knowledge generation in the area of value chain fi nanc-ing as well as through pilot projects for example with indexbased insurances, new products and methods for the fi nancing of agricultural production can be developed. Examples for the promising approaches comprise fl exible credit schemes, fi nancing of rural value chains and the promotion of new technologies like banking, market portals and information services via mobile phones.

Th e challenges for agricultural fi nance are to be addressed as well on the demand side: Borrowers are often insuf-fi ciently „bankable“. Th ey usually lack the data which are required to run through a thorough risk assessment. Furthermore, they are not familiar with the supply and impact of existing fi nancial products. In addition, many of them can hardly assess their own fi nancial needs. All these factors complicate external fi nancing.Value chain fi nance represents an innovative approach. Th e adopted holistic perspective from the agricultural sector enables the identifi cation of internal and external fi nancing ways and a better assessment of liquidity and overturns risk.

Our servicesOur services

GIZ supports the capacity development on all levels of the fi nancial system and cooperates with diverse relevant insti-tutions, from the political/administrative level to diff erent public or private fi nancial institutions or cooperatives.

On the macro level, GIZ promotes political dialogue between relevant agents that infl uence the fi nancial and agricultural sector. Th at includes in particular ministries of agriculture and fi nance, the central bank and other supervisory institutions. We also support the design of an adequate legal and regulatory framework.

On the meso level, GIZ conducts sectoral studies, pro-motes market transparency (e.g. through the creation of

Th ere are more than two billion women and men working in smallholder farming; the majority of them live on less than two dollars a day. Whereas the agricultural sector could be a decisive engine for economic development and poverty reduction, the inadequate supply of fi nancial services often rather limits the development of agricultur-al sectors. Th e term ‘agricultural fi nance’ includes short- to mid- or long-term loans, leasing as well as crop and livestock insurance that serve the fi nancial needs of the whole agricultural value chain: Procurement, production, wholesale activities as well as processing and marketing.

Th e reasons for the inadequate access to fi nancial services for the agricultural sector and particularly for agricultural value chains are man fold. Financial institutions avoid this type of business because of insuffi cient knowledge about agriculture and the existing value chains so that they tend to overestimate costs and risks. External factors like bad infrastructure (roads, energy supply) or diffi cult enforcement of property rights in rural areas add to the impression. Banks have to develop special methods in the area of risk and liquidity management to be able to address seasonality, longer maturation processes in agri-cultural production (e.g. fruit plantations) or the event of covariant risks (unfavorable weather, pests). Th at includes suffi cient refi nancing, a high equity base and a solid risk protection using for example portfolio insurance or guar-antees as well as sectoral and regional diversifi cation.

Our approachOur approach

GIZ works on solutions for a sustainable supply of fi nan-cial services with an interdisciplinary approach. By that, both the experiences from the areas of fi nancial systems development and from rural development can be used for the creation of demandoriented approaches. Th rough the intensive exchange of both disciplines, the common

Economic Development and Employment

Agricultural and Value Chain Finance

The challenge

GIZ_Factsheet_FSE_agricultural-value-chain-finance_en.indd 1 01.09.16 15:29

agricultural sector. This behavior results from a lack of knowledge about the agricultural sector.

Due to the limitations regarding the political and eco-nomic understandings, GIZ offers a multilevel support in agricultural finance. Moreover, GIZ supports the private and interdepartmental discussion about political issues by an interdisciplinary commission which is composed of public representatives as well as private financial and agrarian representatives. Further, GIZ discusses current issues and enables a superior, mutual understanding. Together with Bank of Uganda and Plan for the Modern-ization of Agriculture, GIZ works on the production of the Uganda Agricultural Yearbook which is GIZ’s central knowledge project. The annual publication, which has been published the third time in 2010, reflects current topics, actions, results and failures with regard to finan-cial sector’s support for the Ugandan agriculture. The ongoing collection and analyzes of data combined with practical examples, which present interventions for sup-porting agricultural investments, consistently improves the interconnection between the Ugandan financial and agricultural sector. Furthermore, GIZ advocates bank lending by preparing and encouraging lending products for investments in the agricultural value chain which are essential in the medium term and have been hitherto neglected.

credit information bureaus) and designs instruments for risksharing.

On the micro level, GIZ supports the piloting of special-lytailored products together with financial institutions. Furthermore it supports our partners in complex institu-tion building processes.

Your benefits

The identification and promotion of new financial products for enterprises in value chains helps banks to assess the risk in their loan engagement towards single borrowers better and to make use of alternative collateral like existing contractual relations towards other actors of the chain. Knowledge about alternative financial products and about its accurate implementation leads to a greater overall credit provision towards agricultural enterprises.The introduction of adjusted agricultural finance prod-ucts opens enterprises in rural areas a necessary space for investments in machinery as well as production or live-stock facilities. They are enabled to enlarge production capacities and to purchase livestock, seed and fertilizer. Innovative financial products like micro insurance secure agricultural enterprises against existential risks.

An example from the field

73 percent of the Ugandan population is employed in the agricultural sector. The sector suffers from a lack of appropriate access to financial services and the situation of the poor in rural areas, in particular for small farmer and women, slowly improves. Due to the overestimation of costs and risks, financial institutions are restrictive in lending to clients who earn their livelihoods in the

ContactSaliya KanathigodaE saliya.kanathigoda@giz.deT +49 6196 79-1428

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