Rural finance in selected IFAD-financed operations, Dr Omer Zafar and Dr Thierry Mahieux
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Transcript of Rural finance in selected IFAD-financed operations, Dr Omer Zafar and Dr Thierry Mahieux
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NENNEN Tuscany Retreat 2010 Tuscany Retreat 2010
Rural Finance in Selected IFAD-Rural Finance in Selected IFAD-financed Operationsfinanced Operations
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IFAD’s Approach to Rural Finance:IFAD’s Approach to Rural Finance:Six Guiding PrinciplesSix Guiding Principles
support access to a variety of financial services;
promote a range of financial institutions and modalities;
support demand-driven and innovative approaches;
encourage market-based approaches;
focus on sustainability and poverty outreach;
promote an enabling environment for rural finance.
* * in compliance with microfinance best practices
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Selected IFAD Experiences: Selected IFAD Experiences: SanadiqSanadiq
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SanadiqSanadiq in Syria in Syria
Concept
Sanduq is an improved version of a savings and credit association;
four operational pillars: self-reliance; autonomy; sustainability; outreach to the poor.
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SanadiqSanadiq in Syria in SyriaAchievements
76 sanadiq created, with 13,500 members (45% women);
22,000 loans extended, amounting to USD 17 million;
loans are short-term with maximum 1 year duration;
sanadiq enable the operation of micro-businesses;
scaling up: now operating in all Syria projects, with similar model in Sudan, Somaliland, Yemen and other regions.
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SanadiqSanadiq in Syria in Syria
Way Forward
legalisation of sanduq as financial institution;
creation of Apex institution for financial and other services;
linkages for refinancing from financial institutions;
innovative forms of capitalisation.
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Selected IFAD Experiences: Refinancing FacilitiesSelected IFAD Experiences: Refinancing Facilities
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Refinancing FacilitiesRefinancing Facilities
Concept
MT and LT refinancing capital to a range of selected financial institutions for onlending to farmers and small agribusinesses;
provision of capacity building services to financial institutions and their clients;
refinancing facilities financially sustainable for all stakeholders.
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Refinancing FacilitiesRefinancing Facilities
Achievements in Rural Areas
Armenia: 9 PFIs; loans approved USD 13.9 million;
Moldova: 9 PFIs; loans approved USD 22.6 million;
Macedonia: 7 PFIs; loans approved USD 11.6 million;
Bosnia & Herz.: 13 PFIs; loans approved USD 20.8 million;
PFIs leverage IFAD funds with their own resources;
near-perfect repayment rates (PAR 30 days).
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Refinancing FacilitiesRefinancing Facilities
Impact – Financial institutions are now:
increasing rural outreach and attracting new clients/resources;
adapting financial products/services to rural/agricultural demand;
investing their own funds and leveraging additional funds;
introducing innovative collateral requirements (e.g. forward contracts).
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Refinancing FacilitiesRefinancing Facilities
Way Forward
diversification of financial instruments (e.g. micro-leasing; equity financing); already operational in some countries;
technical assistance to mobilise deposits and savings (as an exit strategy).
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Equity FinancingEquity Financing
Concept
temporary strategic investments in rural enterprises (often family-owned) with growth potential and job creation;
combined with non-financial advisory services (managerial, technical, market access);
the foundation is the value chain approach.
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Equity Financing – Value Chain ApproachEquity Financing – Value Chain Approach
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Equity Financing in ArmeniaEquity Financing in Armenia
Methodology
creation of an appropriate Equity Fund to channel IFAD resources;
ongoing investments in rural enterprises through equity participation combined with optional debt financing;
pre-defined exit strategy based on enterprise sustainability at nominal value.
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Equity FinancingEquity Financing
Way Forward
policy dialogue with Government to improve the conducive environment for rural investments;
access to stock exchange to source private or institutional strategic investors;
equity participation in microfinance institutions to expand rural operations.
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IFAD’s Rural Finance Approach in YemenIFAD’s Rural Finance Approach in Yemen
Instruments
public-private partnership to manage the programme, invest IFAD/cofinancier funds, and introduce corporate social responsibility;
equity participation in pro-poor microfinance institution(s);
venture capital and equity investments in SMEs;
leveraging resources and services from commercial banks.
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IFAD’s Rural Finance Approach in YemenIFAD’s Rural Finance Approach in Yemen
risk management (e.g. life insurance for borrower; weather index-based insurance for activity; credit insurance for lenders);
value chain approach as the foundation (PA forward contracts);
dialogue with Government on improving the policy framework for rural investment.
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IFAD’s Rural Finance Approach in YemenIFAD’s Rural Finance Approach in Yemen
Key Indicators
three programmes valued at USD 150-200 million cofinanced with a number of strategic partners;
focus on economic opportunities within selected value chains (initially coffee, honey, horticulture, fish products, natural stone, ornamental flowers).
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IFAD’s Rural Finance Approach in YemenIFAD’s Rural Finance Approach in Yemen
Outputs
win-win; value addition across the supply chain; on-farm, off-farm and non-farm business profitability; equitable profit distribution;
rural job creation;
rural economic growth and sustained poverty reduction;
strengthened financial institutions with improved rural outreach.
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QA QueryQA Query
should a PMU become a financial intermediary?