Linking Rural Entrepreneurs to Financial Services Hans Balyamujura - PowerPoint PPT Presentation

Brussels Development Briefing n.35 Revolutionising finance for agri-value chains 5 March 2014 http://brusselsbriefings.net Linking Rural Entrepreneurs to Financial Services. Hans BALYAMUJURA, ZED (Pty) Limited.

Linking Rural Entrepreneurs to Financial Services Hans Balyamujura Brussels Policy Briefing No. 35 March 2014

Table of Contents 1. The challenge faced by the African agricultural Entrepreneur. 2. Why Link Rural Entrepreneurs to Financial Services 3. Typical Farming Arrangement 4. New Generation Smallholder Agribusiness Model 5. Challenges 2

The challenge faced by the African Agricultural Entrepreneur … • On average globally upstream and down stream farming activities account for 78% of the value added in all agricultural value chains. Source: World Bank 2012 Figure 1: African Agribusiness Pyramid 3

Why Link Rural Entrepreneurs to Financial Services … • Commercial Agricultural lending is estimated at between 1 and 3 % of Corporates commercial debt. • Agriculture contributes 35% of GDP. • Employs more than 65% of labour force Small and Medium Enterprises • Scale and profitability • Limited collateral • Very poor data • Limited quantification of risks Commercial Small Scale Farmers • High cost of debt Subsistence Small Scale Farmers Figure 2: African Agribusiness Pyramid 4

Typical Farming Arrangement … Food & Input Supplies Agricultural Production Harvest Energy Smallholders farmers Farm produce • Farmers have separate Middleman/Trader individual transactions with each segment. • All risk between the farmer and financier. Financial Services This is repeated for each segment of the value chain 5

New Generation Smallholder Agribusiness Model … Figure 3: Key Aggregation Activities for Smallholder Value Chains Processing – Food and energy Harvest Agricultural Production Input supplies Smallholder perform individual production decisions farmers Eco System Entrepreneur aggregates individual decisions Rural Entrepreneur Link to parallel and fully integrated value chain Integrated Value Chain Production finance Postharvest and trade finance Input finance Food & Input Supplies Agricultural Production Harvest Energy Input Risk Postharvest and Market Risk Production Risk Technical Support Technical Support Technical Support 6

Example … • Several rural entrepreneurs moving in this direction with the active participation of key input suppliers. • Not many farmer organisations • Quality Food Products (Tanzania) Limited is a good example of an entrepreneur - working to created a fully integrated value chain. • Distribution of inputs • Advisory services with support of input suppliers • Mechanisation services • Markets • Aggregation of services such as finance and insurance • The Southern African Confederation of Agricultural Unions (SACAU) is playing a leading role to ensure farmer centric models of operation. 7

Challenges … • Corporates not open to entrepreneurial risk. • All risks identified and possible mitigation put in place. • Unresolved risks are shared by all the key actors (Farmers, Entrepreneurs, Input suppliers, offtake and financial service provider) – Goal is to limit the value at risk to each segment actor’s profits within the ecosystem. • Most of the key actors (corporates) have to account for this risk. • Slow process for all the necessary approves. • Limits the potential for scale. • Identification of like minded value chain actors. 8

Challenges … • The Rural entrepreneur does not have the financial capacity to the lead the creation of an integrated value chain. • The initial basket of services in the ecosystem is small due to scale. • Insurance (crop insurance or weather based index insurance). • Cost should drop with expanded use. • Transportation and storage. • Mechanisation services. • Trading volume. 9

Thank You Email: hans@zedgroupza.com Phone: +27 83 346 1655 10