1. Agri-FinanceConstraints and Opportunities forIncreasing Competitiveness For 2020Cocoa EconomyKakao Konek, Davao City, November 21st 2012

2. IFC Services Investment Services Advisory Services Loans Four business lines: Equity Access to finance Trade finance Sustainable Business Syndications Investment Climate Securitized finance Public-Private Partnerships Client risk management services Treasury services Liquidity management2 3. Agriculture Remains an Important Activity in Emerging MarketsIMPORTANCE OF AGRICULTURE as major source of livelihood75% of poor people in developingcountries live in rural areas 2.1 billionlive on less than $2 a day.Agriculture is a source of livelihood for86% of rural people - Jobs to 1.3 billionsmall holders and landless workers2.5 billion households of the developingworld population are involved inagriculture with low access to finance3 4. Agri-Finance: A Key Global Challenge LACK OF ACCESS TO FINANCEto adopt efficient technologies and efficient resource allocationIndia: in 2 states 87% of marginal farmerssurveyed had no access to formalcredit; only 49% of small farmers haveaccess to institutional finance.Rural Nicaragua, Honduras and Peru: 40%of all agricultural producers are creditconstrained.Africa: less than 1% of commercial lending goes to agriculture.Philippines: 75% agri credit provided informally, agri loans represent just 9% of total lending. Agri credit gap estimated at Php 252b ($6b)4 5. IFCs Value Proposition in Agri-Finance Global agribusiness knowledge combined withfinancial market capabilities Access to finance project delivery capabilities: Global KM with field management capacity Ability to combine Investment & Advisory Services IFC/WB convening power: the enabling environment 5 6. IFC Advisory ServicesAgri-FinanceA portfolio of 69 Agri-Finance Projects at IFC6 7. Financial Institutions Reluctant to Participate in First Stages of Agriculture Supply ChainsRisk generally decreases as chain moves forward Financial Institution7 8. Agri-Finance Why Financial Institutions do not finance agribusiness high risk profileCost to serve - Rural financing involves highertransaction costs than in urban areasSECTOR FEATURESAGRICULTURESeasonality and loan term structure -frequently long gestation periods fromplanting/livestock birth to harvest/slaughterFarming heterogeneity & lack of informationrange of farm and non-farm income can make theassessment of loan suitability more complexProduction and yield risks uncertainty due tonatural hazards (weather, pests etc.)AGRICULTURESECTOR RISKSMarket and price risk fluctuations in price,particularly where markets are likely to beimperfect and information may be lackingRisk of loan collateral limitations localfarmers may lack land title or land value may below 8 9. IFC Agri-Finance Advisory ApproachSupply ChainSME BankingLinkagesMicrofinanceFarmer Training CrosscuttingAgri -LeasingBusinessAgri sector Ag Productivity expertise in financialFinance specific products Eco standards InsuranceknowledgeWaterSustainableEnergy Doing Agri FinanceBusiness IFCIFC FinancialWholesaling Real MarketsSector Financial Institution 9 10. IFC Advisory ServicesAgri-FinanceIFC promotes an integrated approach to agricultural development Market Access (trader - processor)Technical Agri-FinanceAssistance(agribusiness& Access tofirm/ FinancialTechnology Institution)10 11. IFC Advisory Services Agri-FinanceThrough a combination of services, farmers receive multiple directand indirect benefits Market Access (trader - processor)Price risk mitigationBetter access to Income smoothingmarkets/prices Higher-valueInsurance productsLong-term assetsTechnicalAgri-FinanceAssistanceBetter practices(agribusiness& Access toImproved qualityfirm/ FinancialTechnology Institution) Higher yields 11 12. IFC Advisory Services Agri-FinanceSupply chain finance differs from traditional agriculture lendingAreaTraditional Lending Supply Chain FinanceLending Asset Based Cash flow based; contractsKYC Relationship BankingSupply ChainCredit Risk Traditional Assessment, needs Improved systems for risk assessment;sufficient client information info through supply chainRisk Mitigation Careful client selection; Portfolio diversification;insurance / hedging Risk sharing, insurance / hedgingClient Type Larger commercial farmers Smaller commercial farmersAssociations of farmersCapacity Building Clients are knowledgeable Additional knowledge on technicaland financial topics needed12 13. IFC Advisory Services Agri-FinanceAgriculture supply chain finance integrates multiple actorsSupply Chain Financingincludes multiple optionsBUYER for financing and / CORPORATEcontractual relationships Loan Repayment Delivery of goods Risk sharing THIRD PARTY(DONOR)INPUTFINANCIAL SUPPLIER INSTITUTIONInputs provided to Pre-finance harvest Disbursement to supplierfarmer, based on(=> loan to farmer)loan from FI (+TA) FinancialIntermediationFARMER Technical assistance can be deliveredTechnical Assistance by the FI, the buyer or supplier13 14. Philippine Agri-A2F Project Farmers Increase capacity to meet Improve supply chainAgri-Agra commitments Increase income by linkages Increase Agricultureimproving productivity, Increase private sector(Farmers) Loan Portfolioquality, access to markets investments (banks meetand business skillsAgri-Agra Law) Increase credit-worthiness of farmersBanks Sector 14 15. Component 1: Bank & Sector Activities Mapping, market assessment and FI/Sector LevelBank Level Bank diagnostic to determine and assess current portfolio, products, value chain studies to identify and processes and procedures, skillsassess- requirements and crop, client, and Potential crops, market size, key strategic objectives.players, risks & opportunities Current lenders and products, formal Provide identified staff training, and informal whether financial or agriculture Potential borrowers Support development of risk Potential market share, profitability mitigating processes and structures, etc eg crop insurance, risk share Identification of other bank product facilities market opportunities Support development of enhanced Establish audit trails for farmer loans internal processes and proceduresthrough conduits financed by banks New agri-finance product (Agra) development Additional IFC interventions eg index Pilot of new product and monitoringinsurance15 16. Component 2:Farmer Clustering Organizational developmentAgrilinkages Supply chain managementLink to Demonstration farmsActivities Lead Practical learning Firms BankExtension FinancingServicesTechnical TrainingBusiness TrainingSmallholder Good agronomic practices Operational management Farmers Sustainable practices Financial managementAdopt SustainableAccess IncreaseIncrease AgricultureFinance and productivity IncomePracticesInputs16 17. Expected ImpactsBanks Build a sound agribusiness portfolio Farm is managed as a sustainableAgri-supply chainsbased on credit worthy farmers and businessagribusiness firms. Farmers develop a credit culture Expansion of product portfolio and are more credit worthy and High class crop value chains and bankableclients identified Increase in farm productivity, net income Improved loan performance Increase in capital base Improved farm practices, sustainable use of farm land Internal processes and procedures Improved effectiveness of trainingreflect the needs of agribusinesslendingactivities / extension services Improved farm margins through price Enhanced skill set of bank personnel premiums and cost savings Improved control of financialperformance Improved access to markets through certified products Improved farmer loyalty More stable value chain 17