IMPROVING ACCESS TOIMPROVING ACCESS TO FINANCE IN RURAL COMMUNITIES

ByVictor EzenwokoVictor EzenwokoExecutive Director, Diamond Bank Plc.

INTRODUCTION:INTRODUCTION:

Nigeria with a population of about 170 million people (40 45% f hi h i th d ti th )(40-45% of which are in the productive ages – youths)

Agriculture contributes about 43% of GDP and about 72% employment in Nigeria72% employment in Nigeria

Cocoa Producing States:Abia Akwa Ibom Cross River Delta Edo Ekiti KwaraAbia, Akwa Ibom, Cross River, Delta, Edo, Ekiti, Kwara, Kogi, Ogun, Ondo, Osun and Oyo

Characteristics of Rural Communities in NigeriaCharacteristics of Rural Communities in Nigeria

Often remote and difficult to reach Often remote and difficult to reach

Infrastructurally deficient (transportation, communication, electricity, water etc)water etc)

Low income level

Ageing population (young and productive age lost to rural – urban drift)

Characteristics of Rural Communities in Nigeria Cont’d

Prevalence of informal business and economic activities

Prevalence of smallholder, subsistence farming businesses

Prevalence of informal credit facility arrangements (money-lenders etc)

Dearth of formal microfinance institutions and commercial banks.

Challenges of Providing Finance to Rural Communities in Nigeria

O ti l t f idi ff d bl dit f ilit i Operational cost of providing affordable credit facility in an infrastructurally and economically challenged rural sector in Nigeria

High cost of funds to provide rural credit especially as the credits are uncollateralized

Challenges of verifying cash-flow records, credit history or financial capacity of rural businesses for banks to evaluate and mitigate lending risks

Challenges of Providing Finance to Rural Communities in Nigeria Cont’d Nil or negligible cost/benefit appeal to fund fragmented, small-holder

and widely dispersed farming businesses instead of other formaland widely dispersed farming businesses instead of other formal, well organized and more profitable businesses.

Hi h l l f d f lt l t b i l dit High level of default on loan repayment by previous rural credit beneficiaries as a result of diversion or loss of farm produce

Lack of tangible and technically realizable collateral for agricultural and rural credit.

Lack of storage facilities for farm products

How to improve access to Finance for Rural Communities

H l ti hi / ki t ith l i fi Have relationship/working agreements with rural microfinance institutions, in areas where your bank does not have an outlet

Leverage on Farmers Co-operatives and Associations to take advantage of economies of scale and therefore enhance the cost/benefit appeal of funding rural businesses, instead individual

llh ldsmallholders

Develop credit scoring system for Rural Farming/Agro Industrial co-operatives in collaboration with other interest groups to prequalify agricultural loan beneficiaries

How to improve access to Finance for Rural Communities Cont’dCommunities Cont d Develop a supply-chain financing approach. Link credit facilities

with contract farming or off-taker agreements. Bank pays directly to i li d ff k d i il f d li dinput supplier and off-taker domiciles payment for produce supplied by farmer with the bank

Collateral issue can be further addressed via institutional support framework like an effective warehouse receipt financing system, commodity exchanges and agricultural credit guarantees(ACG )(ACGs)

Government support with non-market distorting subsidy of Agriculture, through agricultural credit interest rebates and Growth Enhancement Schemes

How to improve access to Finance for Rural Communities Cont’d

M bil b ki i iti ti th t b i b ki t t i Mobile banking initiative that brings banking to certain areas on certain market days

Central Bank initiative towards the introduction of banking agents targeted at the rural unbanked

Funding of storage facilities/warehouses to facilitate use of warehouse receipts (this requires legislative backing)

How to improve access to Finance for Rural Communities Cont’d

Organising and running of bank sponsored enlightenment campaigns in local languages – use of fertilizers, pesticides, benefits f iof insurance

Partner with cocoa producing states to enhance the efficiency of farmer field schools

Diamond Bank’s Intervention Provide financing for agrochemicals and fertilizer to farmers signed on to an Provide financing for agrochemicals and fertilizer to farmers signed-on to an

off-taker agreement. Pilot scheme to start with Saro/ADM.

Loans to be advanced to Farmers’ associations for on lending to members for Loans to be advanced to Farmers associations for on-lending to members for the purchase of agrochemicals and fertilizers.

A Cocoa Value Chain Finance Product based on the CBN ACGS guarantee A Cocoa Value Chain Finance Product based on the CBN-ACGS guarantee has been structured but awaiting further inputs from our partners (IFC/ADM/Saro).

Discussing ongoing with Ondo State Ministry of Agriculture and Top Wedges Ltd to fund set up of a Chocolate Processing Facility with Ondo state government and Top Wedges ltdgovernment and Top Wedges ltd

Diamond Bank’s Intervention- continuedDiamond Bank s Intervention- continued

• To commence a 2-year Technical Assistance Program with IFC , on AgriFinance Development ; 6 value chains in view (Cocoa RiceAgriFinance Development ; 6 value chains in view (Cocoa, Rice, Poultry, Sorghum, Corn and soya)

• A budget of N3bn in 2012 ear marked for Cocoa Farm Input Financing• A budget of N3bn in 2012 ear marked for Cocoa Farm Input Financing under the IFC/WCF led partner bank deal

• Thank You• Thank You

ACCESS TO FINANCE AND SERVICES IN RURAL COMMUNITIESIN RURAL COMMUNITIES

L’A(R)GENTL A(R)GENT PROVOCATEURPROVOCATEUR

CA$H I$ NOT AN I$$UE$ $ $$

BANKABILITY SMALLHOLDERSBANKABILITY SMALLHOLDERS

• Assets / Collateral• Assets / Collateral• Land tenure / title• (Informal) savings • Specialist bankersSpecialist bankers• Ag risk assessmentD t li t• Data on applicants

• Women

MICRO CREDIT SCHEMESMICRO CREDIT SCHEMES

• Nano‐financeNano finance • Loan & Saving combined• Productive investments• Productive investments• Small like‐minded groups W f• Women focus

• Clear repayment scheme• Peer group pressure • Trained loan officers

A FISTFUL COCOA POINTSA FISTFUL COCOA POINTS • Cash flow plan • Crop / weatherCash flow plan• Data applicants• Land title

Crop / weather insurance

• (Micro)‐leasing• Land title• Save in liquidity

( f l)

(Micro) leasing • Trained loan officers• Trained Ag bankers• Save in (informal) 

groups• Trained Ag bankers• More womenE• Saving accounts

• Smart phone tech• Even more women

05°21,727N, 03°26,388W05 21,727N, 03 26,388W

UNE POIGNÉE DE FÈVES DE CACAO

THANK YOU La création des réserves nécessairesWCF Partnership Meeting – Washington 2012

THANK YOU

WHY Should the  Cocoa Sector Improve Access to Finance and

Services in Rural Communities?

Jonas Mva MvaIDH Program Manager Cocoa

WCF Partnership Meeting, June 12, 2012

Increasing gap between demand and supplysupply

6000

4000

5000

0s)

N d d S l

+2.5% / yr1.3M MT Demand Growth

3500

48252000

3000

Cocoa (000 Needed Supply

Demand

3500

0

1000MT C

2007 2020 2020

Source: Industry data & FSG

Characteristics of the production unit in West Africa

Future of cocoa farming is

at risk & Cocoa farming not g

yet a business

Challenges = Triple

production of cocoaproduction of cocoa

farmers and leave land

available for food crop

Immediate solution (2012 – 2016)

Cocoa tree of the futureCocoa tree of the future

2020 Target = Increasing productivity

1070 kg/ha

1521 kg/haNew Productivity:

1521 Kg/Ha

Plant material

Fertilizer585 kg/ha

1521 Kg/Ha

Knowledge/Pest control

Plant material450 kg/ha

Current

Improve land use efficiency by higher productivity inImprove land use efficiency, by higher productivity in West Africa

Current farming system Knowledge

More intensive farming system

system

3,5 million tons

KnowledgeFertilizerPest controlPlant material

4,5 to 5 million tons

6 million hectares

3-4 million hectares

The Cocoa Fertilizer InitiativeFertilizer Initiative for Cote d’Ivoire

and Nigeria

U1

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U1 remove the text there as wellimprove the IDH logo pleaseUser, 6/5/2012

Aggregate volume projections (MT)scenario of 100% growth per annum

250 000

200,000

250,000

150,000

rtilizer (M

T)

Nigeria

100,000

Volume of fe

r Nigeria

Cote d'Ivoire

50,000

V

02012 2013 2014 (+100%)2015 (+100%)

Market opportunityMarket opportunity

USD 600 million USD 200 millionUSD 600 million USD 200 million

JigawaKatsinaZamfara Yobe

Sokoto

Adamwara

Borno

Kaduna

KanoKebbi

K

Niger

Gombe

PlateauPlateau

Bauchi

Edo

Fct

Kogi

Kwara

LagosOgun Ondo

Osun

Oyo

Taraba

Plateau

Enugu

Nassarawa

Benue

AnambraEbonyi

Ekiti

Cross RiverDelta

RiversBayelsa

Imo

Akwalbom

AnambraAbia

Three delivery models3 Cash-and-carryThree delivery models 1.Farm finance 2.Fertilizers-for-beans 3.Cash and carry

33

2

1

Improving Access to Finance and Services in Rural Communities = Shared Value Opportunity

•sustainable economic growth

Cocoa producing countries•sustainable economic growth, •price stability,• full employment,•external balance.

•Secure long term supply•Fertilizer business opportunity

•Community welfare•Profitability•Food security

•Environmental preservationReducing crop pressure

U2

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U2 I would remove the text and include it only on your speechUser, 6/5/2012

THANK YOU    IDH cocoa teamMatthieu Guémas, Program Director Jonas Mva Mva, Program Manager Cocoa

Lucian Peppelenbos, Senior Manager Learning & Innovation Diana Kos, Junior Program Manager Cocoa

Sustainability: Sustainability: Improving Access to Improving Access to FinanceFinancep gp g

in Rural Communitiesin Rural Communities

June 14th 2012

Juan Fernando Valenzuela ArangoCocoa Development and Purchasing Director

Ricardo Mejía AristizábalCocoa Development Specialist

Outline

1. Grupo Nutresa and the Dow Jones Sustainability Index2. Finance in rural communities: current situation3 Equity Fund: “Cacao para el Futuro”3. Equity Fund: Cacao para el Futuro

• Why an equity fund?• How does it work?• Participantsp• Commitments• Strengths• Difficulties• Progress• Challenges• Opportunities

4 Q&A4. Q&A

Compañía Nacional de Chocolates and the Compañía Nacional de Chocolates and the C D l tC D l tCocoa DevelopmentCocoa Development• The Cocoa Development Area was founded in 1958• Some achievements:

– Sexual incompatibility study of the most important clones used in Colombia

– Good Agricultural Practices• Standard• Farmers training  

“ l ” llh l l f– “Parcelas demostrativas”: smallholder experimental farms– Monilia campaign– Technology transfer to farmers: 534 farmers trained in 2011– Experimental farm: 250 ha farm in Santander – New varieties development– Cocoa projects with smallholders: 12.000 ha, 6.000 families

Finance in rural communities: current situationFinance in rural communities: current situation

• Government cocoa projectsp j– Low interest rates– Investment subsidies– Alliances: World Bank → Department of Agriculture →

Smallholder Association↔ IndustrySmallholder Association ↔ Industry 

• Limited access to the financial system due to the lack of collaterals

• The financial support is limited in time (only for planting)

Equity Fund: “Cacao para el Futuro”Equity Fund: “Cacao para el Futuro”

Wh it f d t ?• Why an equity fund to grow cocoa?• Colombian cocoa supply deficit

• Colombian “Fine and Aroma” cocoa

• 1 000 000 hectares available to grow cocoa• 1.000.000 hectares available to grow cocoa

• Smallholders with available land and labor

• Private Investors looking for investment options with social impact

• Tax benefits

Equity Fund: “Cacao para el Futuro”Equity Fund: “Cacao para el Futuro”

How does it work?

Technical support C t l

Project Supervisor

Technical support Control

$

Cocoa %

Equity FundInvestors

2.75 x $

+ Technical assistance+ Inputs

+ Crop mgmt.+ Production‐IRR: 14.5 % 

10 years

Equity FundInvestors

Portfolio manager:

p+ labor $+ Land rent

%

10 years

Smallholders

‐ Crop for 15+ years

Equity Fund: “Cacao para el Futuro”Equity Fund: “Cacao para el Futuro”

• Project key facts:j y• Total area: 1.700 ha• Productivity:  1.500 kg ha‐1 year‐1

• Total production: 2.550 MT year‐1 (after the 8thyear)

• About 170 families• About 170 families• 200.000 jornales (day of labor) per year during the productive stage.

• Employment:   850 direct425  indirect

Equity Fund: “Cacao para el Futuro”Equity Fund: “Cacao para el Futuro”

• Strengths• No need of mortgages• Financial and Technical support during the planting

and development of the cropand development of the crop• Difficulties

• Poor infrastructure• Land tenure

• Progress• Fund: USD 10 MM• 750 ha

Equity Fund: “Cacao para el Futuro”Equity Fund: “Cacao para el Futuro”

• ChallengesChallenges• To plant 1.700 ha promptly• To obtain the expected productivity• To obtain the expected productivity• Smallholder empowerment

O t iti• Opportunities• To keep growing• To extend to different crops

Q&AQ&A