The Role of Technical Assistance in Lending Products for Smallholder Agriculture

George R. Osure

June 2014

Agenda

1. About SFSA

2. How to make use of Technical Assistance (TA) as a risk mitigation tool plus other benefits to both lenders and farmers.

3. Conveying technical assistance to lenders and farmers as an sharing information service for efficiency.

4. Structure of a Special Purpose Vehicle for Technical Assistance.

5. Conclusion

INPUT MGT PLAN

OUTPUT

MGT PLAN

SERVICES MGT PLAN

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GOAL: Reach millions of small farmers through scalable, sustainable solutions, raise farmers’ productivity, activate supply chains, increase incomes.

About the SFSA : Where we work

About SFSA: support systems and assets

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R & D Market-led Extension

Risk Management

Policy Development

Seed Systems Outreach

1. A non-profit organization established by Syngenta under Swiss law.

2. Can access Company expertise but it is legally independent and has its own board.

We will now consider how technical assistance (TA) can support the lending process by reducing cost of transaction, improving accuracy, and mitigating risk.

As an enabler;An agribusiness

environment developer;

It is a virtual trusted broker

who selects and bundles services

to facilitate expansion and

efficiency.

The “go to office” on how to utilize

& leverage on public resource capacity (PPP)

4 benefits from a TA service for agricultural lending

Technical Assistance as an enabler

• Introducing traceability of input-throughput – output linkages

• Improves ease of monitoring QC standards of farmer- lender interaction.

Develops opportunities for both farmer and lender by efficiently

aggregating services required at all levels of

the value chain.

• Access to credit as complex due to the tools required e.g. BP

• Lenders as being only Interested in markets, not production with preference for “town based” operations

• Institutions who work supported by a very harsh legal regime.

Enables farmers by changing mindset (as it

is participatory).

• Uses transparency, accuracy, and timeliness of availability of data as a risk mitigation tool due to availability of predictive nature.

• Relates with suppliers on technology development trends

Integrates information acquisition with risk

management:

TA in the lending business environment

Demonstrates requirements (services support, products, sales, procure products, reduced risk, improve efficiency, through puts) to access credit

High operation costs relate to distribution incurred by lenders can be minimized through use of data availed in a timely manner. This also becomes a basic risk mitigation tool.

The recommended business model for the TA – Farmer- lender is a mix of production & market led systems anchored on joint liability collateral, crop& trade insurance, working thro bundled services for planned aggregated production.

TA and trust between buyer-lender - farmer

Knowledge and personal experience of the farmer e.g.

weather.

Soil health and water quality at the beginning.

Relevant laws related to:

seeds, research, regulatory

institutions, policies,

packaging, and standards.

Annual crop calendars, physical &

geographical location.

The contribution of gross margins

and crop rotation

towards loan repayment.

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High Quality technical assistance is the virtual trusted broker or glue at the center of the buyer – lender – farmer.

Reports & data TA prepares for an agric. lender

The report should be easy to understand and relate to the

conditions that borrowers (farmers) relate to such as:

Number of farmer groups suitable and available

Labour market available & created to sustain agric prodn

Area cultivated (ha or acres): Revenue/profit/yield generated

and available for loan repayment per unit area.

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Technical Assistance requires a vehicle to convey the information in a forma, regulated, legally sound in a cost effective manner.

This requires a Special purpose vehicle (SPV) designed for this specific purpose and business environment.

An SPV to provide TA a single or group of lenders

Recommended that for TA to benefit lenders to agriculture we requires a Special Purpose Vehicle (SPV) that can link credit, input suppliers farmers, and buyers.

The SPV is designed to be primarily used as a trusted, legally sound information brokering and exchange platform”.

SPV structure as TA for lender- farmer- buyer

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A not for profit company whose KPI can be: addditional sales generated for suppliers, work created and incomes generated, additional value of business for the area.

Structured to cover work done between lender and input & services suppliers, buyer, regulator etc.1. The SPV can be financed from transaction costs (loan) reducing insurance/risk costs and hence becomes an virtual risk mitigation tool.

2. Triple bottom line (profit, poverty alleviation, environmental sustainability) becomes an inclusion tool as it will facilitate partnerships with the development community.

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Board of management

Metrics Support Process/ Farmer financial

management / P&L

Location 1 Location 2 Location 3

Public Enterprise support / Network• Labs• Plant protection services• Agronomy Training

Marketing SupportRegistration of members to SPV

Private Enterprise support / Network• Fertilizer companies• Irrigation firms• Machinery suppliers, etc

External partners & lender loans officers

Production Support • Strong technical focus• Coordination of plans

Private Enterprise support / Network• Loans officers from Lenders

• Implement training • Stewardship (safety) • Tech support• Agro systems

• Market analysis• Market

development• links

• Profitability, • cost analysis, • impact assessment

KPI for the SPV

Location 4

Special purpose vehicle to organize & manage services

Loans officers access information required.

SPV organogram to provide TA & support networks

Conclusion: the SPV as a technical assistant to lenders and farmers

Create a facility which will reduce

transaction costs for lenders by

differentiating individual

smallholders and producer groups.

Share data & knowledge in timely

manner thro’ integration of

different approaches to exploit new

opportunities for lenders and farmers.

This improves efficiency and reduces risk.

Bundle specialized services, technology,

and tools for the smallholder farmers

and hence facilitating access to credit in a

scalable manner.

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The Role of Technical Assistance in Lending Products for Smallholder Agriculture: THANK YOU FOR YOUR ATTENTION

George R. Osure

June 2014

The business model: activities for the pilot year

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Jan Feb March April May July Aug Sept Oct Nov Dec

Register Farmer for

loan, financial &

TA education,

Contracts Signed with lender incl SPV & loan

issued.

Start Prodn & Planting

Harvest & Sales =

loan repayment

Harvest & Sales =

loan repayment

Review of Prodn Season

Farmer org + SPV. Review

Business Plan for SPV +Lender + farmer

org.

Certify farmers &

their scheme