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MANAGING RISK IN FINANCING AGRICULTURE
Johannesburg, 1st -3rd April 2009
‘Managing Risk in Financing Agriculture’
M. Malick NDIAYE,Director of Credit and Branches
Senegalese Agricultural Development Bank (CNCAS)
Crédit Agricole Sénégal
Page 2
OUTLINE
OUTLINE - SENEGAL : BRIEF REVIEW
- AGRICULTURAL CREDIT SYSTEMS
- CNCAS’s APPROACHES ON RISK MANAGEMENT
- RESULTS AND CONSTRAINTS
- LESSONS LEARNT
- CHALLENGES FOR FUTURE ?
Crédit Agricole Sénégal
Page 3
Senegal : Small developing country
Senegal : West african country in Sahel region
Superficie : 196 000 km square, Population : 11 milions ( +60% live in rural area, 52% are women ) GDP : 5 000 billions FCFA (1 FCA = 655,957 Euros # fixed rate) Average annual growth rate : 5 - 6% Income per capita : less than 600 $US (SN=PMA) Large share of informal sector in the economy Member of regional and subregional organisations : ECOWAS, UEMOA
Current characteristics of agriculture Low productivity of main productions (peanuts, cotton, rice, vegetables ); Contribution of primary sector on GDP : 15-17% ; Domestic markets are not well organised ; Low revenues for producers and large way of poverty ; But, keep good contribution to the economic growth and poverty reduction.
Crédit Agricole Sénégal
Page 4
Agricultural Credit systems in Senegal : historical evolution
Two different periods :
First period : 1960 to 1980 Public extension and credit services providers by SODEVA and BNDS In 70’s : Senegal had been faced a very difficult macroeconomical situation PASA : Agricultural Adjustment Programme Sector (IMF & World Bank) All agricultural extensive services were dissolved (SODEVA, ONCAD)
Second period : 1980 to 2008 1984 : CNCAS is created in a particular context Started activities with two branches : Matam and Dakar Last 20 years : CNCAS’s network is growing fast : 20 branches in 2008 CNCAS is a young financial institution becoming leader in rural financing.
1980’s : MFIs emerging systems in our country 2000 : Commercial banks try to be interested in rural area (competition).
Crédit Agricole Sénégal
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A BRIEF ON CNCAS
FCFA 2 300 millions Shareholder’s Capital 209 Employees FCFA 7 230 millions in Revenues FCFA 539 millions in Net Income FCFA 106 000 millions in Total Assets CNCAS is at the 8th place in national market
banking and the fisrt in rural market financing 20 Branches in different locations ( see country
map below) 13 Banking correspondant (USA, Europe and
Africa).
Crédit Agricole Sénégal
Page 7
Agricultural credit systems : history and context
In the begining context (Even now) ?
• Mobilize savings as a source of loanable funds.
• How to access to market as source of refinance ?
• Competitive rates of interest on deposits and loans ?
• How to have our loans repaid and make profit ?
• How to manage our risks through portfolio diversification ?
Crédit Agricole Sénégal
Page 8
Agricultural credit systems : Major risks
What kind of major risks we face ?
Large informal financial system, Lack of collateral and high risk for investments, Profitable investment opportunities are not directly available, Rural sector is very fragile : unorganized, not sustainable, Clients have a poor credit history or none.
These difficulties explain why Commercial banks were (are-even now) not in rural area.
Crédit Agricole Sénégal
Page 9
Agricultural credit systems : major risk identified
Risks at crop production level- Weather risk : drought, flooding (climate change)
- Specific riks : diseases, cricket and bird invasion
Market risks
- Price risk
-Price volatility creates incertitude about the possibility of obtaining enough value from the sales of products to cover production costs.
- Confidence risk
- Consumers are increasingly demanding. Beyong the aspects of quality which are generally well managed by food industry, consumers are raising new concerns about food safety.
Crédit Agricole Sénégal
Page 10
Crop production
FINANCING SUPPLY CHAIN MODEL : TOMATO PRODUCTION
Bank Lender & financials services provider
(CNCAS)
Small farmers/tomato production(CNCFTI)
Tomato Processing Company(SOCAS)
Cha
ring
risk,
info
rmat
ion
Fina
ncia
l ser
vice
s Payments through
account
Information on program
me
Production contract
Fertilizers, seed entreprises traders
International, domestic markets
Collateral fund50/50
Loan
Crédit Agricole Sénégal
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APPROACHES DEVELOPED ?
Financial services proposal
• Principle : Flexibility instead of rigid criteria• Account deposit for individual and group farmers• Loans for group farmers (social group solidarity)• Special conditions of financial contracts (interest rate, low deposit mobilization)
Non-financial sercices
Training rural populations particularly farmers and leaders. Intensive participation of CNCAS’s team in meetings, trade exhibitions, annual
reports organised by farmers associations and local development Projects.
To be active member of some farmer’s organisations
CGER (Farmers management center)
To be partner of the government (implementation policy sector, fund raising for agriculture, impact of subsidies on rural credit)
Crédit Agricole Sénégal
Page 12
RESULTS
SUCCESS STORIES
Relations between farmers’ organisations and financing performances
CropsCompanies (factories)
Farmers organization
Number of small
organizat°
Number of producers concerned
Average loan/year (M° cfa)
Repayment rate
Global rating
Tomato SOCAS CNCFTI 250 10 000 1 800 99% A+
Cotton SODEFITEX FNPC 1 918 60 000 2 500 95% A
Rice - CIRIZ 850 50 000 2 800 89% B
Peanut SUNEOR CNIA 980 700 000 1 500 85% C
CNCFTI : Collateral fund mobilized 1 CFA per each Kg of tomato bought (0.5 F by farmers, 0.5 F by SOCAS)
CNCFTI and FNPC are both delivering technical and commercial services to their members
Closely partnership (PPP) wich is benefit for all the relevant actors.
Crédit Agricole Sénégal
Page 13
Bank/ consumersInternational market
Off shore bank
SGS/ACE/COTECNAInspection Companies
Pool local bankCNCAS
Industries (processing, stock)
SUNEOR
TradersLogistic transport
Small farmer producers(peanuts)
COMM0DITIES
LC
CNCAS
Loans
Loans for inputs
Quality/quantity goods
Collateral
management
Agreement (CMA)
Off shore Loans
Loan
Payment
Payment
Repayment local bank
Crédit Agricole Sénégal
Page 14
CONSTRAINTS
CONSTRAINTS
Dependence on government support (subsidies programs)
Committement of Processing Companies is determinant in terms of visibility and getting easily loans and input (seeds and fertilizers) and selling their productions.
Absence of suitable collateral for farmers
High risk of default associated with small operations
Markets fragmentation (low volume of crop production)
Crédit Agricole Sénégal
Page 15
LESSONS LEARNT
RISK MANAGEMENT HAS BECOME ONE OF THE MAIN
CONCERNS OF OUR AGRICULTURAL PRODUCERS
• Technical risks of production tend to be increasingly controlled thanks to science and technology. Other types of risk have grown in importance in recent years (price volatility, quality requirements).
PUBLIC INTERVENTIONS ONLY ARE NOT SUFFICIENT AND POLICIES SECTOR MUST BE MORE EFFICIENT
• Among relevant formal financial sector (Central bank, commercial banks, insurance companies), only Agricultural Banks are actively engaged in providing credit to farmers (Support from the government and/or external donors).
Crédit Agricole Sénégal
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CHALLENGERS FOR FUTURE ?
USING MODERN FINANCIAL INSTRUMENTS IS NECESSARY
Commodities in stock are a safe collateral, at least if the stock are safely managed by a credit institute or an independant warehouse operator.
• Crop collateral : small farmers can create crop collateral together for non-perishable produce in proper conditions under joint control with a credit society.
• Warehouse receipts : this gives banks enough comfort to finance transactions, and producers to get engaged in inter-seasonal storage to take advantage of seasonal price changes.
Support regional project on Commodities Stock Exchange in West African Union.
Crédit Agricole Sénégal
Page 17
CHALLENGERS FOR FUTURE ?
PROMOTING AGRICULTURAL INSURANCE COMPANY INITIATIVE
• CNAAS : recently created in PPP approach (shareholders capital = 35% public sector 65% private insurance companies).
• Challenge
“Design an alternative, efficient and cost-effective crop failure insurance program that can be easily reinsured and distributed to individual farmers : small, medium and large”.
• ‘A new way in CIMA area’ : first experience in W&C Africa• Operational mechanisms (partenership and products)• Index crop or livestock insurance as collateral to lenders• A pilote is structured with World bank and parteners • Place of microinsurance and reinsurance ?
Crédit Agricole Sénégal
Page 18
Developing a program
- Identify significant farmer exposure to weather
- Quantify the impact of adverse weather on their revenues
- Structure a contract that pays out when adverse weather occurs
- Execute contract in optimal form to reinsure the risk in the international markets. (Sustainability of agricultural insurance products)
Donors have large opportunities to support this new initiative.
Crédit Agricole Sénégal
Page 20
OTHER USEFUL INFORMATIONS
LIST OF ACRONYMS
CNCAS : Caisse Nationale de Crédit Agricole du Sénégal
SODEFITEX : Société de Développement et des Fibres Textiles
CNCFTI : Comité National de Concertation de la Filière Tomate Industrielle
SAED : Société d’Aménagement et d’Exploitation des terres du Delta et du Falémé
SOCAS : Société des Conserves Alimentaires du Sénégal
CNIA : Comité National Interprofessionnel de l’Arachide
ANCAR : Agence Nationale de Conseil Agricole et Rural
SUNEOR : Société Nationale des Oléagineux du Sénégal
CNAAS : Compagnie Nationale d’Assurance Agricole du Sénégal
Website cncas : http//www.cncas.sn
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