The Role of Technical Assistance in Lending Products for Smallholder Agriculture

The Role of Technical Assistance in Lending Products for Smallholder Agriculture

George R. Osure

June 2014

Agenda

1. About SFSA

2. How to make use of Technical Assistance (TA) as a risk mitigation tool plus other benefits to both lenders and farmers.

3. Conveying technical assistance to lenders and farmers as an sharing information service for efficiency.

4. Structure of a Special Purpose Vehicle for Technical Assistance.

5. Conclusion and recommendation

INPUT MGT PLAN

OUTPUT

MGT PLAN

SERVICES MGT PLAN

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GOAL: Reach millions of small farmers through scalable, sustainable solutions, raise farmers’ productivity, activate supply chains, increase incomes.

About the SFSA : Where we work

About SFSA: support systems and assets

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R & D Market-led Extension

Risk Management

Policy Development

Seed Systems Outreach

1. A non-profit organization established by Syngenta under Swiss law.

2. Can access Company expertise but it is legally independent and has its own board.

We will now consider how technical assistance (TA) can support the lending process by reducing cost of transaction, improving accuracy, and mitigating risk.

Enabler;Agribusiness environment developer;

Virtual trusted broker who selects and

bundles services to facilitate

expansion and efficiency.

The “go to office” on how to utilize

& leverage on public resource capacity (PPP)

4 benefits from a TA service for agricultural lending

Technical Assistance as an enabler

•Introducing traceability of input-throughput – output linkages •Improves ease of monitoring QC standards of farmer- lender interaction.

Develops opportunities for both farmer and lender by efficiently aggregating services required at all

levels of the value chain.

•Access to credit as complex due to the tools required e.g. BP•Lenders as being only Interested in markets, not production with preference for “town based” operations•Institutions who work supported by a very harsh legal regime.

Enables farmers by changing

mindset (as it is participatory).

•Uses transparency, accuracy, and timeliness of availability of data as a risk mitigation tool due to availability of predictive nature.•Relates with suppliers on technology development trends

Integrates information

acquisition with risk management:

The Trust pipeline linking buyer-lender - farmer

Knowledge and personal experience of

the farmer e.g. weather.

Relevant laws related to: seeds, research,

regulatory institutions, policies, packaging,

and standards.

The contribution of gross margins and

crop rotation towards loan repayment.

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High Quality technical assistance is the virtual trusted broker or glue at the center of the buyer – lender – farmer.

Reports & data TA prepares for an agric. lender

The report should be easy to understand and relate to the conditions that borrowers (farmers) relate to such as:

Number of farmer groups suitable and available

Labour market available & created to sustain agric prodn

Area cultivated (ha or acres): Revenue/profit/yield generated and available

for loan repayment per unit area.

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Technical Assistance (TA) requires a vehicle to convey the information in a format that is regulated, legally sound in a cost effective manner.

This requires a Special purpose vehicle (SPV) designed for this specific purpose and business environment.

SPV can provide TA to a single or group of lenders

Recommended that for TA to benefit lenders to agriculture we require a Special Purpose Vehicle (SPV) that can link credit, input suppliers farmers, and buyers.

The SPV is designed to be primarily used as a trusted, legally sound information brokering and exchange platform”.

SPV structure as TA for lender- farmer- buyer

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A not for profit company whose KPI can be: addditional sales generated for suppliers, work created and incomes generated, additional value of business for the area.

Structured to cover work done between lender and input & services suppliers, buyer, and a regulator.1. The SPV should be financed from transaction costs (loan) reducing insurance/risk costs and hence becomes an virtual risk mitigation tool.2. Triple bottom line (profit, poverty alleviation, environmental sustainability) becomes an inclusion tool as it will facilitate partnerships with the development community.

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Board of management

Metrics Support Process/ Farmer financial

management / P&L

Location 1 Location 2 Location 3

Public Enterprise support / Network• Labs• Plant protection services• Agronomy Training

Marketing SupportRegistration of members to SPV

Private Enterprise support / Network• Fertilizer companies• Irrigation firms• Machinery suppliers, etc

External partners & lender loans officers

Production Support • Strong technical focus• Coordination of plans

Private Enterprise support / Network• Loans officers from Lenders

• Implement training • Stewardship (safety) • Tech support• Agro systems

• Market analysis• Market

development• links

• Profitability, • cost analysis, • impact assessment

KPI for the SPV

Location 4

Special purpose vehicle to organize & manage services

Loans officers access information required.

SPV organogram to provide TA with support networks

Conclusions: TA for the business environment

A SPV will efficiently bundle the farmer- lender requirements by sharing information with all parties in a timely manner aspects of the production & market plan :

1. Inputs

2. Buying specifications including prices

3. Procurement

4. Reduced risk through transparency:

5. Reduces the high operation costs related to distribution incurred by lenders by using data availed in a timely manner.

Conclusions: Recommendation

Farmers and lenders need Technical assistance availed by a legally sound and transparent SPV to support the mix of production & market led systems anchored on joint liability collateral, crop& trade insurance, working thro bundled services for planned aggregated production.

The Role of Technical Assistance in Lending Products for Smallholder Agriculture: THANK YOU FOR YOUR ATTENTION

George R. Osure

June 2014