Perspective
26 August 2014
Bringing agri-financing to centre stage
Region:
Middle East & Africa
The Fin4Ag conference held in Nairobi this year was the largest and most expansive event ever staged focusing specifically on agri-financing.
The Fin4Ag conference held in Nairobi, Kenya 14-18 July 2014 was the biggest and most extensive event ever to be held specifically on the financing of agriculture, not only for African, Caribbean and Pacific (ACP) countries, but for any region. The event was a triumph for the delegates, participants, and organisers alike, providing a wealth of questions, answers, ideas and plans to take agri-value chain finance forward.
The Fin4Ag conference held in Nairobi this year was the largest and most expansive event ever staged focusing specifically on agri financing. The unique event designed and organised by the Netherlands-headquartered Technical Centre for Agricultural and Rural Cooperation (CTA), and cohosted with the African Rural and Agricultural Credit Association (AFRACA) was truly ambitious in its scope. The programme included a preliminary Continental Briefing day, a Plug and Play day, followed by three main conference days, and then a final day devoted to field trips to agricultural sites. The event, which was held at the Kenya School of Monetary Studies (KSMS), was attended by over 800 people from more than 80 countries.
The event brought a broad range of people together to share new thinking around three streams during the three main days of the conference: innovative tools for agrivalue chain finance, a new legal and regulatory framework for agrivalue chain finance, and cross cutting issues in agri value chain finance. In doing so, the conference succeeded magnificently, sowing seeds of thought to take many concepts and propositions forward to help further develop an understanding of what is required and needed from all sides to expand access to agri finance.
Continental Briefing day opens the debate
In the preliminary Continental Briefing day which was mainly focused on farmers Lamon Rutten, manager of policies, markets & ICT at CTA, the main architect of the conference programme, stated: “African agriculture needs financing now! Banks in Africa have a lot of funds. But the problem is that African banks don’t see agriculture as profitable. There are many subjective factors which come into play in relation to this most notably the risks associated with agri finance and this is something that both banks and farmers need to work on.”
He added: “This is where agri value chain finance comes in because it links farmers to valuable markets. It ensures a market for the produce. Value chains are the way forward. The scope for value chain finance is driven by the scope of the value chain.
“People talk about Africa feeding the world, but Africa needs to feed its own cities rather than importing produce like it is doing now. The market for export commodities, such as coffee, cocoa, cotton etc is around $12 billion annually, but the market for food is much, much larger.
Consumers increasingly want traceability and there are many issues attached to this, including those surrounding the use of child labour, the use of chemicals, quality concerns, safe storage etc. And commodities attached to value chains in an organised way will attract a premium.
“A value chain is not a supply chain. A value chain is a relationship between offtakers and farmers and vice versa. And in that relationship people need to be able to rely on each other. Famers need to understand the difference between supplying and being part of the value chain. To supply, a farmer can walk away from the deal at the end it is called supply selling. But the consequence of that is that it doesn’t allow for input financing.
“We will talk about many different value chain models during the course of this conference, and these can be modelled in various countries around the world. In Kenya, for example, you can now buy bags of seeds with a tag with a number which you can put into your mobile phone for crop insurance. If the seeds fail, you can go and get a new bag of seed. These models now exist. Bring such things to your country!
“Of course, there are many challenges. Every time I hear challenges, I also see opportunities. Don’t be put off by challenges! You need to treat farming as a business. Yes, bankers should change, but you as farmers should too. Bankers often only look at agriculture as a potential crisis. We need to change that! So there is a lot to do from your side.”
Plug and Play sets the day
Following the Continental Briefing day, and as a warm up to the main conference, the Plug and Play day attracted over 250 participants. It began with a brief introductory session, during which Saleh Gashua, the secretary general of AFRACA, Michael Hailu, the director of CTA, and Professor Kinandu Murangu, executive director of the KSMS, welcomed participants.
The purpose of the Plug and Play day was to showcase a range of information and communication technologies (ICTs) and mobile platforms which have been developed to support access to agricultural finance. The day’s programme consisted of five parallel sessions, with 17 presentations each. In total, 18 digital platforms were showcased during Plug and Play day.
In one such example, the Zoona eVouchers platform is transforming the financing of smallholder agriculture. It currently operates in Zambia, Malawi, Mozambique and Zimbabwe, enabling government agencies and other organisations to make bulk payments for specific non-cash purposes. These include development grants, agricultural subsidies and various incentives, for example to improve farming practices.
One of Zoona's main aims is to help small businesses expand by enabling easy, quick and safe payments in emerging markets. Since 2009, Zoona has processed nearly one million vouchers for a wide range of clients, including the World Food Programme, the governments of Malawi and Zambia, and the Food and Agricultural Organisation. In one example, a pilot programme in Malawi is using eVouchers for a farm input subsidy programme. It reached 60,000 farmers, enabling them to buy hybrid seed from local dealers.
The Plug and Play day ended with three sessions of discussions and conclusions, organised by CTA. One of these looked at what lessons can be learnt from the use of ICTs by Kenyan banks. The country's success with digital payments is a source of national pride; but can this be replicated by other ACP countries? Another session posed the question: "ICTs where do the biggest opportunities for finance lie?" The third session took as its theme: "How can one strategically integrate new financing technologies into a bank's value propositions?"
Better access to credit is key
One of the key messages driven home during the conference was that better access to credit was fundamental to revolutionising the agri sector.
Setting the scene for the main part of the conference, Rutten said that farmers are ready to see themselves as businessmen rather than just subsistence producers. "We hope that this conference will be a catalyst, that it will bring people together and make things really happen," he said, adding that although many African countries are growing fast, the agri sector is lagging behind the rest of the economy despite its importance.
The extended opening ceremony was attended by a distinguished array of government ministers, representatives of the European Union and the African Union Commission, the governors of Nairobi County and the Central Bank of Kenya, and leading figures from some of the key partners responsible for the conference.
In a keynote address by the Nigerian minister of agriculture and rural development, Akinwumi Ayodeli Adesina, he stated: "Unlocking finance for agriculture is one of my great passions," he said. He added that instead of being a net importer of food, Africa should be a net exporter, but limited irrigation, poor infrastructure, limited value adding, high post-harvest losses and most importantly lack of access to credit meant that farmers are failing to fulfil their potential.
Minister Adesina pointed out that during the past few years, the Nigerian Incentive based Risk Sharing System for Agricultural Lending (NIRSAL) had spent $350 million and leveraged $3.5 billion from banks to support agricultural value chains. And back in 2011, when he became minister of agriculture, the proportion of bank lending to agriculture amounted to just 0.7% of total lending. By the end of this year, that figure will have risen to 7.5%, he remarked.
In his welcoming speech, CTA director Michael Hailu pointed out that the conference had attracted a wide range of different interests, both from the financial and agricultural worlds. Particularly notable was the number of representatives from central banks which are beginning to act as catalysts for agricultural lending in other parts of the world.
He said: "There have been plenty of other conferences and forums which have touched on the issue of providing credit to farmers. But I guarantee that this conference will be different from the others. Instead of dwelling on the problems that's an easy thing to do we will be focusing on what can be done about the problems, and showcasing specific case studies and success stories." The conference was officially opened by His Excellency William Ruto, Deputy President of Kenya.
The main conference sessions and task of highlighting success stories began in the afternoon of the first main day, with a series of sessions devoted to the three main conference streams. Reports on some of these sessions through the course of the three principal days can be found on the TXF News Fin4Ag subsite, the main Fin4Ag website and also within this post conference report.
In the closing of the event, Millison Narh, chair of AFRACA, and deputy governor of the Bank of Ghana described some of the key points or ‘takeaways’ to emerge from the conference. He stressed the important role that central banks were now playing in terms of financing the agricultural sector. He also suggested that there was an urgent need to help farmers’ organisations build their capacity and become more business-savvy.
He also argued that governments need to create an environment to encourage financial institutions to work more closely with the agricultural sector. He stated: "We need to learn from countries which have been successful in resolving the bottlenecks to releasing funds to agricultural value chains." He pointed out Tanzania's success with warehouse receipt systems and the Nigerian Incentive-based Risk Sharing System for Agricultural Lending, as examples of success.
CTA director Hailu suggested that one measure of the conference's success was the fact that the vast majority of participants had stayed to the very end. He also stated: "It's a pity we have to repeat that smallholder farming should be seen as businesses, but we need to keep repeating it."
And reiterating a major theme, that of establishing a better understanding between farmers and financiers, he said: "We need to build bridges between the two sectors, and I believe that this conference has shown how we can do that." He also noted that many of the sessions had taken the debate forward by going beyond the challenges faced and had come up with a positive range of new ideas which could now be pursued and examined further.
The conference was formally closed by His Excellency Felix Koskei, Kenya's minister of agriculture, livestock and fisheries, who stated: "Countries don't reduce their dependence on agriculture by getting out of it, but by getting better at it." And that, he said, would only happen if farmers had better access to affordable credit. The Fin4Ag conference, he said, had helped to identify many new paths to creating closer relationships between farmers and financiers.
