AgFiMS Tanzania 2011Agri-businessWorkshop

Irma Grundling, Trevor Kaseke7 December 2011

Workshop objectives …

• Share the headline findings of AgFiMS Tanzania 2011

• Sounding board in terms of the interpretation

• Way forward??

The problem …

• Smallholder & agri-business finance perceived as risky

• There is lack of financial services suited for agriculture

• Limited penetration of financial services

AgFiMS objectives

The overall aim - A survey to:• Assess the need for financial services and support

• Assess factors prohibiting access to financial services

• Facilitate interventions to address the need

AgFiMS has two complementary components: •Demand side component

•Supply side component

• To quantify the degree and type of finance provision

Objective

Land-size or turnover-based selection criteria applied

?

AgFiMS Tanzania 2011 sample

· Representative sample of 626 EAs drawn by NBS

· Listing & screening exercise provided the sampling frame

· 4 094 face-to-face interviews were conducted with agribusiness owners

· 3 734 interviews with producers

· 104 interviews with processors

· 256 interviews with service providers

· The survey is representative at:

· National, urban-rural, and agricultural zonal levels (including Zanzibar) for producers

· National level for processors and service provide

Size & Scope of the AgFiMS Tanzania 2011

identified Agribusiness Market

AgFiMS Tanzania 2011

Market Segment Total AgFiMS qualifiers

Number of qualifiers

% qualifying

Producers - farmers selling more than they consume and earning an income from cash crop, food crop or livestock farming

1 932 222 492 980 25.5%

Processors 21 017 8 199 39.0%

Service Providers 62 502 18 793 30.1%

TOTAL

2 015 742

519 972 25.8%

• +- 7m farming households• +- 5m households with farming as main income source

AgFiMS Tanzania 2011

Food crop farms; 48.7%Cash crop

farms; 37.7%

Livestock farms; 8.3%

Processors; 1.6%

Service providers; 3.6%

Geographical Distribution demonstrates zonal

differentiation

Food crop producers

Cash crop producers

Livestock farmers

• 50 farmers

• 50 farmers • 50 farmers

Geographical Distribution

Processors Service Providers

• 20 Businesses

AgFiMS Tanzania 2011 Business Profile

Business Profile Most agribusinesses focus on crop farming as main source of income

48.5%

37.5%

8.3%1.8%3.9%

Food cropsCash cropsLivestockProcessorsService providers

Maize

Rice

Beans

33.2%

23.9%

8.8%

Main income gen-erating activity:

Food crop farmers

Tobacco

Cotton

Cashew

Coffee

Sunflower

27.3%

19.9%

19.0%

17.2%

6.8%

Main income gen-erating activity:

Cash crop farmers

Business Profile Most livestock businesses focus cattle as main source of income

Indigenous cattle

Cattle - Dairy

Indigenous chickens

Pigs

Indigenous Goats

Chicken

Chickens – Broilers

Cattle – Beef

42.3%

19.5%

8.3%

7.8%

5.7%

5.2%

3.3%

3.3%

48.5%

37.5%

8.3%1.8%3.9%

Food cropsCash cropsLivestockProcessorsService providers

Crops

By-products of animals/poultry

Fruit

Honey

Vegetables

73%

5.3%

4.2%

1.5%

.4%

Main produce processed by pro-

cessors

Business Profile Service providers are mainly retailers

Buy/get agricultural products from farmers/processers and sell it

Sell something to farmers for the purpose of farming eg. Seeds

Provide a service to farmers or processors of farming products eg. Renting ploughs

Sell something to processors of farming products for the purpose of processing eg. Processing machinery

Rent land to farmers for farming purposes

82.9%

11.9%

2.7%

1.9%

1.4%

Main Income generating activities – Service providers

48.5%

37.5%

8.3%1.8%3.9%

Food cropsCash cropsLivestockProcessorsService providers

AgFiMS Tanzania 2011Business Owner Profile

Business owners demonstrate entrepreneurial characteristics

Want to leave agribusiness

Do not want to grow the business

Dont have other options - will stay in business

Love farming dont want to do anything else

See activities as a business opportunity to grow

1.5

1.5

24.9

15.6

56.5

3 in 5 are involved in agriculture because they see it as a business

opportunity

1.2%

15.6%10.4% 72.8%

7 in 10 have extensive experience in agribusiness

Less than 2 years 2 to 5 years

6 to 10 years More than 10 years

Business owners manage their money wisely and are willing to take calculated risks

Keep financial records

On any given day, know the business’s financial situation

Save, or put money away for business use

Willing to re-invest profits in the business

In bussiness it is neccesarry to take calculates risks

Would borrow money to start a new/expand bussiness

Would borrow money to improve the cash flow situation of the bussiness

Would borrow money for inputs

63.8%

93.1%

78.5%

93.1%

94.0%

88.0%

81.2%

80.7%

Business owners make soundfinancial decisions

Ability to meet minimum requirements

Having borrowed from them before

Easiest to use

Most convenient to get to

Quickest access to money

Best repayment terms

Best interest rates

3.0%

3.5%

14.7%

28.5%

54.4%

58.5%

62.4%

Criteria for choosing credit sources

AgFiMS Tanzania 2011 Business Environment

Is the environment conducive for these entrepreneurs

to achieve business success?

Food crops Cash crops Livestock

8.7%

4.2%

21.2%

‘Ownership’ of land is a perception for most producers

More than 90% producers claim land ownership although less than 10% have title deeds

Most producers use more land than they ‘own’; Lack of capital affects productivity for 1 in 5

Dont use all the land they own - land not arable or not enough water

Dont use all the land they own - lack capital to use all the land

Dont use all the land they own - use some for nonagri purposes

Dont use all the land they own - use the rest for other farming activities or rotation

Use more land than own

3.7

18.5

1.4

4.8

71.5

Lack of access to irrigation systems and reliance on natural water resources further inhibits productivity

Not enough water

Intermittent water supply but enough for farming needs

Always enough water for use but if more water business can grow

Always enough for business needs

26.5

10.8

44.8

17.9

80.8

8.1

10.9

Rely on nature only

Shared irrigation system (co-op system)

Own irrigation system

Water Systems

Although the level of access to infrastructure is not conducive for business activities, mobile phone access provides connectivity

Electricity

Tarmac roads

Rail

Mobile

Internet

Landline

14.4

13.7

3.7

67.4

1.8

.7

Limitations in the business environment seems to result in distressed sales

Sell mainly in village or to pub-

lic32.1%

Sell mainly to middle-

men19.5%

Sell to a co-op, whole-

saler, trad-ing com-pany or govern-

ment48.3%

Preferred Market?

Distressed sales?

12% sell on contract

10% sell all products on

contract

Other

Insurance/job

Borrow/sell an asset

Savings

Nothing in place

3.9

.9

4.9

5.4

84.9

Agribusinesses have virtually no coping mechanisms to rely on when faced with business risks

Income diversification offering protection?86.1% diversify their income sources

No diversification

Additional income from family & friends

Diversify within main agri income line

Diversify within agri but other lines

Has external regular income apart from agri

13.9

.2

17.1

58.7

4.4

Business risks have to be consciously managed for agri-businesses to be perceived as a viable potential market for financial institutions

Using Savings

Did not do anything

Sold Asset

Sold livestock

Took a loan

Did not do anything

Using Savings

Sold livestock

Using Savings

Did not do anything

Pe

sts/

dis

ea

ses

(10

.6%

)

7.0%

82.8%

4.7%

4.9%

5.0%

45.1%

36.6%

4.1%

11.1%

76.7%

AgFiMS Tanzania 2011 Support Services

Lack of access to networks and information support increases vulnerability

Network wth other agribusiness owners

Belong to groups that benefit the buiness

Get financial advice from credible financial sources

Dont get financial advice/dont have access

Business advice from credible sources

Dont get business advice/dont have access

Get appropriate extension services

Dont get extension services

30.1%

22.8%

15.0%

78.0%

45.3%

48.9%

41.9%

45.3%

Group membership is limited

69.3

3.6

21.5

Cash crop farmers most likely to form groups for farming

activities(44%)

AgFiMS Tanzania 2011 Financial Business Operations

Levels of income.......

Below Tshs.900,000/Chini ya 900,000

Tshs.900,000 to Tshs.3,000,000

Tshs. 3,000,001 to Tshs.5,000,000

Tshs. 5,000,000 to Tshs.10,000,000

Tshs. 10,000,001 to Tshs.15,000,000

Tshs. 15,000,000 to Tshs. 30,000,000

Above 30,000,000/ Zaidi ya 30,0000,0000

32.9%

55.0%

5.5%

4.2%

0.5%

1.1%

0.4%

37.7%

47.6%

8.0%

5.1%

0.5%

0.6%

0.0%

3.5%

68.6%

12.7%

6.9%

5.4%

0.8%

1.5%

0.7%

51.6%

30.2%

6.8%

4.4%

5.4%

0.8%

2.5%

48.5%

26.9%

12.8%

1.5%

7.0%

0.8%

Service providerProcessorLivestockCash cropFood crop

83%

Financial management

Banked Business owners who have or use any product or service from any commercial bank for the purpose of the agribusiness

Served by formal non-bank and/or semi-formal non-bank financial institutions

Business owners who have or use any product or service from any regulated or registered financial institution which is not a commercial bank (e.g. SACCOS, MFIs) for the purpose of the agribusiness

Formally served Business owners who are banked AND/OR who are served by formal non-bank and/or semi-formal non-bank financial institutions for the purpose of the agribusiness

Informally served Business owners who use informal mechanisms to manage the financial matters of the agribusiness. This would include services offered by agricultural associations or groups, input providers, VICOBAs, VSLAs, ROSCAs etc.

Financially served Business owners who are either formally AND/OR informally served for the purpose of the agribusiness

Financially unserved/excluded

Business owners who are neither formally OR informally served for the purpose of the agribusiness

Sound financial decision-making does not result in high levels of financial inclusion for agribusinesses

Fi-nanciall

y served; 45.7%

Financially unserved;

54.3%

Formally served

Informally served

32.4%

27.9%

Banked

Served by formal non-bank/semi-formal institutions

28.2%

8.6%

Multiple financial strategies – A matter of choice or no options?

Banked Served by non-bank formaland/or semi-formal institutions

Unserved (55.6%)

Informally served

43.5%

% businesses with transactional products

% businesses with savings products

% businesses with credit products

% businesses with insurance products .0

10.0

20.0

30.0

40.0

50.0

26.1

31.3

30.0

.5

Landscape of access…

147 000 banked …What do they use banks for?

Transactional products

Savings products

Credit products

Insurance .0

20.0

40.0

60.0

80.0

100.0

92.4

97.8

13.8

45 000 use MFIs, SACCOs & Insurance…What do they use it for?

Transactions

Savings

Credit

Insurance .0

20.0

40.0

60.0

80.0

100.00.0

22.5

82.3

5.8

145 000 use the informal sector …What do they use it for?

Transactions

Saving

Credit

Protection/insurace 0

20

40

60

80

100

.0

11.0

95.7

.0

Saving

Borrowing

Insurance

78.5%

27.7%

0.5%

Financial behaviour …

143 782

2 600

408 303

78.5% business owners save but most prefer to save at home rather than putting their money in a bank

Savings group

Savings in livestock, assets, inputs, crops, business

Bank

Secret place at home, piggy bank, with family

2.8%

23.0%

32.0%

84.9%

Savings mechanisms used by savers

1 in 3 business owners borrowed money/took credit for the business during 2010/2011

Savings group

VSLA

VICOBA

Money lender

Customers

Micro finance

Bank

SACCO

Friends and family

4.7%

4.8%

5.1%

8.7%

8.9%

9.9%

13.1%

16.5%

48.6%

Informal Sources

Formal/semi-formal

Sources

Friends/fam 10.2%Informal 32.6%Friends/fam & Informal 25.5%SACCO/MFI 4.2%SACCO/MFI & Informal 12.5%SACCO/MFI & Friends/fam 1.1%SACCO/MFI & Informal & Friends/fam 2.2%Bank 3.8%Bank & SACCO/MFI 0.3%Bank & Informal 5.6%Bank & Friends/fam 0.5%Bank & SACCO/MFI & Informal 0.8%Bank & Informal & Friends/fam 0.6%Bank & SACCO/MFI & Informal & Friends/fam 0.2%

Quantifying the amount of credit in the AgFiMS market

BankSACCOs

MFIsInformal

Friends/ family

4% business owners

7% business owners

27% business owners

14% business owners

USD 36m68.9% of credit

11.7% of borrowers

USD 6m12.2% of credit

21.3% of borrowers

USD 8m15.1% of credit

79.3% of borrowers

USD 2m3.8% of credit

40.2% of borrowers

ASSUMPTIONS• Once-off per source• Ts 3,1m Bank• Ts300k SACCO/MFI• Ts100k Informal• Ts50k Friends/family

USD 52m

Financial needs ....‘Capex’, ‘operational expenditure’, ‘business assurance’

To expand the bussiness

Day to day bussiness expenses

To tide the bussiness over against a shock

54.3%

56.2%

23.2%

Drivers of credit

To expand the bussiness, starting a new business

Day to day bussiness expenses

To protect the bussiness from a shock

42.5%

40.0%

26.8%

Drivers of savings

Agri-businesses finance inputs themselves…

The business borrows money from a financial institu-tion

The business borrows money from other sources

Sell something

The business makes use of advance payments from buyers

The business makes use of its savings

The business has cash to pay them

0.8%

2.5%

3.3%

6.8%

23.0%

71.7%

What is keeping agri-businesses out of banking?

USAGE

Do not know how to open a bank account

Do not know where to go to open a bank accountBusiness does not need a bank account, use other facilities that

workThere are no benefits to the business in having a bank account

I have not decided on opening an account yet

I have not opened because my business is still small

ACCESS

Banks are too far away

Bank operating hours are inconvenient

Bank charges,costs are too expensive

Business does not meet the requirements for a bank account

INCOME

I don’t have enough money to open a bank account

SUPPLY SIDE

I do not like the disturbance regarding bank services

Interest rates are not good

15.9%

4.0%

11.4%

7.6%

1.4%

0.3%

36.5%

1.1%

4.8%

25.6%

1.9%

0.2%

0.0%

What keeps agri-businesses from borrowing?

There is nobody/institution that will lend the bussiness money

Do not know where to borrow from

Bussiness did not need to borrow

Interest rates too high

I do not like to borrow money

Tried but was not succesful

Poor credit record

Did not have collateral

Dont know how to go about it

21.9%

21.1%

11.5%

11.0%

10.6%

7.5%

7.5%

5.7%

4.9%

Collateral ... What do agri-businesses have to offer?

Land/premises

The business itself

Buildings

Livestock

Harvest

64.0%

15.5%

14.3%

10.9%

8.8%

AgFiMS Tanzania 2011 Identifying Development Needs

Perceived obstacles to growth

Getting premises to operate from/Access to land

Lack of labour

Access to business advice and financial information

Access to water

Access to credit; loans and financial support; dont qualify

Access to markets; toll fees; transport

37.2%

16.4%

28.6%

7.7%

58.3%

84.2%

30.9%

18.0%

29.1%

13.0%

44.1%

55.6%

13.3%

24.6%

26.1%

48.3%

58.8%

75.3%

Producers Processors Service providers

Key capacities for Agri-businesses

•Usage of financial services & products

•Accessing credit

•Access to/usage of credible financial advisory resources•Access to/usage of credible business advisory resources•Access to/exposure to appropriate agricultural advice/support

•Access to networks &support structures; coping mechanisms

Cluster SizeSocial capital

Agri info

Business advice

Financial advice

Usage of credit

Usage of financial

services & products

Long term 103 300        

Short term developmen

t181 000        

Opportunity 172 000        

Agri-business development clusters

Key capacities for formal financial services usage

•Access to infrastructure

•Access to markets

•Access to/usage of credible financial advisory resources

•Access to/usage of credible business advisory resources

•Access to/exposure to appropriate agricultural advice/support

•Social capital – Access to networks &support structures; coping mechanisms

Financial inclusion development clusters

Cluster SizeAccess to infra-

structureAccess to markets

Financial advice

Business advice

Social capital

Intensive care (ICU)

133000          

Development 110000      

Opportunity 95000      

AgFiMS Tanzania 2011 Evidence-led Intervention

Approach?

Capacities needed for formalfinancial services usage

•Access to/usage of credible financial advisory resources•Access to/usage of credible business advisory resources•Access to/exposure to appropriate agricultural advice/support

•Access to networks &support structures; coping mechanisms

Information

Structure/organisation

Infrastructure & access to market

Info Hub

BUSINESS ADVICE•Financial management principles

Record keeping; Debt management; Income diversification; Cash flow management

•Strategic business decisionsCompetitive edge; Pricing; Marketing; Contracting; Group/networking

•Risk management• Price; Weather; etc.

AGRI RELEVANT INFO•Inputs

Sources, pricing, credit/advance, security., risks

•ProcessPreparation, prevention, remedial, labour, best practices

•YieldStorage, transportation, timing, surplus/demand & price

FINANCIAL ADVICE•Products, services & requirements•Financial education•Financial advice

Investments; debt; insuranceLong-term; short-term planning

STRUCTURING/FORMING GROUPS•How•Requirements; Obligations; Responsibilities•Management•Structure

Establishing info hubs as a first step

INFORMATION HUB

VALUE CHAIN PLAYER

S

GOVERN-MENT

RESEARCH

INST

ACADEMIC INS

NGOS

FINANCIAL

INSTBUSINES

SINST

PRICINGAUTHORITY

DONORS/INVESTORS

AGRIBUSINESSE

S

2-wayInformati

on sharing

INFORMATION HUB

VALUE CHAIN PLAYER

S

GOVERN-MENT

RESEARCH

INST

ACADEMIC INS

NGOS

FINANCIAL

INSTBUSINES

SINST

PRICINGAUTHORITY

DONORS/INVESTORS

AGRIBUSINESSE

S

OP

PO

RTU

NIT

Y

DEV

ELO

PM

EN

T

OP

PO

RTU

NIT

Y

DEV

ELO

PM

EN

T

Benefits for all role-players

- TECHNOLOGY-BASED- FACE-TO-FACE

- SEMINAR/CONFERENCEINFORMATION HUB

Platform ....

-SUSTAINABILITY through SHARED RESPONSIBILITY- Give & take

-INFO SHARING RULES & ETHICSINFORMATION HUB

Rules of the game ...

- TECHNOLOGY-BASED- FACE-TO-FACE

- SEMINAR/CONFERENCE

-SUSTAINABILITY-RESPONSIBILITY-INFO SHARING RULES

INFORMATION HUB

- TECHNOLOGY EXPOSURE FOR AGRIBUSINESSES- INTEREST GROUP MEMBERSHIP/NETWORKING

- MICRO CREDIT SYSTEM / CREDIT BUREAU

OP

PO

RTU

NIT

Y

More than an info hub ....

Thank you