microsave market-led solutions for financial services comparative analysis of prospects for...
Post on 03-Jan-2016
215 Views
Preview:
TRANSCRIPT
MicroSaveMarket-led solutions for financial services
MicroSaveMarket-led solutions for financial services
Comparative analysis of prospects for delivering sustainable agricultural finance, expanding agricultural market opportunties & promotion of disadvantaged small farmers and MSMEs
Presented By:
Manoj K. Sharma
November, 2012
MicroSaveMarket-led solutions for financial services
2
Sustainable agriculture development – Key for economic development
Asia (Developing)
Sub-Saharn Africa
Near East and North Africa
South America
Central America/Caribbean
Pacific (Developing)
All developing countries
World
361243
50654
12427
3908
3698
829
432759
446117
No. of smallholder farms
2005 2010 2015 2018
Worldwide Projected Food Consumption (2005-2018,'000 Kilotons)
Wheat
Coarse grains
Rice
Oilseeds
Vegetable oils
Beef
Pork
Poultry
Dairy
Note: Categories not exhaustive (e.g., does not include sugars)
2000 2005 2010 2015 20201.2 1.3 1.2 1.2 1.2
4.9 5.2 5.6 6 6.3
World Population(2000-2020, billions)
More Developed Regions Less Developed Regions
Indicates thata. Sustainable
agriculture will be key for economic development
b. The sector needs more financing – GRANTS and CAPITAL INVESTMENT to meet the requirement of the population with higher purchasing power than ever
c. Technological intervention to ensure that small farmers are viable and contributes significantly
65% of total population
directly dependent on
agriculture
MicroSaveMarket-led solutions for financial services
3
What ails small-holder agriculture?
Skewed market linkages and the consequent poor price realisation
Lack of access to credit by smallholders leads to sub-optimal inputs and methods, and to lower productivity
Tomato Potato Cabbage Cauliflower Banana Price paid by end consumer (Rs. per kg) 8.20 12.00 9.00 9.50 12.00
Price received by farmer (Rs. per kg) 2.00 6.60 5.00 5.50 4.00
Price realization by farmer (as % of end consumer price)
24 55 56 58 33
Percentage mark up (price paid by end consumer to the price received by farmer) 310 82 80 73 200
Aggregation is a solution which can provide a better bargaining power and access to credit and quality input
MicroSaveMarket-led solutions for financial services
4
Agriculture finance – The transformative potentialStructural changes in Agriculture from subsistence to commercial requires supportive market enabling greater role of financial services
Level of market orientation
Farmer’s objective
Subsistence systems
Food self-sufficiency
Semi-commercial systems
Surplus generation
Commercial systems
Profit maximization
Market Frictions• Information
costs • Transaction
costs
Financial markets and institutions
Financial functions • Facilitate
exchange of goods and services
• Allocate resources
• Facilitate risk management
• Mobilise savings
Channels to growth• Capital
accumulation• Technologica
l innovations
Economic growth
MicroSaveMarket-led solutions for financial services
5
Value Chain – Agricultural Finance Linkage
Input supplier
Producer/farmer
Aggregator
Processor
Wholesaler
Retailer
Consumer
Actors
Short term credit financing
Input financing (on kind payment or in-cash)
Short term working capital loan
Purchase in credit and repayment after sales to retailers
Input supplier
Producer/farmer
Aggregator
Processor
Wholesaler
Retailer
Consumer
Actors
Bank/FI
Bank/FI
Bank/FI
Bank/FI
Bank/FI
Bank/FI
Short term working capital loans for inventory
Equipment financingWorking capital loans
Short term working capital loansSavingsInsurance
Working capital
loansBank
guaranteeLetter of
credit
Working capital
loansEquipment
financing
Working capital
loans for inventory
Without external finance With external finance
MicroSaveMarket-led solutions for financial services
6
Four key drivers of sustainable value chain finance modelSustainability of small farm
holders through diversificationAvailability of support services- farm extension, finance, market
information
Contractual Agreement between value chain players
Participatory Business Model engaging small farm holders
1
3
2
Value Chain players
4
Value Chain players
Spot market based relationshipContracts based relationship
Informal trust based relationship
Multi-activity chain
actor
Simple chain actors
Market linked chain
actors
Specialised chain actors
Act
ivit
y
Management
Input suppliers Farmers/Producers
Transportation, storage and processing
Wholesale and retail
Agri production supportAgri food industry
support
Agri-logistics and processing support
Producer driven
Buyer driven
Facilitator driven
Integrated
MicroSaveMarket-led solutions for financial services
7
Agribusiness MSME financing, constraints and way forward
1. Small sizes and unregistered formats, very little documentation, accounts not properly audited, incomes are suppressed, and a general state of records2. Weak organisational capacity, geographical isolation and lack of basic business skills3. Complexity of businesses – agro-based MSMEs are complex to assess. Different from traditional business finance by the banks
1. Agriculture perceived as low-margin business by financiers
2. Lack of availability of products that meet the needs of appropriate, adequate and timely credit
3. Lack of a robust business model, flexible products and delivery processes
4. Lack of appropriate risk-mitigation measures and mechanisms
5. Lack of infrastructure such as bank branches at the ‘last-mile’
6. High cost of credit coupled with lack of collateral and collateral substitutes
7. Limited access to equity capital
Bor
row
ers’
lim
itat
ion
sF
inan
ciers’ limitation
sLess than 20% of commercial lending in Asia is financing agriculture
MicroSaveMarket-led solutions for financial services
Integrating Mobile Money in Agriculture Value Chains – Value chain payments through mobile banking
8
One of the commercial banks in India, through its Rural Finance Division is focussing on increasing its presence in rural markets by structured interventions in agriculture value chains. Low cost of transactionHigh security of the transactionsSolving the “last mile” problemSeamless integration of buyers and sellers Reduced leakagesEnhanced immediacy and increased frequency of the transactions Improved economics for value chain playersAccountability
MicroSaveMarket-led solutions for financial services
9
Kisan Credit Card: Most affordable and accesible agricultural finance product in IndiaInitiative: Started by the Government of India, Reserve Bank of India (RBI), and National Bank for Agricultural and Rural Development (NABARD) in 1998-99 with an objective to help farmers access timely and adequate credit
Product feature in sync with the requirement of Small Farmers
Revolving cash credit facilityCard valid for 3 to 5 years subject
to annual review. Credit limits could be enhanced annually
Conversion/re-scheduling of loans
High uptake by farmers. About 100 million KCC distributed since
inception
MicroSaveMarket-led solutions for financial services
10
ITC e-choupal – ICT initiative of ITC to provide a market access to small and marginal farmers (1/2)
TOWN
Samyojak
Choupal Saagar
VILLAGE
Farmer
Sanchalak
Transactions
Information(e.g., Price Discovery)
Knowledge (Customize
d)
PAN-INDIAN
Extension servicesInput
FMCG goodFinancial services
The Model
Collaboration with 160 partners
A USD 900 Million Venture
MicroSaveMarket-led solutions for financial services
11
Wheat
Soybean
Soybean& Wheat
Coffee
Aqua
Wheat
Soybean
Soybean& Wheat
Coffee
Aqua
ITC e-choupal – ICT initiative of ITC to provide a market access to small and marginal farmers (2/2)
Milestones Current status since inception in 2000
Plan for 2012-13
States covered 9 15Villages covered 40,000 100,000e-choupal installations 6500 20,000
Empowered e-farmers 4 million 10 million
A hub and spoke model for procurement of various
commoditiesGrowth
MicroSaveMarket-led solutions for financial services
Hariyali Kisaan Bazaar: Corporate initiative to provide 24x7 support services to farmers
Agri-Services 24X7 technical
support Critical last-mile
delivery Subsistence farming
to technology led commercial farming
12
A typical Hariyali Bazaar
Typically operates in the catchment area of 25-30 kms
Caters to agriculture holdings of about 60,000 to 80,000 acres
Covering 15,000 to 20,000 households
RetailingFarming ProductsHousehold Products Insurance servicesFarm Fuels
Farm Output buy-backSimple Procurement-
At harvest time a farmer can directly sell to Hariyali depending on the storage facilities of the Hariyali outlets
MicroSaveMarket-led solutions for financial services
13
Potato Value Chain Finance – Innovative model for financing through front end integration
Operational Standalone Value Chain Finance Model (Most Prevalent)
Integrated Finance Model
Stakeholder Mapping and Stakeholder Risk Analysis
The outcomes:Risk sharing and insulation to
market fluctuationsStreamlining of operations and
discipline in arrangement Increased creditworthiness of the
systemBetter follow up and speedy
recovery of loansBetter Management Information
System (MIS)
MicroSaveMarket-led solutions for financial services
14
Key Lessons for Africa
Integrate supply of adequate and timely finance with value chains: Government, Donors and investors will have to support nascent value chains till such that that they grow and are able to attract commercial banks and entities
Design of financial products: Financial products that are poorly designed are of limited use to the value chain players and severely limit the growth of the sector.
Technical assistance and financial literacy for smallholders and SMEs: Extension services for smallholders and management support for SMEs will strengthen individual players as also the overall value chain.
MicroSaveMarket-led solutions for financial services
15
Key Lessons for Africa
Backward and Forward linkages and Market Access: Markets are key to value realisation for all the players in the chain. The linkage of the chain to the market will determine the price realisation and hence the revenue that will flow to different players down the chain
Preventing Information Asymmetry: African countries can try and address the problem of information asymmetry by utilising information technology to enable value chain players to get access to real time information on markets.
Integrating Mobile Money with Value Chains: Mobile money has immense potential to smoothen the flow of value across the chain, in real time and at a lower cost than conventional banking and/or cash transactions. Coupled with ICT based information dissemination, such a model can address some of the challenges of flow of value across the chain.
top related