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Agri-ProFocus Ethiopia
Batu Agri-Business
Finance Fair Reports
Batu
March 2015
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Colophon Report compiled by: Kebede Dhuga
Contact Information Agri-Profocus Ethiopia
Agri-ProFocus Netherlands
Gerrit Holtland Agri-Profocus Ethiopia Coordinator Visiting address Near Dreamliner Hotel, Behind United Bank Building (6th Floor) Postal address PO BOX 201319 Tel: 251 11467 1059 Addis Ababa, Ethiopia E : [email protected] Website http://agriprofocus.com/ethiopia
Jan Willem Eggink Agri-ProFocus network facilitator Visiting address Agri-ProFocus Jansbuitensingel 7 Arnhem Postal address Jansbuitensingel 7 6811 AA Arnhem T: +31 (0)26 7600397 M: +31 (0)6 52 68 41 92 E: [email protected] S: jweggink1 Website www.agri-profocus.nl
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Table of Contents
1 Introduction ............................................................................................................... 3
2 Objectives of the Fair................................................................................................ 9
3 Scope/Components of the Fair ................................................................................. 9
3.1 Preparation of the Fair ............................................................................... 10
3.2 The Event/Finance Fair .............................................................................. 11
3.3 Reflections from core team members and other participants ................. 13
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1 Introduction The economy of Ethiopia is largely based on agriculture, but like elsewhere in Africa
the level of investment in agriculture has been less than 15% and this affects the growth
of agriculture seriously. Banks have for long considered farmers, agricultural coops and
rural SMEs as being not bankable as they lack organizational capacities and
professionalism, and also the lack of collateral is an issue. For those that do have a valid
business case, it was often impossible to get access to finance as Banks have little or no
means of managing the some risks related to agriculture. Moreover, since they have
sufficient demand from around cities and town, where infrastructures are relatively
available, banks do not have interest to go to rural areas, which increases transaction
/operational costs.
Many farmers in developing countries are too big to get support from microfinance
institutions, yet too small for commercial lenders. The result is a group known as the
“missing middle”: farmers who can’t get access to finance. Such farmers often have to
depend on private financiers who provide high-interest loans that are often not very
transparent and certainly not beneficial to the farmer. Banks interested in supporting
agriculture all aim at the same group of large, well established farms with a good track
record, credibility and collateral.
Transaction costs play a large role here: it is much more profitable to build long-term
relationships with big farms, which need big loans, than with many clients who need
smaller loans. Regardless of the size of the loan, a bank has to do the same amount of
work in assessing the risks involved and providing financial services. The marketing
process, the due diligence, the financial transactions and the monitoring process, all
take the same time, whether it is for a loan of US$ 10,000 or one of one million dollars.
In addition, bigger farms tend to be better managed; they can provide more information
about the work they do and the risks they take. It is not surprising that banks prefer to
work with them. At the same time, there are now microfinance institutions (MFIs) in
many parts of the world.
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They have been able to bridge this information gap by setting up social structures (often
groups of entrepreneurs) which are then responsible for the financial behaviour of
individual members. This significantly reduces the information and monitoring costs.
MFIs have also pioneered the way of dealing with collateral by accepting “soft”
collateral like contracts, links with other parties in the value chain, technical assistance,
or insurance. MFIs are often involved in creating soft collateral themselves, helping
their clients improve their business and thus securing their lending. This model has
dramatically changed the opportunities for many of those at the bottom of the pyramid.
However, this approach still follows a “relationship banking” model, which is time-
consuming and expensive. Though the model is replicable, it is difficult to scale it up
to reach those who are part of the “missing middle”. New risk-profiling approaches
offer the promise of helping the “missing middle”: farmers who are too small to attract
loans or be of interest to commercial banks, and too large to benefit from microfinance
institutes.
Bridging the gap
Only looking for collateral leaves a lot of people without finance
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While both the lower and the upper end of the finance market are served with
“relationship banking” models, the missing middle can be served with a
“transactional banking” model. With this model the bank bases its assessment of
the creditworthiness of a farmer on secondary sources of information. Farmers can
be assessed according to several indicators, which show how they are managing
their farm and thus the likelihood of them defaulting on a loan. This kind of
information is even more important when collateral is lacking, as is often the case
with farmers in the “missing middle”.
Parallel with these there is a need to work on commercial mind set: In Africa, too
many people depend on agriculture for their means of survival: Subsistence farming
culture reinforces the status quo. Only when companies produce more with less,
when we reward farmers displaying a commercial mindset, can we move from 10
per cent technology versus 90 per cent work, to the reverse. In order to achieve such
output levels, African farmers should rethink the way they do business. In Africa,
the agricultural sector has become obsolete. It suffers from low productivity and
delivers at an insufficient quality level, because of which it finds obstacles on its
way to the market. In essence, unorganized subsistence farmers should begin to
recognize the business potential of their everyday toil.
Traditionally, banks look at two C’s: collateral & capital. Without one of these, they
are not likely to provide loans. More progressive banks will also take into account
two more C’s: crops and contracts, which can function as soft collateral for loans.
However, those four C’s only look at the results of previous investments, without
giving a full idea of the possibilities of success in the future. Withholding loans to
farmers who can’t show one of these four C’s pushes them into a vicious circle:
without investments, they can’t improve their business and they will never get the
sufficient collateral, capital, contracts or crops needed to attract investment &
improve their business.
Farmers can escape this vicious circle if banks are willing to take other kinds of
collateral, or look at information which can show success in the future. Among this,
a few more C’s can be included:
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Capacity and character: what is the farmer’s capacity to manage her farm? Does
she have an entrepreneurial spirit? Does she receive technical assistance?
Competitiveness: does the farmer know her market and is she able to adapt
product, quantities and qualities to market demands?
Context and chain: how is the farmer embedded in the value chain? Does she have
long-term contracts with the same suppliers and processors or traders?
Certification: is the farmer certified, and does this enhance good agricultural and
management practices? Does the certification scheme generate a price premium?
Cash flow: what are the future cash flows? Does the farmer have a financial mgt
system?
Credibility: what is the farmer’s financial track record?
By scoring a farmer on the basis of these additional factors, banks can get a more
comprehensive insight, and this can serve as the necessary input for their own due
diligence process. Farmers who produce for the market need financing to maintain and
improve their agricultural production. Banks in developing countries are looking for
business investment opportunities. But what is needed to match the interests of farmers
and bankers?
To answer this question we need to understand, firstly, that agriculture follows the
seasons and that therefore most farmers have a seasonal pattern in their cash flow. Their
expenses are highest during the growing season, with peaks at planting and harvesting.
It is only when selling their produce after harvesting that cash will start coming in. This
seasonal pattern is also reflected in the prices: most farmers have no choice but to sell
when prices are at their lowest. Farmer organizations that have the ability to bulk
produce still need to balance the seasonal patterns with market opportunities. Farmers
and their organizations are therefore interested in financial services that can help them
overcome the seasonal constraints. Some farmers have themselves organized saving
and credit schemes for this purpose.
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On the other side are the banks and other financial institutions that look for
opportunities to sell their financial services. Often, however, they have difficulties
expanding into rural areas. First, transaction costs are higher due to poor infrastructure,
reduced value of land and livestock as collateral, and the fact that potential clients live
far apart. Secondly, the risks are higher due to the low level of capitalization of rural
entrepreneurs and the seasonal peaks in demand. The strategies that these banks use to
target poor consumers and small entrepreneurs in towns, may not apply to the
countryside. Banks, in short, need a better understanding of the agri-business. The Agri-
ProFocus network wants to help bring about a better match between farmers and
bankers. This is done through three main activities:
Help farmers improve their business so that they can qualify for the services that
banks have to offer.
Help banks improve their knowledge about agriculture and the financing needs of
farmers.
Initiate and coordinate exchange and learning events that bring together farmers,
bankers and other stakeholders. Value chain finance is an important subject for
such events. If done effectively, value chain finance will help to increase profits
and thus benefit both the actors in the value chain and the financial service
providers.
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Barriers to Adequate access to Financial Services for Agribusiness Development
Agricultural Production, Processing and Related Enterprises (ARE’s)
Intervention points to raise access to and reduce cost of financial services
Comprehensive Africa Agriculture Development Programme (CAADP), 2011
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2 Objectives of the Fair The overall objective of the Batu Agri-Business Finance Fair is to link the demand and
supply sides of financial services in agri-business/rural financing. Both partners; the
demand side (farmers, farmers’ organizations /Cooperatives &Unions, rural SMEs etc
and the supply side (Banks/MFIs/RuSACCOs/VSLAs/SILCs) could get opportunities
to come together, discuss & understand each other’s businesses along with operations.
Specifically, the finance fair has the following objectives:
To improve awareness and access of farmers to information on the financial
products and services in the market;
To promote agriculture/farming as a viable investment for financial institutions;
To provide space for the start of deal-making arrangements between farmers
and financial service providers;
To encourage the development of financial services targeting farmers, farmers’
organizations, Rural SMEs and others operational in the sector;
To encourage farmers, farmers’ organizations, Rural SMEs and others which
are active in wise use of financial services available to them;
To discuss on successes, challenges & recommendations stated for agribusiness
financing.
3 Scope/Components of the Fair The Batu Agri-Business Finance Fair had three major components: Viz. Exhibition,
related paper presentation and field visit. The exhibition was visited by all participants
of the fair. Six papers, selected from different sectors, were presented and discussions
were made on the same. In paper presentation session; farmers’ practices with financial
service providers and agricultural extensions services, challenges they have and their
needs for further operations were presented from horse’s mouth. The panelists
described that they are not satisfied with the services they get from MFIs like OCSSCO
in that it does not have social objectives and with serious rules and regulations. They
also indicated that the community members are not comfortable with group lending
modalities.
On the second day, Women Onion Seed Producers Group was visited. The seed
producers indicated that they have been working in collaboration with Woreda
Agriculture Office, Malkassa Agrcultural Research Center, Oxfam/RVWCDO,
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MFI/OCSSCO, Oromia Seed Enterprise, input suppliers/chemicals etc. The women
group indicated that OCSCCO was not in time, by which they have been subjected to
seed price increment. The producers also disclosed the fear they have on market for
their produces (seed). On the same date, Maki Batu Pack house, where green beans are
packed and sent to Addis for export, was visited. In here, value chains along with the
actors were briefed to the visitors. Maki Batu MP FCU indicated that the contract
farming to which it entered with private enterprise is not effective towards the union.
The current price and the price they two parties agreed is quite different; it is against
the union.
3.1 Preparation of the Fair The Batu Finance Fair was organized by APF-Ethiopia in collaboration with Oxfam.
These two organizers received back-stopping support from the other core team
members established for this purpose, at the two were the lead ones. The core team
members are APF/E, Oxfam, ANFEA, RVWCDO, & Oxfam America. The organizers
took the lead role in mobilizing participants, covering associated costs, arranging center
of the Fair at on campus of Batu Sher Flower Company and inviting all potential
participants.
Moreover, the two organizing core team members (Chairperson and Secretary),
arranged representative primary cooperatives and unions to be visited. The two shared
the associated costs at the basis of 50-50. APF/E managed preparation of catalogue,
flyers, factsheets, banners etc and catering, daily labourers DSA, & tent; whereas
ISSD/HU managed some portion of costs of catering, coffee ceremony, band and
transportation costs to field trips along with perdiem of farmers and officials.
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3.2 The Event/Finance Fair The Batu Finance Fair (March 27th and 28th 2015), organized with a motto “Improved
Farmers’ Access to Financial and Agricultural Extension Services” was attended by
about more than 300 participants from farmers’ organizations (cooperatives and
unions), governmental and non-governmental organizations and the private sectors.
Following the well-coming address from Mark (Oxfam GB) and Gerrit (APF/E), the
Finance Fair was opened by Mr. Gurmu Haminto-
Mayor of Batu town at 9:30 am. On the opening speech
he made, the mayor stressed the importance of such
gathering in bringing different key stakeholders in the
sector together and
enables them to discuss
about the sector and work. He also added that all
participants of the fair supposed to share ideas at the
exhibition, papers to be presented and field visit for
their further consumption.
Paper Presentation and Panel Discussions: Next to the key note address, the
participants went to the
meeting hall to attend the
paper presentation session.
Six related papers (to the
motto of the 8th AB FF in
the country) were presented
from different institutions and one live panel discussions from farmers was undertaken.
The farmers’ representatives on the stage touched participations/activities of all key
stakeholders like MFIs, Agriculture Office, Cooperative Promotion Agencies, Capacity
Builders, and Input Suppliers etc in the sector.
They had some critics on OCSSCO in that the MFI is not properly working on financial
literacy, they are not happy with its group lending modalities & serious rules and
regulations. The Farmers’ representatives also compared MFIs with RUSACCOs
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/RuSACCO Unions, and preferred RUSACCOs
/RuSACCO Unions to MFIs in that they manage the later
one by their own, profit/loss belongs them etc. They
representatives did not deny that the
RUSACCOs/RuSACCO unions lack loanable fund. The
paper session continued up to lunch.
Exhibition: After lunch up to 3:30 it was exhibition session. In here the mayor along
with his team visited all twenty two market places with
thorough discussions at each and every booth; and all
other participants visited the booths in the same manner.
At the exhibition, visitors and exhibitors shared their
experiences, products & services, flyers etc. There was
also coffee ceremony, which also beautified the event.
At 3:30 the second phase of paper presentation session
continued. Then certificates were provided to paper
presenters and exhibitors from APF/E by Mr. Gerrit and
Berhanu respectively. Eventually, the event was for the
day was adjourned by closing remarks from E/Showa
zone Cooperative Promotion Agency.
Field Visits: The second day of the event was field visit. The visit was made to Women
Onion Seed Producers’ Group and Maki-Batu MP FCU
pack house. Participants of the session (about 150
participants) were visitors from participants of the event
from different institutions and farmers, actively visited
what is going on at the two farms.
Up on the visit and following the
visits there were discussions. Finally, there were closing remarks
from APF/E-Mr. Kebede Dhuga and Oxfam-Rahel Bekele, at
which summaries of the event made and pieces of advices to the
farmers were conveyed.
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3.3 Reflections on the event (core team members and other participants) Strengths
The finance fair was successful
The fair was well-coordinated and properly managed
The exhibition was well-arranged and discussions were thoroughly made
among the visitors and the exhibitors
The composition and messages of paper presented were very attractive and
conveyed concrete messages for the audiences. All papers were focusing on
farmers’ access to financial service indicating successes, challenges, and
some sorts of recommendations in the sector. Representatives of farmers in
the rift valley areas presented their practices/lessons, challenges they had
and what they need to be for improvement; this makes the 8th AB FF of Batu
special from the previous ones. The papers were from representatives of:
Demand side (farmers) – farmers’ representatives themselves
Financial Service Providers (Supply Side): Buusaa Gonofaa MFI
Capacity Builders – CARE/GRAD, and LIVES
For some policy issues – ATA
N.B: Awash Intl Bank & OCSSCO attended the event through their representatives.
The participants of field visits also appreciated the strengths of the visited
Women Onion Seed producing Group and Maki Batu MP FCU (activities,
management, plan etc) and lessons were shared.
Weaknesses/Challenges
Many of the exhibitors came up with only documents like flyers, banners,
bulletins etc; they did not bring agricultural products, even it would have
been for sale.
Some of the potential participants of AB FFs are complaining that they did
not achieve some tangible results from the events along with their
participation, and lagged behind from participating to the event; like Buna
Intl Bank, Abay Bank etc. In here APF/E raised this issue as an agenda in its
regular monthly meeting and decided to work on it in particular and on the
AB FF approach in general.
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Contact Agri-Profocus Ethiopia Gerrit Holtland Agri-Profocus Ethiopia Coordinator Visiting address Near Dreamliner Hotel, Behind United Bank Building (6th Floor) Postal address PO BOX 201319 Tel: 251 11467 1059 Addis Ababa, Ethiopia E : [email protected] Website http://agriprofocus.com/ethiopia
Reports of Batu
Agri-Business
Finance Fair