African governments have institutionalized commitment to agricultural development through invest-ment plans within the Comprehensive African Agriculture Development Programme (CAADP). Determining effective ways of delivering finance to the sector is a priority, and agricultural finance policies have strong political and institutional backing.

Conference Objectives

- Promote, inform and facilitate agricultural policymaking throughout the continent - Support the CAADP process - Represent the African voice as primary input for the forthcoming international G20 policy paper on agricultural finance

business arrangements throughout the continent

Leveraging momentum

On a global level, the topic benefits from a

high ranking position on the G20 development

agenda alongside financial inclusion and food

security as priority objectives of the French

Presidency and the G20 Seoul Action Plan for

Development. The G20 group has taken the in-

itiative to engage with key stakeholders on this

important issue and facilitate a coordinated and

inclusive effort of taking agricultural finance

forward. To this end, a major policy paper on

agricultural finance was presented at the G20

summit in Cannes in November 2011.

The Making Finance Work for Africa

(MFW4A) Zipping Finance and Farming in Africa: Harnessing the Continent’s Potential conference leveraged the existing momentum

for agricultural finance and brought together

more than 300 leading practitioners from

the agricultural and financial private sectors,

policymakers, researchers and development

partners from all over Africa as well as other

regions. With this blend of experience and

expertise, the MFW4A conference, which was

hosted by the Bank of Uganda and suppor-

ted by GIZ on behalf of the German Federal

Ministry for Economic Cooperation and

Development (BMZ), Agence Française de

Développement (AFD) and the World Bank,

provided a platform to foster understanding

among the various stakeholders of the challen-

ges of financing agriculture, as well as on the

proven solutions to these challenges, and to

build a consensus around a set of clear policy

recommendations.

1 Agricultural Finance in Africa

This document was drafted in a consultative

process prior to the conference by the Afri-

can Agricultural Finance (AgFin) Task Force

including representatives from pan-African

institutions, public and private sector bodies,

and development partners (see MFW4A AgFin

Task Force and Annex 1).

It was initiated by the Making Finance Work

for Africa (MFW4A) Partnership in early 2011.

The paper provided the base for policy-oriented

discussions during the conference.

1 R. Roberts, B. B. Keizire and M. Rothe. 2011. »Policy Support

to Agricultural Finance in Africa«. Unpublished Conference Paper,

Making Finance Work for Africa.

Boaz Blackie Keizire (African Union Commis-

sion) presented main findings of the paper2:

Agricultural finance needs a dedicated and recognized institutional advocate: Responsi-

bility for policies affecting agricultural finance

often falls between several ministries and other

associated bodies (e.g. the Ministry of Finance,

Ministry of Agriculture, Ministry of Trade &

Commerce, the Central Bank and regional

economic bodies). As a result, the subject is

frequently pushed to the side making agricultu-

ral finance a »policy orphan«. To be effectively

advanced, agricultural finance needs a strong

and dedicated institutional advocate, possibly

the Central Bank.

2 The main findings of the policy paper together with the comments

of the conference participants and the outcomes of the conference

discussions will be published as a Policy Brief in January 2012.

This session established the common ground for the conference discussions with a presentation on the policy paper and a panel discussion featuring high-level stakeholders from across the continent.

7

AgriculturalFinance

Ministry ofFinance

Ministry ofAgriculture

CentralBank

Ministry ofTrade &

Commerce

?

What do Ihave to do

with Finance?

What do I know about Farming?

Why beinvolved?

HELP!!WHO is going totake care of me?

Legislation should account for the diversity of agricultural finance: Specific mechanisms

of financing agricultural value chains (e. g.

warehouse receipt systems and leasing), are

adversely affected if the necessary legislation is

absent or existing legislation blocks progress.

Legislation and regulatory oversight should

accommodate diverse forms of financing agri-

cultural clients and support innovation.

Subsidies should focus on rural and financial infrastructure: Although there have been calls

for subsidies on agricultural inputs (e.g. seeds,

fertilizer), outputs (prices for produce) and

the cost of finance (interest rates), the paper

contends that the long-term detrimental effects,

above all the inherent market distortions, out-

weigh possible short-term benefits. Rural and

financial infrastructure, however, can provide

fruitful avenues for subsidies as the effects are

long lasting and cause minimal distortion of

markets.

Land tenure systems should facilitate invest-ment: Depending on the cultural context, land

tenure systems may need to be revised to enable

long-term leasehold or ownership, thereby

providing collateral and planning security.

Data collection and knowledge genera- tion: This should be supported by government

and donors to enhance financial institutions’

understanding of the sector (e. g. data on far-

mers’ cash flows, the mapping of value chains,

weather data) as well as to monitor effectiveness

of policy (e. g. data on bank lending to the

agricultural sector).

9

Setting the stage

The presentation of the main issues in the poli-

cy paper was followed by a presentation of the

main outcomes of the related global conference

Cracking the Nut (see Global Conference: Cra-

cking the Nut). High-level stakeholders then

set the stage by outlining their views on the

challenges and opportunities for agricultural

finance in Africa.

Overcoming obstacles to rural and agri-cultural finance was the core objective of the Cracking the Nut conference (June 20-21, 2011, Washington, D.C.). At this global-oriented learning event five topics were highlighted:

Agricultural Finance

tions

InvestorsA publication summarizing the lessons learned is available for download in Eng-lish and Spanish: www.azmj.org

The comments of the panelists reflected the

experience and diversity of the institutions they

represent. In particular, the potential of com-

mercial banks to fund agricultural growth was

emphasized. To ease entry, the need for risk mi-

tigation through different types of risk-sharing

mechanisms including agricultural insurance

was highlighted. The panelists further agreed

on the need for capacity development for both

farmers and bankers. To be bankable, farmers

need to embrace a business attitude. To be able

to provide adequate financial products to the

different players in the agricultural value chain,

bankers need to enhance their understanding of

agriculture, i.e. seasonality.

The panel also shared insights on the practi-

calities of dealing with small-scale agricultural

producers from the point of view of financial

service providers. Collateral constraints and

poor record-

keeping on the demand side as well as the ab-

sence of long-term refinancing capital were no-

ted as the most pertinent challenges for doing

business with the sector. Notwithstanding these

challenges, confidence prevailed that providing

financial services to smallholder farmers can

be a viable business; collateral constraints for

instance can be overcome through innovative

forms of security such as livestock.

The discussants also considered the controver-

sial issue of subsidies. While the potential for

market distortion in local markets was acknow-

ledged, there was a common acceptance that

subsidies should be analyzed in a wider context

– that of a global economy in which agriculture

enjoys significant state support in most coun-

tries, in particular in those of the West.

The panel also emphasized that agricultural

finance is most likely to flourish in the absence

of direct political interference such as interest

rate caps.

The highlighting of these controversial issues

stimulated debate among participants and

provided additional common ground for the

conference discussions.

11

The following panelists addressed a broad range of topics pertinent to agricultural finance in Africa:

Maya Makanjee (FinMark Trust)Nixon Bugo (Alliance for a Green

Revolution in Africa, AGRA)Fabian Kasi (Centenary Bank)Fodé Ndiaye (United Nations Ca-

pital Development Fund, UNCDF)Paul Nduka Eluhaiwe (Central

Bank of Nigeria)

513

After setting the stage, groups of participants

from both the private and public sectors

discussed existing approaches to fostering the

provision of financial services to agricultural

businesses and thus agricultural development.

The objective of these sessions was to identify

major drivers of success and major constraints

for the specific cases which were presented. The

outcomes were summarized into messages to

policymakers and practitioners.

Most smallholder farmers sell at the same time

– immediately after harvest. Consequently,

prices are at the lowest at this point and farmers

receive less for their produce than they would if

selling at a later date when demand has picked

up again (and offer has decreased). At the

same time, producers usually lack the financial

cushion to hold out selling their produce as

they commonly face severe liquidity shortages

at harvest times after having to cover expenses

with little income during the pre-harvest peri-

od. Moreover, storage facilities are scarce and

often represent a risk to the produce quality

over the storage period. As a result, many

smallholder farmers are extremely vulnerable

to exogenous shocks and lack the opportunity

of increasing production through purchasing

increasing amounts of production inputs.

Warehouse receipt system based loan products

offer a solution to these challenges.

Asusu’s warehouse receipt system based loan

product entails storage of produce (e. g. sesame,

galangal, onions) for three to four months after

harvest until market prices have recovered.

Community storage facilities are used to store

the produce, and at the same time these serve

as collateral for loans extended by Asusu, a

microfinance institution (MFI). A farmer

organization manages the warehouse and

produce conditioning and commercialization.

Asusu and this farmer organization have a key

to the warehouse. Every couple of weeks, the

warehouse is opened by the farmer organization

together with Asusu to check the quality of the

produce and make sure it is safely stored. The

farmers’ liquidity problem is being taken care

of by a short-term loan from Asusu. The cost of

the loan is more than offset by the increase in

market prices.

For the MFI, the warehouse receipt system

based loans portfolio can represent up to 20 %

of the whole portfolio during the storage period

and very few cases of arrears were registered.

As such, this loan product is a substantial

and safe business line for Asusu to finance

small farmers in Niger. In March 2011, Asusu

counted almost 200 000 clients. Asusu started

as a non-governmental organization (NGO)

in 2005 and subsequently transformed into a

microfinance bank with a commercial microfi-

nance license.

Union des Institutions Mutualistes

U-Imcec’s loan warrantage product provides

farmers in central Sénégal with the opportuni-

ty of securely depositing their maize or millet

harvest. Produce is deposited during the harvest

period, stored for between six to eight months,

and released when food supply is scarce. As

a result, higher prices for the produce can be

achieved. Moreover, the deposited produce

serves as collateral for loans disbursed by U-

Imcec and therefore helps farmers overcome

liquidity constraints. The loan amount is

relative to the produce deposited and the loan

cycle is designed according to the specific crop

cycles of maize and millet in Sénégal. U-Imcec

delivers the product in collaboration with a

farmers’ organization. The partners jointly

operate and manage the two warehouses, which

entails quality control and commercialization

of the produce. The farmers’ organization maps

credit needs and sources clients, while U-Imcec

draws individual credit contracts with clients

and controls the sale of produce used to repay

the loans.

The scheme is a pilot project supporting

U-Imcec’s rural outreach and financing agri-

culture, and its design results from extensive

prior assessment conducted with the help of

the NGO GRET and Coopération Technique

Belge.

51115

The Farmer Business School (FBS) is an

innovative service for economic development

in agriculture. The aim is to improve cocoa

productivity, quality, and marketing efficiency

for sustainable livelihoods of cocoa smallholder

farmers across Cameroon, Côte d’lvoire, Ghana

and Nigeria.

West Africa accounts for almost 70 % of the

world cocoa supply, 90 % of which is grown

by nearly two million smallholder farmers.

With limited resources and price fluctuations,

farmers are constantly struggling to make ends

meet. They lack inputs, technical knowledge

and business skills, do not perceive themsel-

ves as businessmen/ women, and often their

limited knowledge about financial instruments

inhibits them from taking full advantage of the

opportunities of growing cocoa markets. Since

March 2010, more than 27 000 of an estima-

ted 170 000 farmers have received training in

Cameroon, Ghana, Côte d’Ivoire and Nigeria.

A range of planning, decision-making and ma-

nagement tools is provided to male and female

farmers. This non-formal training equips them

for financial management, using financial servi-

ces, investing in improved production tech-

niques, and forming economic interest groups.

Partners and FBS-graduates confirm that the

training fills a missing link in agricultural/eco-

nomic development strategies. Changes made

by the farmers indicate that FBS effectively

mobilizes their entrepreneurial spirit and

improves decisions around their livelihoods

through savings for, and investments in, the

production of cocoa, other industrial crops and

food crops for subsistence and markets. The

adoption process at partner organizations has

led to other changes in (the development of )

support strategies and management. The Ghana

Cocoa Board (COCOBOD), for example, is

mainstreaming this approach into the Cocoa

Extension Public-Private Partnership with an

annual advisory capacity for 60 000 farmers.

The MFI Microfinance et Développement

(MIFED) Cameroon and specialized service

providers have adopted the approach for clients

of existing and emerging village banks.

The FBS approach was developed in 2010 by

the Sustainable Cocoa Business Project in co-

operation with local partners like MIFED. The

project is implemented by GIZ on behalf of

BMZ, with co-funding from the World Cocoa

Foundation.

Uganda Coffee Farmers Alliance (UCFA)

The Uganda Coffee Farmers Alliance (UCFA)

supports the commercial development of coffee

farmer organizations by emphasizing marketing

and linkages with important service providers.

Most Ugandan smallholder coffee farmers lack

adequate training in agronomy/farming, a clear

understanding of the value chain, business skills

and market information to be able to improve

their income. Smallholder farmers also operate

from a weak bargaining position and limited

market access, which creates a dependency on

middlemen and thus reduces profits.

The UCFA is a farmer-owned apex body,

established to provide marketing and other

support services to coffee farmers’ organizations

in Uganda. UCFA enables coffee farmers to

achieve higher yields and better quality coffee

by organizing farmers in commercially-oriented

groups that have improved access to essentials

such as extension services (application of scien-

tific research and new knowledge to agricultural

practices through farmer education) and input

supplies. It promotes value addition instead of

providing infrastructure, organizes joint services

to maximize economies of scale, and facilitates

direct access to better markets by enhancing

the farmers’ participation at higher levels of the

value chain, instead of exporting unprocessed

goods. Farmers are sensitized to best business

practices like bulk marketing, strict quality

control, and joint transporting. Links between

the farmer groups and financial institutions and

transport services are established.

UCFA’s 35 000 members are organized in far-

mer groups, which receive technical assistance

from the alliance, which in turn helps them in-

crease the quality of their coffee. This increased

income by 289 % for an average farmer with

300 coffee trees.

UCFA is supported by the Hanns R Neumann

Foundation and other development partners.

17

Agricultural insurance

The broad objective of this scheme is to protect

farmers from the effects of natural disasters,

and to ensure payment of appropriate compen-

sation sufficient to keep the farmer in business

after suffering a loss.

The Nigerian Agricultural Insurance Corpo-

ration (NAIC) started operating in 1988 with

two crop items and two livestock items. Step by

step it has covered most of Nigeria’s crops and

livestock including export crops such as cocoa,

tea, coffee, cotton and rubber.

The Nigerian Federal and State governments

provide a 50 % subsidy on the premium to be

paid for certain crops and livestock. Most natu-

ral disasters, such as fire, lightening, windstorm

and diseases, are covered by the insurance,

while losses caused by negligence or by willful

damage are not covered, neither is political risk.

NAIC provides security for all categories of

farmers, small, medium and large-scale holders,

either in groups or as individuals. Insurance

is compulsory for farmers that benefit from

any form of agricultural credit. The scheme

also provides voluntary cover for self-financed

farming activities.

Impact goes beyond the immediate effect: the

scheme is a stimulus for agro-investment in

general, supports the empowerment of rural

communities, and creates jobs along the entire

agricultural value chain. This also mitigates the

need for emergency assistance by the govern-

ment in times of agricultural disaster and

prevents migration to urban areas.

NAIC facilitated lending to small farmers who

did not have collateral, and enabled almost

40 000 farmers and farmer groups to access

credit. Farmers now dare to take farming-rela-

ted risks as they feel supported by this agricul-

tural insurance scheme.

NAIC is wholly owned by the government and

is the sole underwriter of agricultural risks in

Nigeria.

Smallholder farmers and agribusiness funding scheme

Standard Bank’s Smallholder Farmers and Agri-

business Funding Scheme is an integrated value

chain finance approach that includes all actors

of the value chain from the input suppliers to

the wholesalers and retailers. It tries to under-

stand the needs at all levels and offer financial

products adapted to these needs.

The Smallholder Farmers and Agribusiness

Fund Scheme developed by Standard Bank and

its partners aims to reach more than 750 000

smallholder farmers and small and medium-

sized enterprises in Ghana, Mozambique,

Tanzania and Uganda by making available up

to US$100 million over three years.

The scheme uses an innovative funding struc-

ture that works through a market aggregation

mechanism. The structure includes linkages

to formal markets that provide minimum

guaranteed prices, thereby mitigating price risk,

as well as weather index insurance to mitigate

climate risk with risk partners providing partial

risk cover. The scheme relies on value chains

to leverage the interlocking arrangements

among the various actors of the value chain and

leverages partnerships to improve production

efficiencies.

More than US$20 million has been disbursed

through the funding scheme, financing more

than 70 projects and thus giving about 55 000

farmers direct access to finance through the

loans advanced for production and commodity

marketing. This scheme enabled farmers to

adopt the improved technologies and practices

needed to raise agricultural productivity and

thus generate higher and more reliable incomes.

The Agribusiness Funding Scheme is a partner-

ship between Standard Bank, the Alliance for

a Green Revolution in Africa (AGRA), OPEC

Fund for International Development (OFID),

the Kilimo Trust, the Government of Moz-

ambique and the Millennium Development

Authority in Ghana (MiDA).

19

Ecobank’s Value Chain Financing scheme is

aimed at increasing the productivity and pro-

fitability of stakeholders through the efficient

organization of agricultural value chains that

matches supply with market demand.

Ecobank’s strategy includes partnerships and

collaboration with all stakeholders in the agri-

cultural value chains and supply chains to boost

farmers’ incomes, productivity and returns.

Interventions include all stakeholders of the

downstream activities, from agro-inputs, logi-

stics, warehousing, processing to trading. Eco-

bank offers structured primary and secondary

financing to all supply-chain stakeholders.

Ecobank works with different public and priva-

te partners in many African countries offering

outgrowers financing schemes, risk-sharing

scheme facilities to cashew processors, and

supply-side financing.

trasting environments

Financial institutions are scarce in rural areas

in Sub-Saharan Africa; however, even where

funding is available, farmers often lack the

information to make informed decisions.

Opportunity International (OI) is supporting

informed decision-making about microfinance

services including lending, savings and insu-

rance through its Rural Finance programme.

OI is implementing this in five of nine African

countries where it has banks and microfinance

institutions which are subject to regulation and

supervision. Its focus is supporting smallhol-

der farmers, using group solidarity rather than

collateral, for production finance as well as

post-harvest value chain activities. OI’s general

approach is working with other strategic part-

ners including extension services, input dealers

and output buyers to support the target groups

and manage risks under its Rural Model con-

cept. In addition to providing loan funds, OI

develops savings, insurance products and brings

service points for deposits, withdrawals and

money transfers closer to rural communities.

The Rural Model supports informed lending

decisions based on three pillars:

profiles and cost of production, identifi-

cation of cash flows, and market informa-

tion (Know your crop – KYC II).

altitude, positions of houses, and water

access.

alternative sources of income, access/use of

mobile phones.

21

Lessons learned from business case sessions

Based on the presented approaches, the dis-

cussants distilled the following success factors,

potential solutions and messages for policymakers

on how and where to engage:

financial institutions

should use existing structures and innovati-

ve financing products, such as loan warran-

tage products, existing warehouses and

farmers’ organizations. These could be solu-

tions to reduce transaction costs and informa-

tion asymmetry.

of dif-

ferent players along the production line and

the benefits of collaboration to facilitate the

organization of value chains. Develop models/

products tailored along the value chain.

enforcement and/or regulations suitable for

intermediation between agriculture and

finance (e. g. commodity finance supporting

instruments).

icultural literacy training for the

staff of financial service providers to en-

able them to understand the business model

of their clients, i.e. the life cycle of the crops

being financed. Financial institutions need

agricultural specialists literate in assessing

plantations, crops and agricultural processing,

to be able to lend to agricultural businesses,

assess the risks involved and adequately struc-

ture and price a loan.

ss skills training for male and

female producers operating in various agri-

cultural value chains, including an explicit

focus on women and youth issues. Selecting

known, respected community members as

trainers can increase success.

op smart partnerships between the pub-

lic and private sectors and donors. Each party

should build on its complementary skills to

promote financial literacy, technical assistance,

and provide risk-sharing structures.

innovative risk mitigation measures,

including agricultural insurance products.

e a clear regulatory and policy frame-

work for agricultural insurance, potentially

including tax incentives and integration

with other financial services for farmers, such

as savings and credit.

anize smallholder farmers into farmers’

organizations to enable smaller farmers to

benefit from economies of scale and the

bargaining power of larger production units.

Constituting these farmer groups as legal

entities enables formal contracting with banks,

buyers and input suppliers.

ducate governments and development part-

ners on the adverse consequences of subsidies

to farmers and farmer groups that distort the

credit market and encourage a culture of de-

pendency on handouts.

nize effective extension services on a

commodity specific basis to provide efficient

and profitable farming activities.

Tailor approaches to rural farmers’ specific

needs as they are not a homogenous group.

vest in public goods and infrastructure, e.g.

small- and medium-scale irrigation systems,

roads and public transport are important and

necessary. Fiscal incentives could also stimula-

te investment.

sure property rights for the rural popu-

lation, especially smallholder farmers. Where

appropriate, adjust land tenure rights to

facilitate the development of larger farming

units without undermining customs rights.

ncourage the regular dialogue between

government ministries, development partners

and other stakeholders to mitigate lack of co-

ordination, communication and transparency.

Discussions were again based on the policy

paper Policy Support to Agricultural Finance in

Africa. The lessons learnt from the business case

sessions on conference Day 1 were also part of

the discussions. The working groups examined

recommendations affecting the public sector,

demand side and supply side representatives. This

gave participants the chance to discuss and influ-

ence agricultural finance policy guidelines from

different perspectives, reflecting their professional

backgrounds, areas of expertise and interest.

Participants keenly took advantage of this dis-

cussion space to qualify, expand and agree to the

recommendations. The outcomes of the respecti-

ve sessions, which often included cross-cutting is-

sues, represent the active input of the conference

participants into the Kampala Principles.

With reference to the respective recommenda-

tions from the policy paper, participants in the

sessions on public sector support discussed which

role the public sector can, and should, perform

in contributing to an enabling environment for

agricultural finance practice.

ld embrace a value chain/commodity approach, i. e. streamline

resources to support strategic crops (e.g. in

terms of knowledge generation)

Institutional advocate for agricultural finance: It was agreed that agricultural finance

needs a strong and dedicated institutional

advocate; however, the recommendation of the

policy paper suggesting the Central Bank for

the task was qualified. Participants agreed

that the Central Bank could assume the role,

but further emphasized that its suitability is

contingent to its degree of independence and

that the most suitable institutional for strong-

ly depends on the context in a given country

– in some countries, other institutions such

as the Ministry of Finance or the Ministry of

Economic Development may be better placed

to perform the task.

Knowledge generation and management: The public sector (government, donors, re-

search institutions) has an active role to play

in closing the information gap between agri

culture and finance:

- Knowledge generation should embrace a

value chain approach (i. e. mapping value

chains for strategic crops).

- Infrastructure should be developed to

facilitate the collection of weather data

(weather stations).

- Data collection on agricultural finance

practice (e. g. loans extended to the sector

should account for the entire range of

financial institutions (Commercial Banks,

Agricultural Development Banks, Microfi-

nance Institutions, Cooperative Banks,

Savings and Credit Cooperative Societies)

dealing with the agricultural value chain.

Harmonization of legislation across coun- tries should be fostered to ensure coherence

on the continent – regional bodies assume a

crucial role here.

conducted in accordance with CAADP prin- ciples (see CAADP Principles, page 25).

Conference Day 2 focused on policy issues. The objective was to formulate clear and widely implementable policy recommendations geared towards creating an enabling environment for providing financial services to agricultu-ral value chains and businesses. To this end, the morning comprised policy working group sessions.

23

strategy to achieve MDG-1;

growth rate at national level;

national budgets to the sector;

mentarities and cooperation to boost growth;

accountability;

farmers, agribusiness, and civil society communities.

Farmer-based organizations require public

resources. They benefit farmers by:

- Facilitating economies of scale in input

purchase, value addition, marketing and

advisory services.

- Strengthening the voice of agricultural

value chains to effectively influence agricul-

tural finance policymaking.

- Facilitating/catalyzing access to finance

through collecting relevant data such as the

mapping of cash flows.

Capacity development for famers should be

supported on different levels:

- Farmer business education to mobilize and

strengthen entrepreneurial forces.

- Financial literacy training to enable farmers

to make informed financial decisions.

Financial consumer protection should be

promoted to increase market transparency.

Land tenure: Producers need planning

security and collateral. Policy should deter-

mine long-term forms of land tenure.

consideration of gender and youth issues.

During the supply side sessions, participants

discussed policy issues directly affecting financial

institutions dealing with the agricultural sector.

Staff capacity building: Financial institutions

need dedicated staff/departments to success-

fully engage with the sector, i. e. to enhance

agriculture-related product development and

management.

Land tenure: Land is the most common

form of collateral for agricultural producers.

For financial institutions to accept land as col-

lateral, ownership needs to be clear. Policy

should determine long-term forms of land

tenure.

Consolidation of rural financial institutions

should be supported where possible to increase

efficiency in rural financial markets.

Partnerships of the various financial institu-

tions dealing with the agricultural value chain

should be promoted to leverage expertise and

strengths of different business models.

Interest rate caps should be strictly avoided.

25Demand side

During the demand side working groups, participants discussed the most pressing issues from the point of view of those requiring financial services for agricultural activity and how policy can support solutions for these challenges.

Plenarydiscussions

DraftingCommittee

Policy workinggroups

Busines casesessions + + +

KAMPALA PRINCIPLES

Policy PaperConference Draft

27

Based on the results of the policy working group

sessions, a set of policy guidelines was drafted

by a high-level committee (see Annex 2). These

covered the actions most urgently required for

fostering the effective provision of financial

services to the agricultural sector in Africa. The

draft was subject to further thorough discussion

and fine-tuning in the plenary session. The 11

principles, known as the Kampala Principles,

are the result of a far-reaching consultative and

participatory process starting with the inaugura-

tion of the MFW4A Task Force on agricultural

finance in early 2011, enriched by contributions

of more than 30 key African agricultural finance

stakeholders in the lead-up to the conference,

and complemented by the various perspectives

brought forward during the diverse sessions of

the conference, which generated a broad consen-

sus on the Kampala Principles.

1. Address agricultural finance policy strengthe-

ning through establishing a high-level coordinati-

on body and by recognizing a single entity as the

advocate for agricultural finance.

2. Strengthen farmers’ organizations so that the

production end of agricultural value chains beco-

mes an effective influence on agricultural finance

policymaking.

3. Focus public sector policy on a value chain/

commodity approach, with clustering of smaller

farmers to facilitate economies of scale in input

purchase, value addition, marketing and advisory

services.

4. Ensure legislation is in place, and implemen-

ted, to foster innovation and remove barriers to

financing the business of agriculture, through

measures such as, but not limited to: asset-backed

products, warehouse receipts, contract farming,

credit reference bureaus (and better client identi-

fication), consolidation of small but viable rural

financial institutions and other support to the

informal financial sector.

5. In accordance with CAADP Principles, and

in encouragement of private sector investment,

increase public sector expenditure in areas such

as, but not limited to: crop and livestock research

and extension, water for irrigated crop produc-

tion and livestock farming, infrastructure for crop

insurance, rural energy supply, communications

and roads.

6. Support transformation of the agricultu-

ral sector by encouragement of longer term

productivity-enhancing, on-farm investments

such as water supply/irrigation, fencing and farm

buildings, through consensual approaches to land

tenure issues.

7. Enable financial institutions to meet the

demand for longer term financing by developing

financial markets so that lenders can gain access

to the term liabilities required.

8. Encourage the commercialization of agri-

culture and of farming as a business, whether

by consolidation of small holdings or through

involvement of the private sector (domestic and

foreign); in both cases ensure that social, cultural

and environmental concerns are met and, in the

latter case, that appropriate controls are in place

to prevent undesirable exploitation.

9. Develop and implement concrete actions to

improve financial literacy, consumer protection

and farmer business education, with a special

focus on gender and youth issues.

10. Drive research, training and dissemination of

knowledge to foster private sector investment in

developing and marketing added-value agricultu-

ral products and services.

11. Ensure a sustainable flow of information is

available in areas such as, but not limited to: mar-

kets, output prices, costs of inputs and cost and

conditions of financial products and services.

The panelists outlined various routes to concrete

policy formulation and implementation, em-

phasizing in particular the respective roles of the

institutions they represented.

The African Rural and Agricultural Credit

Association (AFRACA), founded in 1977, is an

association of financial and other institutions

involved in empowerment of the rural popula-

tion in Africa. AFRACA has recently grown in

membership to 105 organizations consisting of

Central Banks, Commercial Banks, Agricultural

Banks, Development and Cooperative Banks, In-

surance Institutions, universities, MFI and their

networks, and organizations involved in rural and

agricultural development in Sub-Saharan Africa.

AFRACA will use its vast membership and

networks to disseminate the Kampala Principles,

using its different platforms: policy exchange

forums, knowledge management and information

dissemination services, technical cooperation and

capacity building programmes.

With its pan-African and national governmental

support, the Comprehensive African Agriculture

Development Programme (CAADP), administered

by the New Partnership for Africa’s Development

(NEPAD), a body of the African Union, has an

adequate framework for implementation. By endor-

sing the CAADP agenda, African countries commit

to allocating 10% of GDP to agricultural develop-

ment and to providing a conducive environment

for private sector investment. There is substantial

scope for the Kampala Principles to be fed into the

process through countries’ national CAADP com-

pacts and investment plans. As part of CAADP’s

monitoring and evaluation work, a set of indicators

will be agreed on to measure performance.

The partnership for Making Finance Work for

Africa seeks to further leverage the momentum of

this agricultural finance process, which it initiated.

The MFW4A Agricultural Finance Stakeholders

Working Group will build on the stakeholder net-

work that was established prior to, and expanded

during, the conference, to harness and disseminate

knowledge, in particular the Kampala Princip-

les, to facilitate capacity-building initiatives, to

catalyze funding for the sector, and to establish

Public Private Partnerships. The partnership will

reach out to global policymaking and promote the

voice of Africa by feeding the recommendations

into the forthcoming G20 paper on agricultural

finance, which was presented at the G20 summit

in Cannes in November 2011.

The Bank of Zambia is an example of the recom-

mendations directly shaping policy formulation.

The bank is finalizing its policy on rural and ag-

ricultural finance and will consider and integrate

the conference outcomes in the process.

The different components of the conference

illustrated the complexity of effectively financing

agricultural value chains. Discussions on existing

business practices and their lessons for policy as

well as straight-forward discussions on policyma-

king resulted in wide agreement on what works

and what does not work. With policy formulati-

on and implementation, the task is demanding

as a diverse set of institutions has to be aligned

towards the common goal of creating a conducive

environment for agricultural finance. The final

plenary established a consensus on how to best

leverage the specific strengths of African institu-

tions to promote the technical lessons encapsula-

ted in the Kampala Principles to zip finance and

farming to harness the continent´s potential!

The final plenary provided a platform to discuss future steps for implementing conducive agricultural finance policies and practices – in particular the Kampala Prin-ciples around which the conference had built a strong, participatory consensus.

29

The plenary panelists comprised: Saleh Usman Gashua (AFRACA) Boaz Black Keizire (African Union)Stefan Nalletamby (MFW4A) Chiara Chiumya (Bank of Zambia)

Abdul Kyanika, Centenary Bank

Achim Deuchert, GIZ Headquarters

Ajai Nair, World Bank

Anita Campion, AZMJ

Birgit Holderied-Kress, KfW

Boaz B. Keizire, AUC (CAADP Advisor)

Calvin Miller, FAO

Christian Koenigsperger, GIZ Uganda

Edward Tenywa, Bank of Uganda

Fabian Kasi, Centenary Bank

Fodé Ndiaye, UNCDF

Gerhard Coetzee, Centre for Inclusive

Banking in Africa, University of Pretoria

Irene Sekamwa, GIZ Uganda

Joost de la Rive Box, European

Microfinance Platform

Judith Frickenstein, GIZ/MFW4A

Mariel Mensink, Terrafina Microfinance

Matthew Troniak, USAID

Maya Makanjee, FinMark Trust

Michael Hamp, IFAD

Michael Jainzik, KfW

Michael Rothe, GIZ/MFW4A

Moses Kaggwa, Ministry of Finance Uganda

Enid Kiiza, Bank of Uganda

Rosette Bamwine, Bank of Uganda

Ousmane Djibo, NEPAD/CAADP

Paul Mayanja, aBi Trust Uganda

Polycarp Musinguzi, Bank of Uganda

Renate Kloeppinger-Todd, World Bank

Ricardo Sengo, Standard Bank

Richard Roberts, Consultant to GIZ

Richard Wangwe, Stanbic Bank

Robert Ocaya, GIZ Uganda

Robin Hofmeister, GIZ MFW4A/ Nigeria

Ron Bielen, ABI Trust Uganda

Saleh Usman Gashua, AFRACA

Stephen Makanga, AFRACA

Tom Kakuba, Plan for Modernisation of

Agriculture (PMA) Uganda Secretariat

on Agricultural Finance in Africa

Enid Kiiza, Bank of Uganda

Fodé Ndiaye, UNCDF

Gabriela Braun, GIZ/MFW4A

Maya Makanjee, FinMark Trust

Muragu Kinandu, Central Bank of Kenya

Richard Roberts, Consultant to GIZ

Richard Wangwe, Stanbic Bank

Robert Ocaya, GIZ Uganda

Stefan Nalletamby, MFW4A

Stephen Makanga, AFRACA

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

Bonn and Eschborn, Germany

Dag-Hammarskjöld-Weg 1-565760 Eschborn, GermanyPhone: +49 61 96 79-0Fax: +49 61 96 79-11 15Email: info@giz.deInternet: www.giz.de