The missing middle

Concept Note

Finance Fair

Gerrit Holtland

Agri Hub coordinator

The ambition

The Growth and Transformation Plan requires:

• 12% increase in annual level of agri- business investment.

• 10% annual increase of rural households linked to financial service providers.

The key question:

How to finance the investments in agricultural production, processing and marketing needed to combat food insecurity and to foster a broad based agricultural growth ?

Constraints in rural finance

• Limited access to financial services in rural areas

• High transaction costs due to small loans, lumpy cash flow, high co variance, clients live dispersed and poor roads

• Skills gap in the banking sector; especially a lack of knowledge of the agribusiness sector

• Low product quality in savings, loans, insurance and payment services.

• Hg inflation and limited liquidity of banks

• High collateral requirements and inability to use land as collateral (so illiquid and perishable collateral)

• Lack of a dedicated regulatory framework for cooperatives.

Types of loans

• Small loans: up to 50.000 ETB

For inputs like quality seeds, fertiliser, land preparation small trade at village level

Usually routine activities

Can be covered micro-credit or with equb or via relatives, business connections

• Medium seize loans 100.000 – 1 million ETB. Many coops !

Small equipment (processing, tractors), stores

Not routine at local level, so a business plan is needed; collateral and own investment limited

Making business plan is expensive. Who can make it ?

• Large loans: 5-10 million ETB

Small factories/ dairy farm or poultry unit

Not routine so BP is needed; substantial own capital of entrepreneur

Who serves the missing middle

• Banks

How to increase the outreach ?

What kind of loans can they offer ?

What are the collateral requirements ?

How to make BPs in an efficient way?

• MFIs & SACCOs

How to increase the loan seize ?

Can value chain finance be used? How ?

• Business Development Services:

How to make BDS sustainable ?

• Rating agencies

How does it work? And who will pays for it ?

• Third parties: GO and NGO

How to support without disturbing the market ?

The way forward: trial and error

• The missing middle is plagued with paradoxes and dilemma’s.

• Many parties are invite to present their services and views

• We need to explore options as we realise that there is no single solution.

• There is no silver bullet; there is just a lot of work to be done by many different stakeholders.

• Let us share our doubts and difficulties alongside our successes, we can start to serve the missing middle.

Thanks for your attention

For more information,

please visit our website: www.apf-ethiopia.ning.com