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Agricultural Finance in Sierra Leone Product Innovation and Financial Access – Agricultural Value Chains – Cassava, Rice, Poultry and Cocoa Published by:

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  • Agricultural Finance in Sierra Leone Product Innovation and Financial Access Agricultural Value Chains Cassava, Rice, Poultry and Cocoa

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  • 2 Content


    1. Objectives and Context 1 2. Executive Summary 4 2.1 Macroeconomic Overview 4 2.2 Enabling Environment for Inclusive Financial Services 6 2.3 Rural and Agricultural Finance Opportunities 7 3. Overview of the Agricultural Sector 9 3.1 Government Policies, Donor & Development Partner Interventions 9 3.2 Microeconomic Perspective on the Agricultural Sector 10 3.3 Review of Important Agricultural Value Chains 20 3.3.1 Cassava 20 3.3.2 Rice 22 3.3.3 Poultry Rearing 27 3.3.4 Cocoa 30 3.4 Foreign Investment in Rural Areas 35

    4 Analysis of Rural and Agricultural Finance 37 4.1 Financial Sector Overview - Macro Level 37 4.1.1 Macroeconomic Context 37 4.1.2 Financial Sector Regulation and Supervision 39 4.2 Financial Sector Overview 40 4.2.1 Financial Infrastructure 40 4.2.2 Institutional Perspective 43 4.3 Structural Bottlenecks in Rural and Agricultural Finance 48 5. Making Finance Work: Promising Instruments and Interventions 54 5.1 A Holistic Private Sector Perspective 54 5.2 Informal Financial Services 55 5.3 In Search of Products and Interventions that will Work for Sierra Leone 56 5.4 Agricultural Asset Finance/Micro Agri-Leasing 58 5.5 (Micro)-Finance for Rural Enterprise & Service Clusters 60 5.6 Supply Chain Finance 61 5.7 Building Carbon Credits into Agricultural Finance Products 61 5.8 Inventory Credit and Warehouse Receipts 62 5.9 Trade Finance Facilities at Commercial Banks in Sierra Leone 64 5.10 Private Equity for Medium-Size Agribusiness 65 5.11 Creation of a new National Agricultural Finance Institution 66 5.12 Agricultural Finance Enablers & Meso Level Interventions 67 6. Conclusion and Outlook 70

    Appendix 1: Transition to Sedentary Agriculture 71Appendix 2: References 72

  • 1AbbreviAtions

    AfDB African Development BankATV All Terrain Vehicle

    BMZ German Ministry of Economic Cooperation and DevelopmentBSL Bank of Sierra Leone (central bank)

    CAADP Comprehensive African Agriculture Development Programme CDC Commonwealth Development CooperationCEO Chief Executive OfficerCFLCO Consumer Finance & Leasing Co.CILSS Comit permanent Inter-Etats de Lutte contre la Scheresse dans le SahelCORAF West and Central Africa Council for Agriculture Research and Development CPI Consumer Price Index

    DEG Deutsche Entwicklungsgesellschaft (German Private Sector Investments)

    EFP European Financing Partners (EU Development Finance Institution)EU European UnionEUR Euro

    FAO Food and Agriculture Organization (United Nations)FARA Forum for Agricultural Research in AfricaFMO Dutch Development BankFSA Financial Services AssociationFSAP Financial Stability Assessment Program FSDP Financial Sector Development Plan

    GDC German Development CooperationGDP Gross Domestic ProductGIZ Deutsche Gesellschaft fr Internationale Zusammenarbeit (formerly GTZ)GoSL Government of Sierra LeoneGPS Global Positioning System ha Hectare


    IFAD International Fund for Agricultural DevelopmentIFC International Finance CorporationIITA International Institute for Tropical AgricultureILO International Labor OrganizationIMF International Monetary Fund

    KfW Kreditanstalt fr Wiederaufbau, German Development Bank

    MAFFS Ministry of Agriculture, Forestry and Food SecurityMFW4A Making Finance Work for Africa Process MITAF Microfinance Investment and Technical Assistance FacilityMSME Micro, Small and Medium Enterprise

    NACSA National Commission for Social ActionNASSIT National Social Security and Insurance TrustNGO Non-Government OrganizationNSADP National Sustainable Agriculture Development Plan

    ODA Official Development AssistanceEB Austrian Development Bank

    RTGS Real Time Gross Settlement SystemSCP Smallholder Commercialization ProgramSLARI Sierra Leone Agricultural Research InstituteSLL SL Leone SMS Short Messaging Service

    UNCDF United Nations Capital Development FundUNDP United Nations Development ProgrammeUSD US Dollar

    VSL Village Savings & Loans

    WFP United Nations World Food ProgramWHO World Health Organization

  • 1objeCtives And Context


    the initial version of this study has been commissioned by the bank of sierra Leone and the German Ministry of economic Cooperation and development (bMZ) in the context of the German support for financial sector devel-opment in sierra Leone.

    the report is to take a broad, holistic view of economic opportunity and the supply/demand of financial services in agriculture and in rural areas of sierra Leone. it is ex-pected to provide pointers for implementation priorities within the Financial sector development Plan (FsdP)1 and specifically for various initiatives under the FsdP that will improve broad-based access to finance, such as the Microfinance investment and technical Assistance Facility (MitAF) ii.2

    the study was originally submitted in March 2011 based on in-country research and available data as of late 2010/early 2011. For the inclusion in the GiZ/MFW4A publica-tion series, some easily accessible public statistics have been updated through year-end 2011, but generally the document reflects underlying facts and market develop-ments only through january 2011.

    1 republic of sierra Leone, FinAnCiAL seCtor deveLoPMent PLAn, 31 oct 2009, www.bsl.gov.sl/pdf/FsdP.pdf 2 investors: UndP/UnCdF, KfW, Cordaid. see: http://mitaf.esglobal.com/


    the report pursues three main objectives: (1) an overview of the agricultural sector in sierra Leone, (2) a critical analysis of the current state of agricultural finance and (3) a set of recommendations on instruments and inter-ventions that could enhance access to rural and agricul-tural finance. As part of the Overview of the Agricultural Sector, the study is to:

    survey current policies and strategies in rural/agricul-tural development pursued by Government and donor initiatives;

    provide a microeconomic perspective on the agricul-tural sector in terms of products, production methods, markets and trade relationships;

    analyze key value chains for a number of major crops.

    the Analysis of Agricultural Finance is designed to:

    identify potential bottlenecks in the economic environ-ment and regulatory framework for agricultural finance,

    review the rural demand for financial services, and analyze the supply of formal and informal financial

    services along agricultural value chains.

    the study should culminate in a number of practical recommendations concerning:

    formal and informal instruments that meet the finan-cial needs of actors along agricultural supply chains,

    instruments and interventions for broader access to agricultural finance that could be implemented within the Financial sector development Plan and its MitAF ii component,

    necessary interventions in the institutional and policy framework of financial services.

    1. Objectives and Context


  • 2 objeCtives And Context

    Definition of Rural and Agricultural Finance Making Finance Work for Africa succinctly defines Agricultural Finance as encompassing the full range of financial services loans, savings, insurance, and payment and money transfer services needed, offered, or used by the agricultural sector, meaning farming and farm-related activities including input supply, processing, wholesaling, and marketing. Agricultural finance refers to financial services ranging from short-, medium- and long-term loans, to leasing, to savings, to crop and livestock insur-ance, covering the entire agricultural value chain input supply, production and distribution, wholesaling, process-ing and marketing.3

    the term also encompasses rural finance (see iFAd definitions in box 1). For this reason we will include rural finance aspects in the following analysis of the agricultural and financial sector and in the recommendations to make finance work for agriculture and as well for rural areas, where the majority of the population engages in subsist-ence agriculture.

    rural and agricultural financial services may be provided by formal financial institutions, such as banks or regulat-ed microfinance companies, as well as through informal channels. informal financial services occur in the family or community context and are provided by savings clubs or small village banks or even by long distance truck driv-ers who may carry money transfers for a small fee. often, we find formal or informal supplier credit among non-financial agents in the agricultural supply chain.

    3 see www.mfw4a.org: Agricultural & rural Finance.

    BOX 1

    The Financial Market

    Microfinance:Financialservicesforpoorandlow-income people

    Ruralfinance:Financialservicesusedinruralareasbypeople of all income levels

    Agriculturalfinance:Financingofagriculture-relatedactivities, from production to marketing in rural and urban areas

    Source: International Fund for Agricultural Development (2010) IFAD Decision Tools for Rural Finance, p. 12

    Financial Market

    Rural Finance

    Agricultural Finance

    Micro Finance

  • 3Objectives and cOntext

    Financial Access Challenges

    despite the multitude of potential products and channels, actual availability of financial services in rural areas and in agricultural supply chains is often constrained. this limits the economic integration and welfare of rural populations. the lack of access is often explained by the slow and un-even roll-out of formal financial offerings