Finance for Smallholders
Opportunities for risk management by linking
financial institutions and producer organisations
CASE STUDIES REPORT
Table of Contents
Ethiopia
Case Study E1: Lidet Savings and Credit Cooperatives Union
4
Case Study E2: Wasasa MFI
22
Case Study E3: Buusaa Gonofaa MFI
34
Case Study E4: Setit-Humera Ltd Farmers’ Cooperative Union
50
Mali
Case Study M1: Mali Biocarburant
64
Case Study M2: Soro Yiriwaso MFI
76
Case Study M3: myAgro Social Enterprise
90
Rwanda
Case Study R1: Duterimbere MFI Ltd / Nyagatare Branch
100
Case Study R2: Uniclecam Ejo Heza
112
Case Study R3: Amasezerano Community Banking Ltd
122
Case Study R4: Union des CLECAM Wisigara
128
Uganda
Case Study U1: Conservation Cotton Initiative Uganda
138
Case Study U2: Enterprise Support and Community Development Trust 150
Case Study U3: National Union of Coffee Agribusinesses and Farm Enterprises
162
Finance Fairs
Case Study Finance Fairs: Ethiopia, Uganda, Rwanda, Mali
180
Case Study E1
Lidet Savings and Credit Cooperatives Union
“Improving financial services from Financial Cooperative Unions
to Producer Marketing Cooperatives, Amhara Region, Ethiopia”
Abstract
Lidet Savings and Credit Cooperatives Union operates as a financial cooperative for 111 primary
cooperatives with in total 115,713 active individual household members. Lidet is not just a Savings
and Credit Co-operative (SACCO) as it also includes other producer and marketing primary
cooperatives such as Multi-Purpose Cooperatives (MPCs) and Unions. Microfinance is provided
both to individual farmers and to farmer groups. Apart from credit and savings, the services include
microinsurance, finance training and farm-related extension. Despite the progress, a preliminary
study reveals that there was a huge need for capacity building in governance and financial
management issues. In line with this, ICCO Terrafina Microfinance designed a capacity building
programme and trained Union staff, board members and the Union credit control committee. In a
bit to improve lending procedures, training was developed for loan officers of financial cooperatives
including a Cooperative Credit Assessment Matrix (CAM). This is a tool that assesses the risks
of lending to a producer cooperative. Also capacity building was undertaken by ICCO Terrafina
Microfinance for the staff of cooperative promotion agencies at regional, zonal and district level.
Acronyms
CAM CCB
DA
ETB
MFI
MPC
MPU
PO
RUFIP SACCO VSLA
Cooperative Credit Assessment Matrix
Common Capacity Building
Development Assistant
Ethiopian Birr
Microfinance Institution
Multi-Purpose Cooperative
Multi-Purpose Union
Producer Organisation
Rural Financial Intermediation Programme,
financed by IFAD (International Fund for Agricultural Development)
Savings and Credit Co-operative
Village Savings and Loan Association
1. Main characteristics of the case
1.1. Farmers and their organisation
Lidet Savings and Credit Cooperatives Union Ltd. is mainly serving as a second tier cooperative
for more than 111 different primary cooperatives. It started its operation in March 2006 by 18
primary cooperatives of which 6 were Multi-Purpose Co-operatives (MPCs), while 12 of them
were Savings and Credit Cooperatives (SACCOs). It was established with the mission of solving
the socioeconomic problems and the eradication of poverty in the region, by providing reliable,
convenient and quick financial services to members and customers. The Lidet secretariat
aims to strengthen its member primary cooperatives, so their customers are satisfied with
the financial services offered. Unlike the other regions, the Amhara Union in general and Lidet
in particular do this in the sense that the member cooperatives are not just SACCOs, but also
Multi-Purpose Producers and Marketing Primary Cooperatives.
Producer Organisation (PO) /coop profile data
Type of organisation
Number of members
Number of employees
Main crops
Cooperatives Union
111 cooperatives
26
Teff barley and maize
4
In accordance with its constitution, Lidet aims:
1.To provide access to credit and financial services at an affordable interest rate to the poor
farmers, especially to women;
2.To create a favourable and trusted investment climate by keeping funds of primary
cooperatives collected from members;
3.To provide training and support to primary cooperatives in the region;
4.To create a better financial system for the primary cooperatives; and
5.To create a platform for member cooperatives to share experience.
These functions are reflected in its organisational structure, as illustrated in the diagram below.
Follow up team
General Assembly
Board of directors
Union Manager
Secratary
Legal office
Credit
management
Saving office
Education and
training unit
Accountant
Internal
Auditor
Casher
Diagram 1.1: Lidet Union’s organisational structure
Currently, the services of Lidet are expanded and reach 6 districts and 140 peasant associations.
There are 111 member primary cooperatives and 115,713 active individual household members
under Lidet. Of this total number of individual members, about 41,894 (36%) are female.
Member cooperatives are categorised into 8 different categories.
Kind of producer organisation
Total numbers
% of members
1
SACCO
56
50.5%
2
MPCs
38
34.2%
3
Seedling Enterprises
7
6.3%
4
Consumer Cooperatives
4
3.6%
5
Vegetable and Fruits
2
1.8%
6
Housing Development and Cooperatives
2
1.8%
7
MPUs
1
0.9%
8
Animal fattening and marketing
1
0.9%
Total
111
100%
Source: Authors computation from Lidet Union report for federal government - Update 2014-09-21
5
The following table shows the progress in membership since the Union’s establishment in 2006,
with respect to member primary cooperative, individual members’ gender distribution and total
clients reached.
Year
Individual members Increment
Members
primary coops
Male
Female
Total
06/07
18
7698
1221
8919
07/08
20
9720
1743
11463
08/09
23
11740
2357
14097
09/10
25
14710
3543
18253
10/11
30
15107
4320
19427
11/12
38
15609
4465
20074
12/13
80
58127
27619
85726
13/14
111
73819
41894
115,713
Source: Lidet Union report for federal government update 2014-09-21
Since its establishment, Lidet has been providing a variety of services for members’
cooperatives, which include:
• Provide support on practical planning preparation and other support to member primary
cooperatives and producer organisations (POs);
• Create a culture of saving for the member cooperatives and support establishment of new
cooperative societies in the region;
• Broaden and empower women and young leadership roles;
• Provide quick, reliable and covenant service;
• Provide training for the members’ permanent employees;
• Create a better financial awareness among the member cooperatives;
• Expand the financial service coverage by opening new branches; and
• Establish a model for primary cooperatives.
1.2 The financial institution involved
Lidet currently has a ETB 77 million loan portfolio outstanding.
The Profit and loss accounts of the primary cooperatives was
done for 2013/14 and profit was shared among members where
the biggest profit share was ETB 50,365 and the smallest was
ETB 26.-.
Year
Capital
Increment in
ETB
2006/07
169,464.00
2007/08
318,344.80
2008/09
572,869.30
The Union also provides loans to Village Savings and Loan
Associations (VSLAs) at a rate of 11% where the VSLA retails
2009/10
895,129.00
loans to members at 12%. Moreover, since March 2014 Lidet
2010/11
1,194,973.00
launched a microinsurance coverage for individual members
who borrowed from the member SACCOs. The aim of this
2011/12
1,725,132.00
insurance is to avoid the financial burden to the remaining family
2012/13
4,059,878.00
members if the borrower dies before he/she paid the loan back.
As a result since March, there are 828
2013/14
7,519,876.16
members who joined a microinsurance
service from Lidet in five months time.
So far this year, only two deaths claims
MFI profile data
were filed and reimbursed according to
the contract. The insurance and the VSLA
Total number of active clients 115,713
servicers are very negligible compared to
Number of employees, staff
26
the core business of the Union i.e. serving
Portfolio value
ETB 77,027,956
the primary cooperatives.
% of farming clients
99% (estimated)
6
1.3 Nature of the programme
Rural SACCOs in Ethiopia are in general quite weak. Most rural SACCOs came into being after
the start of the Rural Financial Intermediation Programme (RUFIP) in 2002. Ethiopia has a
complex history with regard to cooperatives, as most cooperatives were politically initiated
MPCs. Savings and Credit Unions and SACCOs are governed under one general cooperative
law, together with marketing cooperatives and consumer cooperatives. This implies that,
unlike the banking sector and microfinance sector, the supervision of financial cooperatives by
the Central Bank in Ethiopia is lacking. No capital requirements, prudential norms, ratios and
standard accounting practices have been defined. It was considered important to support these
cooperatives since they operate in remote rural areas where microfinance institutions (MFIs)
are often not operational. Since financial cooperatives need capacity building in institutional
and financial management as well as on financial product development, ICCO Terrafina
Microfinance is actively supporting them. Together with other concerned parties it also lobbies
for development of a financial cooperative regulatory law.
The ICCO Terrafina Microfinance support to this Union started with a preliminary study by a local
consultant. This study revealed a huge gap in human resources capacity, skills and knowledge in
Union-boards and cooperative managers to safeguard good governance, portfolio management,
financial management, accounting systems and cash management. Based on the preliminary
study and the gaps identified, ICCO Terrafina Microfinance designed a capacity building
programme in three phases. Beneficiaries of the programme included Union staffs (general
manager, accountants and cashers); Union board members; and the Union credit control
committee. They were joined by external staff from the cooperative promotion agency at regional
level and three zonal level staffs namely from west Gojjam, East Gojjam and South Gonder.
The first phase of the training aimed at improving financial services from the Financial
Cooperative Unions to MPCs and marketing cooperatives in Amhara region. ICCO Terrafina
Microfinance designed and supported a Common Capacity Building (CCB) programme. The
programme was provided for 6 financial cooperative Unions (including Lidet Union) and the
cooperative promotion office at zonal and regional levels in the Amhara region.
The second phase concentrated on Union product development. One element in this phase was
to improve the financial services from the Unions to their primary MPC members. MPCs are the
main credit recipients of the Amhara Unions. They account for 70-80% of all outstanding loans
of the Unions. Most MPCs are producer/marketing cooperatives of grain staple food, mostly teff
and maize. Their main activity is to buy, after harvest, the grain from the farmers for storage at
the market-rate of that moment and become owner and responsible for marketing. In a bit to
improve lending procedures, training was developed for loan officers of financial cooperatives
using an assessment tool called “Cooperative Credit Assessment Matrix” (CAM)1, which was
developed by a consultant of ICCO Terrafina Microfinance.
The objective of the training was to equip the Unions with tools to enable them to quickly analyse
the key capacities and risks, and to be able to suggest proper loans to MPCs in terms of size,
price and conditions. Loan demand from MPCs to Unions is usually much higher than the total
value of their collateral. MPCs’ loan demand is based on estimated grain supply from members
at harvest time, plus their storage and marketing facility. The CAM tool aims to facilitate
increased MPC loan size beyond existing collateral possibilities, based upon investment needs
and repayment capacity.
In addition, ICCO Terrafina Microfinance lobbied with the regional government to have an
adjustment of the requirements for SACCOs’ loan provisioning and collateral cover. Also in this
product development phase of CCB, an effort was done to introduce professional solidarity
lending by Union credit agents through SACCO committees and members, as well as an agrilending product specifically for farmers, based on solidarity lending mechanisms. In line with
this, trainings were given on solidarity group formation. Based on the needed assessment of the
Unions, ICCO Terrafina Microfinance also provided support through funding for motorbikes for
credit officers and for improvement of their salaries.
1
An excel tool with (20) concrete indicators and norms to score the institutional, financial, and marketing capacities as well as
relevancy to members and credit worthiness of an MPC.
7
1.4 Other stakeholders
Cooperative Promotion Office. The Amhara Cooperative Agency is supporting the Unions at the
regional, zonal and district level. At the regional level the cooperative promotion agency has
a role in designing policies and rules for the way Unions should be governed. It also provides
training and conducts research at the regional level. At the zonal level the agency supervises
Unions on the given mandate. And at the district level, grassroots level support has been given
through establishing new Unions, ensuring licensing and performing close regulatory follow-up
on their operations through audit reports and inspections.
Zone/district administration office ZAO/DAO. The agricultural services of the Government
are extended starting from regional, zonal, and then district office administration and peasant
association level. At the peasant association government, authorities are responsible for
timely endorsement of credit clients. This is done by issuing a “Letter of Support” to Lidet - or
members cooperatives - certifying that the prospective client operates in their area and that
their loan requirements are assessed to be relevant and genuine.
Agricultural Development Assistants (DAs). The agricultural DA officers mainly aim to provide
agricultural extension support to smallholder farmers and ensure the application and practice
of good agronomic practices (GAP). At the peasant association level they are also responsible to
issue the Letter of Support to Lidet Union/members’ cooperatives. They verify and certify that
prospective clients’ business proposals are feasible and justified with respect to the loan size
requested.
ICCO Terrafina Microfinance. ICCO Terrafina Microfinance aims to contribute to rural
development and poverty alleviation through improved access to microfinance and the
facilitation of expanded rural outreach by sustainable microfinance providers for rural producers
and entrepreneurs in selected African countries. It was founded in January 2005 as a joint
microfinance programme of ICCO, Oikocredit International and Rabobank Foundation. ICCO
Terrafina Microfinance is active in supporting financial Unions and SACCOs in Ethiopia since
2007, mostly in Oromia and in Southern Nations. ICCO Terrafina Microfinance believes in the
importance of having a diversified microfinance sector, to reduce risk and promote a multitude
of best practices, adapted to the local situation and needs. Thus support has been given for
institution-based MFIs and member-based financial institutions. The Rabobank Foundation
consortium partner is especially interested in cooperatives, and is investigating possibilities to
provide a guarantee for a loan of CBE to Lidet.
1.5. Nature of the financial transactions
Lidet Union is mainly serving as a secondary cooperative for more than 111 primary
cooperatives, included as a membership umbrella. Despite these secondary cooperative
activities, the Union also recently started to provide loans to VSLAs and insurance service to
individual members.
Table 1.2: Credit product(s) for agriculture
2
Name
# of
months
Interest %
Interest mode
Flat or R.B.
Repayment
Bullet / instalment
Security mode
Member coop loan2
-
12%
Dealing
Bullet
Storage, crop
and collateral
VSLA
-
11%
Dealing
Bullet
Group based
AMLD/GRD project
36
12%
Dealing
Bullet
Land & p.guar
This loan is provided for member primary cooperatives, SACCOs and Multi-Purpose Unions (MPUs).
8
For member cooperatives, Unions or other producer groups, credit is approved based on the
CAM-tool. The interest rate for this loan is 12% interest per annum with a bullet repayment.
The purpose of the loan is dependent on the nature and activities of the cooperatives, which
can differ greatly, especially in the case of MPCs which form the second largest credit-receiving
category. They account for 34.2% of all outstanding membership of the Unions. Most MPCs are
de-facto producer marketing cooperatives of grain staple food, mostly teff and maize. They are
mainly active in buying the grain from the farmers for storage, after harvest. The loan therefore
aims to have working capital and to buy the produce from their member smallholder farmers at
the harvest time (i.e. post-harvest credit).
For village savings and loan associations loan is given based on a due diligence process. This
loan has been provided on an 11% interest rate with a bullet repayment scheme. The loan
is secured by a group security mechanism. Lidet is also administering loans provided by the
AMLD/GRD project. This project is based on ETB 14 million capital, contributed by both AMLD/
GRD and Lidet, where they contribute equal shares (50% / 50%). For this loan Lidet workers
are directly administering the credit appraisal, disbursement and collection process. The loan
is meant for animal fattening, where borrowers from the highlands invest in goat farming and
farmers in the lowlands invest in sheep. The annual interest rate for this loan is 12%. The loan
is given for three years with a bullet repayment and flexible interest rate charges on the amount
outstanding. SACCOs are also among the primary cooperatives that take loans from the Union,
with the purpose to satisfy credit demand of their members.
2. Risk analysis
2.1 How has risk management been approached?
Loan appraisal by the financial institution (due diligence)
For each of the financial products of Lidet, a set of specific criteria is to be used in the
due diligence process. Different financial products were developed for member primary
cooperatives, Village Savings and Loan Associations (VSLAs) and individual AMLD/GRD project
loans. The criteria and steps in the due diligence processes of each of the products are listed
below.
Cooperatives and Unions
Under this loan product only member cooperatives are eligible for loans from Lidet. The amount
of credit to be granted to this member primary cooperative is based on (a) the amount of savings
(mandatory and voluntary savings held at the Union); (b) storage; (c) the fixed asset ownership;
(d) equivalent primary cooperative guarantee; (e) repayment history; and (f) the leadership
quality of the cooperative. Based on these criteria there is a possibility to grant 25% or 35% or
even 100% loan beyond the collateral requirements of the member cooperative. A remarkable
change in due diligence after introduction of the Cooperative Credit Assessment Matrix (CAM)
is that there is a possibility to grant loans beyond the physical collaterals that the prospective
cooperative borrowers have.
Individual loans AMELD/GRD
The AMELD project promoters can nominate smallholder farmers who need financial assistance
under the project. In principle the nominated borrower should have fixed asset collateral such
as land, be known in the village for his/her personal integrity and credit repayment history,
have a permanent residence in the area of the peasant association and be able to co-sign the
loan contract with his spouse. The promoters will also assist the farmers to develop a business
proposal, to be submitted for the loan. The next step is confirmation and recommendation
from the peasant association chairman and the agricultural extension officer, also called
Development Assistant (DA). The peasant association chairman will confirm the permanent
residence of the prospective borrower while the Agricultural Development officer of the peasant
association will check the business proposal and will confirm and recommend it for financing
9
After all these processes and steps, Lidet will approach the prospective borrower and provide
pre-loan disbursement, training and education. The training aims to create better awareness
of the prospective borrower about the financial product, the terms and conditions and loan
repayment discipline. Then the loan will be sanctioned and disbursed to the borrower in cash.
Within 15 days’ time the borrower is expected to start the farm investments which will be
checked by Lidet credit field officers as a follow-up. The borrower will be forced to repay the
loan as soon as possible in case he/she did not comply with the business proposal or divert the
loan to unplanned purposes.
2.2 Risk management by the stakeholders
In the design and development of the Union finance products, the lead actors have jointly
assessed the risks for farmers and the primary cooperatives, and identified means to mitigate
these risks. For the purpose of the case study, a distinction is made between the six crucial
aspects of smallholder production, i.e. risks related to:
• The specific crop: i.e. coffee;
• The farming system and farm production;
• The strength of the farmer organisation / producer organisation (PO);
• The market for malt barley and food crops;
• The viability of the farming system promoted; and
• The financing of farmers.
These risks and the way they were mitigated and managed have been tabulated in a risk
catalogue (see table 2.1) and are briefly summarised below.
Product-related risks
In the Lidet Union area the main crops are teff, barley and maize. At the grassroots level,
individual member farmers are exposed to the risk of having a lack of proper seed and problems
with timely delivery of appropriate seeds. For the quality of the produce, the type of seeding
material is essential. Poor quality seed, even if it is the right variety, may have poor germination
performance, thus leading to lower yields. In order to mitigate these risks, the Union has been
financing certified seedling enterprises and linking the farmers with these enterprises for easy
access to seed. With respect to the individual loan given to the farmers for animal fattening, the
risk of animal diseases is the main risk exposed. As a mitigation measure, close follow-up by
agricultural extension offices was devised, even though it is still limited in coverage.
Production-related risks
The yield per acre for the participating farmers is still relatively low, as predominantly traditional
farming systems are practiced. Yield improvement depends critically upon the availability of
qualified extension officers and agronomists, methods for farmers’ education and exposure
and incentives for increased production volumes. The production risk for the individual farmer
refers to decisions to minimise the risk of crop failure and to maximise gross margins earned.
Guidance on these issues critically depends upon the staff of the cooperatives to which the
farmer belongs. A low level of financial education, weak organisational structure and human
resources at both the Union and the primary cooperative levels are constraints to be addressed.
With the help of ICCO Terrafina Microfinance, trainings, education, Union monitoring and a
follow-up committee have been provided to the Union managers, accountants and cashers.
Regional, zonal and district level cooperative agency staff were also involved in the training.
The training and capacity building given is limited still and needs a continuous support at the
different levels of Union operations.
Farmers- organisation-related risks
The main risks involved at the farmers’ level are the low level of awareness about the financial
services provided and about proper agricultural practices. At the cooperative and Union level
there is a lack of skilled manpower at the right positions. As a mitigation measure insurance
was introduced by the Union to individual members who had a loan from the cooperatives. About
828 insurance members voluntarily joined the insurance service. Further training and education
about the loan were also given at the pre-disbursement and post-disbursement of loans,
including application processes, steps, requirements and the details. Absence of legal experts at
the Union level remains an unsolved problem.
10
Marketing-related risks
The main risk with respect to market risks under this value chain finance scheme is the lack
of a good market linkage between the farmers and the POs, and the final market. In order to
mitigate this, the Union tried to link the farmers and their producers’ group with the other
member producers’ groups through: a) forwarding contracts; b) linking the farmers and POs to
a better market such as university for animal fattening projects with respect to the AMLD/GRD
project and Malt Barley Factory for malt barley producers and their respective Multi-Purpose
Cooperatives (MPCs). Another resolution was to provide working capital loan to MPCs in order
to facilitate them to buy and store farmers’ produce and in turn enable them to sell it at the right
time. Despite all this market linking and capacity building mitigation measures, the efforts were
not well organised and the coverage is very limited.
Finance-related risks
The main financial risks concern late repayment and default at both the cooperative and the
final individual members’ level. To mitigate this, cooperatives were assessed with a proper
due diligence process which required a proper collateral and related guarantees. Individual
members were also properly assessed, trained and checked by the credit field officers. Although
in a limited way, a report and audit has been conducted in order to tackle possible fraud risk
at the cooperative and Union level. Field officers of the Union are mostly in the field either for
proper follow-up, screening or educating the individual clients at the village level. As a result
the repayment rate at the Union and cooperative level is very successful as they have a 97%
repayment rate. For the risk of default as a result of death of the borrower, the Union introduced
insurance and minimised the risk.
Table 2.1: Overview of main risk management items
Aspect
Risk assessment the risk owner
Risk mitigation measures
Risk monitoring
Product risks
Luck of proper seed
Linking and financing seed enterprise
Still there is shortage and reliability
Diseases for animal
Close follow-up by agricultural extension offices
Limited service with limited extension offices
Poor harvesting season for crop farmers
Diversification of crops
Diversification of the type of cooperatives
Yes, but need much more to do
There are 8 different cooperative categories
Production Risk
Lack of good agronomic practice
Close follow-up with agri-extension officers
Limited
Members have low level of financial
education.
Training and education
Done on a limited basis
Fear of premature death of borrowers
Insurance
So far 802 members member are insured
Farmers have Low level of awareness.
Training and education about the loan,
application processes, steps, requirements and
the details
Done. Still need much more to build the capacity of
this members
Absence of skilled human power
Keeping the employee at most benefit
Benefits were adjusted based on government scale.
Wrong perception of borrowers towards loan
Education, training, follow-up
Working well
Luck of good market linkage between the
farmers and the POs and final market
Forward contracts
Linking the farmers and POs to a better market
such as university and Malt Barley Factory
For animal fattening university
For barley farmers Malt barley factory
Providing working capital loan to multi-purpose
cooperatives (MPCs) to buy and store farmers’
produce
Not yet organised.
Yes, but at a limited scale
Week organisational stricture and human
resource of members
Client /relationship risk
Absence of legal expert in organisation
Marketing Risk
Financial risk
Done, to be strengthened
Done and is promising business linkage
Is doing great based on CAM criteria
Price fluctuations
Contract farming
Not yet well organised
Fraud employees
Periodic review, report and audit
Yearly Audit report
Early repayment
Repayment collection bases on the actual
interest on the repayment date
Training and education
Good and flexible enough
Lack of internal Auditor
Audit is on yearly basis and done by the Coop
offices. Standard is very low.
Diversion of loan
Close follow-up by the credit officers
Immediate repayment for non-compliance
Default / moral hazard by members
Close follow-up by the credit officers
Primary cooperatives have various committees
20 days in office and good repayment progress
(I.e100% repayment rate)
Risk of default by members
Collaterals & equivalent cooperative as
guarantor and loan based on CAM
Working well
Risk of death of the borrower
Insurance coverage against death
802 insured so far
Pre-loan moral hazard (inflating demand by
cooperatives)
CAM
And due diligence process
100% repayment rate
Pre-loan moral hazard (inflating demand by
individuals farmers)
Credit appraisal based on business plan
recommended by PA chair and DA offices
Delay in repayment by individual borrowers
Proper examination of reasons
Close follow-up credit filed officers, primary
coops credit repayment and other committees
11
Extension with a proof of reasonable reason
2.3 What is the finance strategy?
I. Financial appraisal
Multiple classified criteria were applied for individual loans and loans given to the member
cooperatives and VSLA.
A. Individual loan AMELD/GRD
• Preparing business plan – promoters;
• Having a fixed collateral asset;
• Known in the village for his/ her good personality and good credit history;
• Co-signing with his/her spouse;
• Permanently and legally resident, approved by PA chair;
• DA approves feasibility of the business plans;
• Pre-disbursement education for both borrower and spouse;
• Follow-up business plan implementations in 15 days; and
• If not implemented the loan will be forced to be repaid.
B. For cooperatives and Unions due diligence
• Membership and their mandatory and voluntary savings amount;
• Taking their fixed asset as collateral;
• Equivalent cooperative guarantee;
• Prior credit repayment history; and
• Cooperative Assessment Matrix.
Based on the CAM, a decision will be made on 25%, 35% and 100% loan. Key elements to
consider while giving loans to the MPCs are the overall CAM result, credit worthiness of the
borrower, like character in individual, economic evaluation/supply and demand and repayment
capacity (cash flow, asset and capital position).
II. Finance Needs Assessment
Before the application of the CAM, only tangible collaterals were considered in order to
assess the demand of loan and then grant loans to cooperatives. ICCO Terrafina Microfinance
provides the training about how to assess loan based on CAM. Concepts covered under the
Common Capacity Building (CCB) trainings included the notion of lender and borrower and
loan processing steps such as the how of loan application, appraisal, approval, signing of loan
agreement and loan disbursement.
S
/
N
CAM
Results
1
< 50%
2
51-65%
3
66-85%
4
> 85%
Loan Delivery Conditions
30% Clean
Loan
50% Clean
Loan
Savings
and Equity
Fixed Assets
(67%)
Peer
Guarantee
Increase
Interest Rate
Source: SACCO Unions Capacity Building Programme in Amhara Region November 2013
12
Reduce Loan
Amount
Reject
the loan
Remarks
Key elements to consider while giving loans to the MPCs are the overall CAM result, credit
worthiness of the borrower, like character in individual, economic evaluation/supply and
demand and repayment capacity (Cash flow, asset and capital position). Credit history/character
assessment, repayment capacity, balance sheet information, collateral issues, and risk
management are also issues to be considered in the CAM. The following table shows the criteria
and yardsticks to be considered in the CAM and appraisal norms.
III. Financial products / Instrument
The financial products are loans to member primary cooperatives, VSLAs and individual AMLD/
GRD project loans. For loans to the member cooperatives, the loan is based on the CAM and
there is a bullet repayment.
The purpose of the loan is dependent on the nature and activities of the cooperatives. Most
MPCs are de facto producer marketing cooperatives of grain staple food, mostly teff and maize.
MPCs buy, after harvest, the grain from the farmers for storage at the market-rate of that
moment and become owner and responsible for marketing. The loan is therefore amid to have
a working capital to buy the produces from their member smallholder farmers at the harvest
time.
2.4 What capacity for agri-finance has the microfinance institution (MFI)
installed to perform these tasks?
The Union has three main leadership teams. These include a general assembly, a board of
directors and monitoring, and a follow-up committee. The general assembly is composed of
three appointed representatives from each of the member cooperatives/POs where at least
one of them must be a female representative. The board of directors is composed of appointed
leaders. Leaders are appointed based on the criteria such as a person who is known for his/her
good personality and confirmed by the general assembly, for his/her admirable experience and
educational background and who has no other responsibilities. Moreover, the appointee should
be legally capable to be voted and should have a very good prior loan repayment history.
Currently there are about 26 permanent employees scattered over the six breaches who are
responsible for 140 peasant associations. At the head quarter level everyone is committed to
these financial transactions. There are monthly, quarterly, and yearly audit reports from each
of the branches to the concerned regional finance offices. There are four specialised credit
officers at the main branch office who are active in the field, 20 days in a month time.
Moreover, the Zonal Agricultural Offices and the concerned District Agricultural Offices are
closely supporting, monitoring and evaluating progresses. This clearly shows that the human
resources back-up that Lidet possessed and the follow-up and monitoring activities are held
accountable, with a clear assignment of operations. To conclude this section, it can be said that
the Union has still not enough risk assessment capacity and systems in place. This therefore
calls for a lot of support at both the Union level, at the member cooperatives’ organisational
structure and from human resource capacity.
2.5 What connections were entertained by the MFI with other stakeholders in
the sector? Who was the lead actor in orchestrating the chain?
This value chain is mostly orchestrated by the Union where they provide the loan to the
member MPC, Savings and Credit Cooperatives (SACCOs), VSLAs and other marketingrelated cooperatives and Unions. The main activity is done by the Union acting as a secondary
cooperative where they provide loans to the member cooperatives, POs and other marketingrelated cooperatives.
13
3. What makes it tick?
3.1 What are the success factors in this case? What risk mitigation measures
proved effective?
Based on a microscore assessment done to all the Unions of the Amhara region, Lidet has
shown an increased progress. In the first assessment report it scores 2.28 which was the lowest
of all the Unions’ scores. Since then Lidet has been improving its operations and able to stand
first at national level for its performance. It became highly profitable and opened branches in
six districts and 140 peasant associations. It recently also started providing microinsurance
products to its members. Taking into account the performances and awards in the second
microscore assessment, Lidet has shown considerable progress and scored 7 out of 10, which
was the biggest microscore assessment result of all Unions in the Amhara region.
Lidet is providing timely credit provision with clear requirements and procedures to be used
commonly and transparently by all member cooperatives. It also provides flexible and needbased loan at a lower interest (12% Vs 18%). Trainings were given to members, member
employees and leaders, and panel discussions with the concerned stakeholders were done in
close collaboration with Lidet. The Union also created market linkage to farmers, Producer
Organisations (POs) and consumers by providing a variety of finance products at different stages
in the value chain
In order to have enough funds on hand and satisfy the credit demand of the members, various
bankable business proposals were developed and submitted to different lending institutions.
Following the human resources rules of the Union, the employee’s interest has been addressed
as much as possible.
3.2 What are the (remaining) weaknesses/threats/risks?
Shortage of the loan amount given for cooperative and Union members. It did not meet the
members’ need for finance so far. There is a huge gap between the demand for and supply of
loanable funds, although the Union is striving to satisfy the demand;
• Member cooperatives are still not well aware of the organisation and management of
cooperatives and their operations. This needs much more capacity building in training and
education and recruiting better human resources officers in the key positions;
• Lack of support from the regional and district office administration for both Lidet cooperative
cash savings and credit Union and the member cooperatives and Unions. Other stakeholders’
support to the Union and its member cooperatives were very limited in various aspects; and
• Lack of well skilled human resources employees at the Union level.
3.3 Do stakeholders have a view on how to better deal with these remaining
risks in the future?
• The demand for loans by member cooperative is much more than the current capacity of the
Union. The Union has been (and will be) developing a bankable business plan and approach
financial institutions and lenders. By doing so the Union is striving to satisfy the demand for
loanable funds by the member cooperatives, Unions and enterprises;
• Member cooperatives and their respective members (mostly farmers) have a very limited
level of financial education. They are insufficiently aware of the bank’s basic products,
procedures and requirements. Therefore, much more effort is required for creating better
awareness through trainings, education, panel and focus group discussions with farmers,
farmers’ organisations and other stakeholders concerned in this financial value chain. In line
with this, Lidet has been doing a good job in providing various trainings, in preparing panel
discussions for members, members’ leadership staffs and other stakeholders involved in this
financial service in the region where Lidet is functionally operating;
• Furthermore, the Union has been working on women training and support, in collaboration
with the peasant association, district women affairs and other official bureaus;
14
• In line with the organisation’s general assembly and human resource policy, the Union is
striving to secure benefits of the employees at most; and
• ICCO Terrafina Mirofinance has organised forums to discuss these challenges with the board
and management of the Union and the promotion office. Attention was given to some of the
points raised, like putting aside provisions for unpaid loans, diversifying guarantee systems,
like introducing Solidarity groups etc. The cooperative promotion office has positively
accepted the suggestion and passed directives
3.4 How can linkage between financier (Microfinance Institution, MFI) and
Producer Organisation (PO) be strengthened?
There is a huge demand for credit by the member cooperative Unions. Despite this high demand,
the supply by Lidet cooperatives’ cash savings and credit Union is way less than the demand. It
therefore requires a financial source beyond the Union. One of the alternatives for the Union is
to have some donations and development partner collaborations to design a bankable business
proposal that may enable them to have a better credit for the Union level, which will in return be
disbursed to primary cooperatives and Unions accordingly. The Linkage with Rabobank bank via
ICCO Terrafina Microfinance is essential for guarantying the loan demand of Lidet.
3.5 What are the lessons learned for the industry?
• The Cooperative Credit Assessment Matrix (CAM) tool is supposed to contribute in a
responsible way to increased Multi-Purpose Cooperative (MPC) loan size, beyond existing
collateral possibilities. Loan demand from MPCs to Unions is usually much higher than the
total value of their collateral. An MPC’s loan demand is based on estimated grain supply from
members at harvest time, plus their storage and marketing facility;
• Microinsurance service can strengthen the trust between borrower and lender and create
confidence to the borrower in case of premature death. It is also possible to launch the
culture of having insurance even in remote rural families;
• Cooperatives can have more collective power through membership in the secondary
cooperatives. This enables them to help each other in guarantee ship and share experiences
from one another; and
• They need to come up with product development like organising groups within the Savings
and Credit Co-operatives (SACCOs) to solve guarantee problems and at the same time
mobilise more resources etc. It is a project of ICCO Terrafina Microfinance.
Sources
Interviews:
1.
2.
3.
4.
5.
6.
7.
8.
Mr Abereham chanie Accountant (was also in charge of the Manager)
Mr Shemeles
Credit Officer
Mss Serkalem Zewdu
Credit Officer
Mr Salamlak Alebie
Credit Officer
Mr Abebaw Abebu
Member(Tehay SACCO) General Manager
Miss Meseret
Members member (individual client)
Mr Belete
Members member (individual client)
Ato Dagnew
ICCO Terrafina Microfinance Local Consultant
Documents:
1.ICCO Terrafina Microfinance & F&SE, 2013. SACCO Unions Capacity Building Program in
Amhara Region. Training Report on Assessment Model of Marketing Cooperatives, Addis
Ababa.
2.Lidet Union 2013/14 fiscal year 4th quarterly financial repot. June 2014, Nefas Mewecha
3.An Amharic version Power point document prepared by Lidet Union to federal agency for
documentary film preparation, August 16 2014. Nefas Mewecha.
4.Micro Score Assessment of the six SACCOs Unions operating in Amhara, second round
assessment report. (NpM Study case documentation).
5.CAM Tools and its ten dimensions ((NpM Study case documentation).
15
Appendices
Appendix 1: Insurance provisions against loan and its terms and conditions
Insurance type
Loan terms and conditions
Insurance premium
as % of loan
Term
Repayment
Term
Repayment
One year life insurance
1 year
Monthly
1.2%
One year life insurance
1 year
One time repayment
1.3%
Two year life insurance
2 year
Monthly
1.4%
Two year life insurance
2 year
One time repayment
1.5%
Three year life insurance
3 Year
Monthly
1.6%
Three year life insurance
3 Year
Yearly repayment
1.7%
Three year life insurance
3 Year
One time repayment
1.8%
Four year life insurance
4 Year
Monthly
1.9%
Four year life insurance
4 year
Yearly repayment
1.95%
Four year life insurance
4 Year
One time repayment
2%
Five year life insurance
5 Year
Monthly
2%
Five year life insurance
5 year
Yearly repayment
2.25%
Source: Lidet Union report for federal government Update 2014-09-21
16
Appendix 2: Microscore Assessment of the six (Savings and Credit Co-operatives (SACCOs)
Unions operating in Amhara
Name of
the Unions
1st assessment
result
2nd assessment
result
Remarks
Jabi
6.82
4.63
It failed to secure REUFIP loan and is not attentively using peach
tree. It has lost rank in the completion between Unions at federal
level. There seems to be a problem in its financial performance.
Hence, the assessment result has lowered it to Developing category
for the stated reasons.
Menkorer
2.35
3.63
It is still in the same category. It is improving a lot but its loan
portfolio is still marginal, staff turnover is very high and has not
won most marketing cooperatives to take loan from the Union. It
has improved in outreach but some of the members are far from the
centre.
Abaye Ber
6.58
5.35
Aaye Ber failed to win Rural Financial Intermediation Programme
(RUFIP) loan and has lost money in the bank that should have
been used as loan. The problems with Abay Ber are the increased
depreciation that came from the new building. In terms of reporting
and working with Marketing cooperatives it is good. Therefore it is
reasonable to lower it to the emerging category.
Goh
2.89
3.89
The points for the first assessment were lower than what it
deserves. The impact of the depreciation that comes from the heavy
building investment has lowered its profitability. It has good relations
with the marketing cooperatives. It has improved from emerging to
developing category.
Ledte
2.28
7.00
Stood first at national level for its performance. It has opened
branches. It is highly profitable. It is winning a lot of stakeholders
to work with. It has started microinsurance. It has won RUFIP loan
twice.
Tana
3.47
5.47
Tana is newly emerging and a promising one. It has won REUFIP loan
and its performance is improving. The performance is encouraging
in terms of profitability. The GM is new but he is catching up and the
Union is fast growing.
Source: Microscore Assessment of the six SACCOs Unions operating in the Amhara region
17
Appendix 3: CAM Tool and its ten dimensions
S/N
Sub-topics and
Indicators
1
Dimension 1: Long Term Strategy/Business plan
1.1
Strategic/Business plan, location and product
1.2
Norms
Having strategic/
business plan and
its quality
Assess availability and quality
0 - No BP
1 - Has BP but poor quality
2 - Has BP of good quality but not shared
3 - Has BP of good quality and shared
4 - Has BP of good quality, shared but was not prepared in participatory manner
5 - Has BP of good quality, shared & developed in participatory manner
Susceptibility of the
MPC's products to
price fluctuations
0 - Highly susceptible and very difficult to forecast
1 - Highly susceptible but possible to make some forecasts
2 - Susceptible to some extent and possible to forecast somehow
3 - Susceptibility is low and possible to forecast
4 -Susceptibility is very low and possible to forecast
5 - Not susceptible and possible to forecast easily
Nature of the
products that the
MPC is dealing with
(its comparative
advantages)
0 - Not possible to add value and bulking is difficult
1 - Possible to make bulk but value addition is difficult
2 - Bulk is difficult but preliminary value addition is possible
3 - Both bulking and value addition is possible to some extent
4 - Both bulking and value addition is possible
5 - Very suitable for bulking or value addition and fetch higher income
MPC's location
and accessibility
(strategic location)
0 - > 20km from any accessible road
1 - 15 to 20km from any accessible road
2 - 10 to15km from any accessible road
3 - 5 to 10km from any accessible road
4 - 1 to 5km from any accessible road
5 - <1km from any accessible road
Strategic relationship with its members
How relevant is
the MPC for its
members (in terms
of market access,
price, dividend,
inputs, technology,
etc.)
0 - Not relevant at all
1 - Relevant for <10% of the members
2 - Relevant for up to 30% of the members
3 - Relevant for up to 75% of the members
4 - Relevant for up to 95% of the members
5 - All members have strong relation with the MPC and are ready to support it
2
Dimension 2: Financial Performance
2.1
Balance sheet
2.2
Scores
How did the value of
the assets develop
every year?
0 - < 0%
1 - 1 to 5%
2 - 5 to 10%
3 - 10 to 15%
4 - 15 to 20%
5 - >20%
How did the equity
develop every year?
0 - < 0%
1 - 1 to 5%
2 - 5 to 10%
3 - 10 to 15%
4 - 15 to 20%
5 - >20%
Profitability
Operational profit
(EBD: Earnings
Before Depreciation)
0 - < 0%
1-1 to 5%
2 - 5 to 10%
3 - 10 to 15%
4 - 15 to 20%
5 - >20%
Return on Capital
(ROC= Net Income/
capital employed)
0 - < 0%
1-1 to 5%
2 - 5 to 10%
3 - 10 to 15%
4 - 15 to 20%
5 - >20%
18
Comments
2.3
Debt Leverage and Management
Loan truck record
of the MPC over the
last three years with
the SACCO Union?
0 - Zero experience of taking loan
1 - Took loan one time and repayment is >50%
2 - Took loan twice and repayment is 50-75%
3 - Took loan three times and repayment is 75-85%
4 - Took loan four times and repayment is 85-95%
5 - Took loan more than four times and repayment is 100%
3
Dimension 3: Marketing
3.1
Marketing experiences and track records
How often does the
MPC face marketing
problems and
capacity to overcome
the problem?
3.2
0 - Every year
1 - Once in two years and did not make any effort to overcome
2 - Once in three years and did not make any effort to overcome
3 - Once in five years and made some effort to overcome
4 - Once in five years and overcame it easily
5 - Did not face any market problem
Market Outlets
Has the MPC
established market
linkages (mark up
markets)
0 - No linkages - fully speculative
1 - Has known buyers but do not have any form of contracts
2 - Has known buyers and has some form of oral commitments
3 - has buyers and oral contracts
4 - Has been working in written contracts for more than 1 years
5 - Has been working in written contracts for more than 3 years
4
Dimension 4: Outsourcing/Supply
4.1
Understanding the supply (Quantity & Quality)
What % of members
sell their produce to
the MPC?
0 - Less than 10%
1 - 10-20%
2 - 20-50%
3 - 50-70%
4 - 70-90%
5 - Greater than 90%
How much percent
of the produce that
members produce is
sold to the MPC?
0 - Less than 10%
1 - 10-20%
2 - 20-50%
3 - 50-70%
4 - 70-90%
5 - Greater than 90%
Quality control and
the standards to be
used by the MPC
0 - No quality concerns
1 - Has quality concerns but did not make much effort
2 - Made some physical quality checks
3 - Physical quality checks and trained committee
4 - Written quality control procedures and trained committee
5 - Well established quality control standards and procedures/written
5
Dimension 5: Governance
5.1
General Assembly (GA)
GA Assembly
participation rate of
the MPC
5.2
0 - Less than 10%
1 - 10-45%
2 - 45-60%
3 - 60-80%
4 - 80-95%
5 -Greater than 95%
Board of Directors and autonomy
Frequency of
meeting, availability
of meeting minutes
and autonomy of the
board
0 - Never met
1 - Meets once in a year, no minutes
2 - Meets twice a year, makes minutes but does not make decisions autonomously
3 - Meets four times a year, makes minutes and has autonomy to make only minor
decisions
4 - Meets more than four times a year, minutes are available and makes some key
decisions
5 _ Meets more than four times a year, minutes are available and makes all key
decisions
19
6
Dimension 6: Management
6.1
General Manager (GM)
Adequate delegation
and responsibility of
the GM
6.2
Staffing
Sufficient and
qualified staffing
(Basic = GM,
Accountant,
Cashier; Adequate
= purchaser, store
keeper, security
guard)
6.3
0 - Does not make any decision without consulting the board
1 - Can make few decisions by consulting the board
2 - Can make some operational decisions without consulting board
3 - Roles are defined but cannot decide without board
4 - Roles are defined but needs to inform the board
5 - Roles are clearly defined and can make all decisions within that
0 - Do not have any staff
1 - Has only manager who is not qualified
2 - Has only qualified manager
3 -Has basic staff
4 - Has basic and adequate staff with some limitation on qualification
5 - Has basic and adequate staff who are qualified and experienced
Incentives and benefits
The level of salaries
and incentives of
staff to reduce turn
over
0 - Does not bother about this
1 - Gives only basic salary
2 - Salary revised and adjusted but not regularly
3 -Salary revised and adjusted as per the labour market regularly
4 - Performance evaluations made and provide basic benefits
5 - Performance evaluations made, sufficient benefits like training, bonus, credit
etc.
7
Dimension 7: Administration
7.1
Bookkeeping
Availability of proper
bookkeeping and
financial reports
(income statements,
balance sheet, stock
issues, etc.)
7.2
0 - Does not have any bookkeeping documents
1 - Has some documents but financial reporting is not done at all
2 - Has all the basic documents and reporting has been done but not regularly
3 - Has all the basic documents and some financial reporting has been done
regularly
4 - Has all the documents and reporting has been done but has some quality
limitations
5 - Has all the documents and standard reporting has been done including the use
of Peachtree
Auditing
Availability and
quality of audits
(remarks of
auditor and audit
qualifications)
0 - Audits never done
1 - Audits done once in more than three years
2 -Audits done once in more than one year
3 - Audits done annually and receives strong negative comments of the auditor
4 - Audits done annually and receives minor negative comments
5 - Audits done annually and receives positive comments
8
Dimension 8: Operations
8.1
Ownership, management and utilisation of assets
Ownership of
assets (office, store,
factory, car/trucks/
motorbikes, shop,
weighing machines,
etc.
0 - Does not have any of these
1 - Has only few of them and the quality is very poor
2 - Has only essential ones like store and carrying capacity is small
3 - Has most of them but not the required capacity and quality
4 - Has most of them and the required capacity and quality
5 - Has all of them and the required capacity and quality
Management and
utilisation of these
assets
0 - Does not have any of these assets
1 - All of them are poorly managed
2 - Most of them are well managed
3 - All of them are well managed but poorly utilised
4 - All of them are well managed and utilised more than half
5 - All of them are well managed and fully utilised
20
9
Dimension 9: Enabling Environment
9.1
External Relationships and supports
Level of external
relationship with
enablers
0 - Does not have any external relation
1 - Relationship built by external push
2 - It builds relations but there are high interferences in its business
3 - It has built relations but there are some interferences in its business
4 - It has built relations but there are high interferences in its business
5 - It has built relations that are enabling
External support (all
kinds of support)
available to the MPC
(NGOs, PLCs etc.)
0 - Do not have any support
1 - Has one supports but with strict conditions/strings
2 - Has 2-3 supports but with some conditions/strings
3 - Has many supports without conditions/strings
4 - Has many supports but some of them hindered its growth
5 - Has many supports which boosted its capacity
10
Dimension 10: Risk Assessment
10.1
Overall risk Assessment
Experiences of the
MPC related to the
overall risks over
the last five years
10.2
Price Risks
Experiences of the
MPC related to price
risks of the products
it is dealing with
over the last five
years
10.3
0 - Risks are never discussed and managed
1 - Risks are discussed by the management but never managed
2 - Risks are discussed at GA level but never managed
3 - Risks are discussed at GA level but only managed sometimes
4 - Risks are discussed at GA level and managed most of the time
5 - Risks never happened but the MPC has the capacity and readiness to overcome
0 - Happened every year
1 - Happened once in three years and the MPC was not aware
2 - Happened once in five years and the MPC was not aware
3 - Happened once in five year and the MPC was aware
4 - Happened once in five year and the MPC was aware and mitigated
5 - Rarely happened (once in 20 years)
Production Risks
Any experience of
crop failure over the
last five years in the
area
0 - Happened every year
1 - Happened once in three years and the MPC was not aware
2 - Happened once in five years and the MPC was not aware
3 - Happened once in five year and the MPC was aware
4 - Happened once in five year and the MPC was aware and mitigated
5 - Rarely Happens
21
Case Study E2
Wasasa MFI
“Coffee Value Chain Finance to Smallholder Farmers,
Chora District, Ethiopia”
Abstract
Wasasa Microfinance Institution (MFI) participates in the Agricultural Finance Programme (AFPEU),
which is funded by the EU and implemented by MicroSave-Cordaid. Starting from October 2012, the EU
programme is working with MFIs in four countries to implement a project aiming to increase access to
agricultural finance for farming households through product development. As a result of the support,
Wasasa MFI has developed an inclusive financial scheme called the “Coffee Improvement Loan”. As
Wasasa MFI had no previous experience in providing loans to smallholder coffee farmers, they had to
start with a financial needs assessment, product development, and assessment of the risks involved in
lending to smallholder coffee farmers. The programme is currently operating with 200 coffee farmers
in the Chora district. The programme was supported by Cordaid. ICCO Terrafina Microfinance has also
supported Wasasa MFI with guarantees for expansion of their portfolio, as well as with capacity building
for MIS and product development in the malt barley value chain.
Acronyms
ACDI/VOCA
ACE
ACSI
AFPEU DA
ECX
ETB MFI MoU
OCFCU
OSRA
PC
PO
ToT
VCD
WAO
WCPO
Agricultural Cooperative Development International / Volunteers in
Overseas Cooperative Assistance
Agricultural Cooperatives in Ethiopia
Amhara Credit And Savings Institution
Agricultural Finance Programme Europe
Development Assistant
Ethiopian Commodity Exchange
Ethiopian Birr
Microfinance Institution
Memorandum Of Understanding
Oromia Coffee Farmers’ Cooperative Union
Oromo Self-Reliance Association
Primary Cooperative
Producer Organisation
Training of Trainers
Value Chain Development
Woreda Agriculture Office
Woreda Cooperatives Promotion Office
1. Main characteristics of the case
1.1 Farmers and their organisation
Chora Smallholder Coffee farmers
Chora is a district in the Luababora Zone of Oromia National Regional State. It is bordered on
the south by Jimma Zone, on the west by Yayo, on the north by Dega and on the east by Bedele.
The district has a population of 318,483 people in a predominantly rural setting (only 9,500
recorded urban households). With an area of 947 square kilometres, Chora has a population
density of 125 inch/km2, which is greater than the zonal average of 72. The main economic
activity of the district is agriculture.
Producer Organisation (PO) /Coop Profile Data
Type of organisation
Number of members
Main crops
Other crops
Smallholder farmers
200 farmers
Coffee
Khat, maize & teff
22
This includes crop farming and animal rearing. Crops grown include maize, teff, sorghum,
wheat, khat, mangos, avocado and papaya. The most valued crop is coffee, followed by khat,
then maize and teff. Coffee is spread over an area of over 50 square kilometres in which some
22,000 hectares of productive coffee can be found. This represents about 0.5% of the national
coffee area. Some 14,500 households are involved in coffee production, giving an average of
1.5 hectare of coffee per family. This is well above the national average, yet the intensity of the
production is below national average.
The Oromia Coffee Farmers’ Cooperative Union (OCFCU)
Ethiopia’s Oromia Coffee Farmers’ Cooperative Union (OCFCU) aims to help small-scale coffee
farmers taking advantage of the Fair Trade coffee market. The OCFCU was established in 1999
in order to help the 100,000 farmer families working in Oromia cooperatives to get through the
difficult price crisis. The OCFCU comprises 34 cooperatives, cultivates 86,487 acres of land, has
an average annual production of 16,507 tons and is known for its high quality coffee; all of which
is heirloom, organic, and produced by smallholders. Only in its third year, the OCFCU is already
starting to return 70 percent of its gross profits back to the Primary Cooperatives (PCs), in order
to help cooperative members.
Part of the sales of the OCFCU’s coffee is going back to the communities to be used to build
schools, which will help to address problems in the impoverished communities in an area
where only about a quarter of the school-aged children attends school. Fair Trade coffee helps
providing living wages to the farmers, as well as providing up to three times as much income as
the average coffee producer. This income will help farmers provide for their families, increase
their quality of life and allow them to continue working on their farms.
1.2 Wasasa Microfinance Institution (MFI)
Wasasa MFI S.C. was established in September 2000 by its mother NGO: the Oromo SelfReliance Association (OSRA) to take over its microfinance activities, running since 1996. At that
time it also acquired a Microfinance Business License from the National Bank of Ethiopia. Since
then, the company has been working with poor communities (mainly the rural poor) by providing
savings and credit services. It currently has 28 branches and 20 rural outlets operating in 34
Woreda (districts) of Oromia Regional State, with the ambition to expand every year. The Head
Quarter is in Alemgena town, near to Addis Ababa. The mission of Wasasa MFI is to provide
sustainable financial services to the active poor in order to employ capital for poverty alleviation.
MFI profile data
Total # of active clients
Portfolio value (in euros)
Number of branches
Number of rural branches
% of farming clients
% of portfolio in agriculture
64056 Hh
185.5 M
Birr
28
20
84% Estimated
Rural loans account for 84% of the total loan portfolio of Wasasa MFI. The large group loan
product is the agricultural loan that Wasasa MFI provides through all of its branches. It accounts
for a large proportion of the loan portfolio. Wasasa MFI has a mandatory savings product and
several voluntary savings products, like group voluntary saving, time deposit, planned time
deposit, and passbook savings account. A credit life insurance service is also incorporated in the
group loans. In addition, in collaboration with other partners, Wasasa MFI developed specialised
loan products for different target groups. These include dairy loans, malt-barley production
financing, working capital loans for “Farmers Marketing Organisations”, micro-irrigation
technology loans and others.
23
1.3 Nature of the programme
Wasasa MFI participates in the Agricultural Finance Programme funded by the EU (AFPEU) and
implemented by MicroSave-Cordaid. Cordaid is one of the largest development aid organisations
in the Netherlands and member of the Dutch Platform for Inclusive Finance (NpM). In this
programme, it collaborates with MicroSave, a Kenyan organisation specialised in financial product
development. Together they obtained funding from the EU to support 6 to 10 MFIs to develop
financial products for farmers, to link these farmers to agricultural service providers and to
elaborate on appropriate risk mitigating measures. Starting from October 2012, the programme
aimed at working with MFIs in Kenya, Uganda, Ethiopia and Ghana. The goal of the project was to
increase access to appropriate agricultural finance for farming households. Six to ten participating
MFIs would have developed or refined agricultural microfinance products, and by the end of 2014
14,000 new MFI clients would have accessed an agricultural loan product. Furthermore, the MFIs
would have developed appropriate risk-mitigating measures associated with agricultural financing.
Half of the MFIs would have successfully linked their clients to agricultural service providers. The
target was that 75% of the agricultural clients would have received financial education.
AFP-Ethiopia: Wasasa MFI and Amhara Credit and Savings Institution (ACSI) are the MFIs
selected in Ethiopia to participate in this project (on coffee and wheat, respectively). The project
aims to increase access to agricultural finance for farming households via product development.
As a result of the support from the AFPEU MicroSave/Cordaid agricultural finance project, funded
by the EU and Cordaid, Wasasa MFI has developed an inclusive financial scheme called the “Coffee
Improvement Loan”.
Wasasa MFI was selected as one of the two MFIs to participate in the programme. The organisation
had no previous experience in providing loans to smallholder coffee farmers, as they are located
far from the coffee growing areas. Thus, Wasasa MFI did not know the financial needs and the
risks involved in lending to smallholder coffee farmers. As a result, there was a need to conduct
a preliminary study to get to know more about the overall financial services provided to coffee
smallholders in Ethiopia and the stakeholders/actors in the coffee value chain. Thus, Wasasa MFI
conducted a preliminary study in Chora district in order to identify the options for direct financial
services to primary actors in the coffee chain: farmers, cooperatives and traders, with a value
chain financing approach.
In case any potentional could be demonstrated, the preliminary study also aimed to define
the financial products and services that Wasasa MFI could offer, as well as potential support
mechanisms to increase the impact of the financial services.
Baseline study: In line with the above goals, the staff of Wasasa MFI and MicroSave did a
preliminary study in May 2013 in the coffee value chain of Chora district, which was chosen
as a pilot area as Wasasa had recently opened a branch in this district. It provided a broad
understanding of the stakeholders in the coffee chain. More specifically, the study identified the
following aspects of the chain:
• Stakeholders involved in the coffee chain and their willingness to collaborate;
• Gaps/challenges in the coffee production and marketing;
• Existing and potential risks in the value chain;
• The needs for financial intervention; and
• Some information for designing appropriate need-based financial products.
In order to create a proper capacity to launch the programme, there was also a need for human
resources development. Thus, the project team trained the staff of Wasasa MFI in Value Chain
Analysis and in Value Chain Finance. With the new insights gained, a second field study was done
in August 2013 by a multidisciplinary team of experts from Wasasa MFI, MicroSave and Cordaid/
ICCO Fair and Sustainable Advisory Services (FSAS). Various data collection methods were used,
like Focus Group Discussions, individual interviews, field/farm observations, enterprise budgeting
and market visits. Primary data were obtained from primary actors in the coffee chain (farmers,
traders, cooperatives, unions) as well as from support actors (ACDI/VOCA, TechnoServe, the
Woreda Agriculture Office (WAO), the Woreda Cooperative Promotion Office (WCPO), the Oromia
Credits and Savings Share Company (OCSSCO), etc.). The primary data were supplemented by
various secondary data from reports, studies, research, statistical data, the Ethiopian Commodity
Exchange (ECX), market data etc. All data were digested through a process of staff discussions and
triangulation of the various data sources.
24
1.4 Other stakeholders
In Ethiopia the coffee value chain generally starts from the coffee farmers, to processing and
trading up to the local retailers (local consumption) or coffee exporters. The coffee value chain
for Chora smallholder farmer is no exception (see below the value chain map of Chora). The
fieldwork identified the overall landscape of the coffee value chain in Chora and its participants
were categorised as primary participants and secondary chain actors. Primary chain actors
include smallholder coffee producers, PCs, processors traders, the ECX and various Unions
like Chora Cooperative Union and the OCFCU. Secondary chain actors include other nonfinancial service providers working with the farmers, like the WAO and the WCPO. In addition,
TechnoServe and ACDI/VOCA are also among the secondary players in this particular value
chain.
TechnoServe is an international non-profit organisation that develops business solutions to
poverty alleviation by linking people to information, capital and markets. Its work is rooted in
the idea that hardworking people can generate income, jobs and wealth for their families and
communities. The organisation believes in the power of private enterprises to transform lives.
TechnoServe is currently helping farmers by installing and operating ecological coffee wet mills.
Furthermore, they support farmers to obtain the skills and influence necessary to organise
themselves and defend their own interests.
Agricultural Cooperative Development International / Volunteers in Overseas Cooperative
Assistance (ACDI/VOCA) is an economic development organisation that fosters broad-based
economic growth, raises living standards, and creates vibrant communities. Its areas of practice
are agribusiness, food security, enterprise development, financial services, and community
development. ACDI/VOCA began implementing the USAID-funded five-year Agricultural
Cooperatives in Ethiopia (ACE) project. As part of this novel initiative, ACE aided the OCFCUs,
which are directly linked with this coffee value chain.
Programme inception In May 2014, Wasasa MFI and a Cordaid consultant organised a
multi-stakeholder meeting with the District Agricultural Department, the WCPO, the Chora
Cooperative Union, some private coffee traders and other stakeholders such as TechnoServe,
the OCFCU and ACDI/VOCA. A Memorandum of Understanding (MoU) was signed with the aim to
align the efforts to improve the production, quality and marketing of Chora coffee. Below some
of the primary (chain) actors and supporters are listed and described.
Direct Consumption and
Local market (40%)
Coffee Producers
Wet cherry
Cooperative
Dry cherry
Traders
Cooperative
Washing and drying
Cooperative Unions
Traders
Hulling
Commodity Auction BCK
Rejected Grades
Private
Exporters
Export Market
Figure 1.1: Coffee value chain of Chora district (Source: Value Chain financing report, Wasasa, September 2013)
25
Private
Distributors
Primary (Chain) actors
A.Farmers are responsible for producing high quality coffee, based on proper husbandry of
their fields (i.e. weeding, pruning, etc.), proper harvesting techniques (picking only ripe fruits)
and drying methods (i.e., using coated mesh wire on raised beds).
B.Primary Cooperatives (PCs) are members of the Union and responsible for offering farmers
access to quality inputs and markets. In the future they should be able to play a role in
the administration of loans to members (e.g. select members that qualify for a loan and
administrate the repayment of the loan through the coffee that is marketed via the PC).
C.The Chora cooperative Union covers the whole Chora district and represents the coffee
cooperative and their members. As such it was responsible for coordinating all farmers’
efforts. It will ensure that the right PCs and farmers get selected for the support offered by
other signatories. As a member of the OCFCU, it links all member cooperatives to the OCFCU.
In the future they should be able to play a role in administrating loans to cooperatives (e.g.
select PCs that qualify for loans and administrate the repayment of these loans via coffee,
marketed via the union).
D.The Oromia Coffee Farmers’ Cooperative Union (OCFCU) has a large number of support
programmes for its member cooperatives. These include loans for working capital and
training programmes on issues on PC level (like leadership training) and farmer level (like
coffee quality management). It can link specific unions or PCs to banks for loans, and to
specific (niche) markets in and outside Ethiopia. As a centre of practical skills and market
knowledge on coffee, it cooperates with various other stakeholders and service providers on
capacity building.
Chain Support actors
A. The Woreda Agriculture Office (WAO) is overall responsible for coffee farmers from
the governmental side. They offer technical training to farmers and assist other MoU
signatories in selecting farmers that fulfil the eligibility criteria. This could offer different
kinds of support: training, loans, market access etc. They are able to follow up this selection
and supervise beneficiaries of the trainings and loans to see if they indeed apply the
skills and the money for its intended purpose. It can facilitate all required support from
local government partners and it can invite additional traders in the area to enhance the
competitiveness of coffee marketing.
B. The Woreda Cooperative Promotion Office (WCPO) is responsible for training and
supporting PCs and the Union in administrative and management issues. They will ensure
that the cooperatives and the union can play their proper roles.
C. TechnoServe can offer Training of Trainers (ToT) to cooperatives and unions in coffee
processing (wet and dry), business management (leadership, bookkeeping), and coffee
marketing. It can facilitate access to finance as well, and in some cases direct access to
export markets.
D. ADCI/VOCA via its Agribusiness and Market Development (AMDE) project can offer ToT to
cooperatives and farmers on cooperative management, coffee quality, post-harvest handling
and marketing.
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Jan
Feb
Income
Mar
Apr
Expenditure
May
Jun
Saving
Jul
Aug
Sep
Oct
Credit
Figure 1.2: Smallholder coffee farmers’ monthly need for finance with respect to income, savings and expenditure.
(Source: Wasasa MFI’s need assessment report September 2013).
26
Nov
Dec
2. Risk analysis
2.1 How has risk management been approached?
Loan appraisal by the Microfinance Institution (MFI) - Due diligence
In addition to the two preliminary studies conducted, the financial product for the coffee farmers
was developed. The following access requirements were defined:
Primary (Chain) actors
A. Follow standard loan procedure;
B. Legally registered and permanently living in the peasant association with land ownership
certificate;
C. Eligible land ownership ranging from 0.5 –to 2 hectare(s) of coffee land;
D. Willing to be inspected by the Woreda Agriculture Office (WAO)/ Wasasa MFI and follow-up
of advice;
E. Member of a peer group with mandatory saving, (10% of loan size as mandatory saving) and
credit life insurance as group;
F. No other loans with other MFIs; and
G. Willing to join training on the following issues:
• Standard training on loan policies and procedures;
• Technical training by the WAO (VOCA) coffee quality;
• Training on cooperative and union management by VOCA; and
• Training on Value Chain Development (VCD) and quality.
Pre-disbursement phase: After initial screening of eligibility, the group formation will be
completed and training on policies/procedures is conducted. Subsequently, applicants will pass
through the following loan processing steps for application, appraisal and disbursement:
• Field staff will assess credit needs with the group and fill out the necessary forms (incl.
peasant association official letter, on coffee area). Support is provided by the agricultural
Development Assistant (DA) to check the farmer’s coffee area;
• Check with other MFIs whether the potential customer has loans from other financial
institutions;
• Loan approval by branch manager; and
• Loan disbursement at the branch office. Disbursement will be undertaken in the presence
of all credit group members, as they sign mutual guarantees.
It is assumed that the total loan application procedure will take 15 days to complete for existing
groups. If the credit group is to be formed and established as a new credit group, the time for
the loan application is obviously longer.
Repayment: Loan repayment by the borrower will be done at a village level. The staff of Wasasa
MFI will collect the repayment at the village level.
2.2 Risk management by the stakeholders
In the design and development of the coffee programme, the lead actors have jointly assessed
the risks for farmers and the Producer Organisations (POs), and identified means to mitigate
these risks. For the purpose of the case study, a distinction is made between the six crucial
aspects of smallholder production, i.e. risks related to:
• The specific crop: i.e., coffee;
• The farming system and farm production;
• The strength of the farmer organisation / PO;
• The market for malt barley and food crops;
• The viability of the farming system promoted; and
• The financing of farmers.
These risks and the way they were mitigated and managed have been tabulated in a risk
catalogue (see table 2.1) and are briefly summarised below.
27
Risk assessment by Wasasa MFI: The risk management matrix below displays the risk
management process in the Coffee Improvement Loan product. It provides the main risks that
were identified, the mitigating measures and the action plans for the actors that are involved as
risk owners or in the implementation of the mitigating measures. This risk management matrix
(known as a Risk Register by Wasasa MFI) is assumed to be reviewed (and adapted) periodically
to see whether risks have changed or new risks have been identified. Implementation of the
actions plan can be monitored monthly. From the very beginning in August 2013, 3 Wasasa
staff members participated in the 2 days Agricultural Microfinance Risk management training
provided by Cordaid staff. Participants made an inventory of all risks related to the production of
coffee and the provision of loans to coffee farmers. A start was made with the elaboration of a
Risk Register. It is stressed that the risk matrix format used in this study for all cases, does not
necessarily correspond to the more detailed format of the Risk Register developed by Wasasa
MFI with support from Cordaid.
Product-related risks
In the region there is a risk of unfavourable weather conditions for coffee - sometimes rain
shortage and sometimes excessive rain. This has regularly been hurting smallholder farmers
in terms of production and income. Moreover, once every 2-3 years production is much lower
due to internal plant properties, which makes the income of the farmers very volatile. In order
to mitigate these risks, the programme has been linking farmers with the Research Institute to
seek improvement of the coffee variety used. Wasasa MFI also has been offering an appropriate
savings product to buffer temporary income deficits, and provided financial education to
the farmers. These measures will continue to be done. A lack of appropriate coffee quality,
contamination and absence of fertiliser utilisation reduces the potential benefits for coffee
farmers. To mitigate the risks, training and sensitisation on proper coffee plantation was done
by extension officers.
Production-related risks
The yield per hectare is still relatively low due to a lack of skills and experience of farmers on
coffee management, composting and seedling preparation. For this reason, an effort was made
to link smallholder coffee farmers to the Agricultural Office and NGOs in order to increase
awareness on these issues and provide extension services. Other risks regarding the production
volume of these smallholder farmers include losses due to animal attacks to coffee farms and
the lack of capital to buy bags and mesh-wire beds. The Coffee Improvement Loan by itself
helps to mitigate these risks, as it allows to make the necessary investments. Wasasa MFI also
contributed to create a linkage between farmers and suppliers of mesh-wire beds.
Farmers organisation-related risks
A lack of strong organisation hampers farmers in the negotiations for better prices. As they
depend on a few traders, they faced limited competitiveness. Price fluctuation, although
partly due to changes in world market prices, adds to the insecurity of smallholder farmers
regarding the viability of their coffee farms. To mitigate these risks, collective selling through
cooperatives and contract farming were among the efforts made to seek improvement through
stronger farmer organisation. There are plans for the future laid down in the Memorandum of
Understanding (MoU), to strengthen coffee cooperatives, to enable them to undertake collective
bulking, to have a better and strong bargaining position, and to create direct access to export
markets.
Marketing-related risks
With respect to marketing-related risks, farmers lack information on prices and on cost
margins in the value chain, causing weak negotiating power and also mistrust. If there is not a
sufficiently rewarding price for improved quality, farmers are not encouraged to invest in efforts
to improve quality and maintaining it through extra effort and expenses. When farmers have
difficulty to sell their coffee or when they can only do so at a low price, the chances for defaults
to loan repayment will become much higher. To mitigate these risks, efforts have been done to
examine how the SMS price information of the Ethiopian Commodity Exchange (ECX), through
text messages, works for the farmers of the pilot area and what specific training needs exist
to familiarise the farmers with these modern systems. Discussion took place with relevant
stakeholders on how up to date coffee price information can be accessed for the coops and the
farmers, and how the MoU could be improved to include price information and training for the
smallholder farmers.
28
Finance-related risks
The diversion of the money disbursed, intended for increasing coffee production and quality, has
been observed. To mitigate these risks, Wasasa MFI closely follows up the farmers and raises
awareness through financial education. Once diversion is detected, immediate action is taken
by the supervising loan officer. In some cases people intentionally default their loans without
a direct reason. For this reason, the solidarity group lending methodology is also used for the
coffee farmers.
The risk management catalogue in table 2.1 below systematically lists these various risk items,
the way they were assessed, the risk mitigation measures identified and implemented, and the
risk monitoring performed in the post-lending stage (after disbursement). It is noted that the
format for the risk catalogue does not tally with the Risk Register developed by Wasasa MFI with
support from Cordaid.
Table 2.1: Risk catalogue: Overview of the risk assessment and risk mitigation measures
Risk Aspect
Risk assessment
Risk mitigation measures
Risk monitoring
Product risks
Cyclic reduced production
Once every 2-3 years production is much
lower due to internal plant properties
• Link with Research Institute
• Offer an appropriate savings product
• Financial education
• Monitoring of coffee quality by buyers
and Coops/Union
• Training materials expected from AFPEU
to educate farmers
Reduced harvest due to diseases
• Lack of appropriate coffee variety
• Contamination
• No fertiliser use
Awareness raising/extension
Awareness on proper coffee plantation
• Continue farmer training
• Monitoring compliance with the MoU &
action to be coordinated with WAO
Failed harvest due to bad production
techniques
Lack of skills/experience of farmers on
coffee management, compost and seedling
preparation
Link farmers to agricultural office or NGOs
to increase awareness
Monitoring compliance with the MoU (with
WAO) & action to be coordinated with WAO
Loss of production
Because of animal attacks (monkeys)
Already included in MoU
Post-harvest losses: quantity and quality
Losses due to lack of capital to buy bags,
mesh-wire beds, etc.
Coffee Improvement Loan and facilitate
linkage to suppliers of mesh-wire beds
Client, farmer
organisation
Low prices for coffee / price risks
• In some places: lack of competition among
traders, dependence on a few traders
• Lack of strong organisation that could help
farmers in negotiating for better prices
• Price fluctuation (most fluctuations are due
to changes in world market prices)
• Collective selling by Wasasa MFI coffee
clients
• Collective selling through coops
• Contract farming (future)
• Effectiveness yet to be examined. Coops
need to be strengthened.
• Included in MoU – action to be
coordinated with other stakeholders.
Marketing-related
risks
Market imperfection
In some places: lack of competition among
traders, dependence on a few traders
Insure that more buyers will be aware of
supply potential in the pilot area
Linking, organise SMS text messages with
price information
Not yet feasible
Low prices for coffee/ price risks
• Farmers lack information on prices and on
cost margins in the value chain, causing
lack of negotiating power and/or mistrust
• No rewarding price for quality so that
farmers are not encouraged to invest in
maintaining or getting good quality (lack of
appropriate grading)
• Price information through SMS
• Price information through COs
• Include value chain financial info in
financial education
Included in MoU, monitoring of compliance
Diversion risks
Money intended for increasing coffee
production and quality might be diverted in to
other uses.
• Financial education, as diversion depends
on household controls, money from the loan
and who controls the income
• Part of the peer-group social control
• One third of the loan can be used for
household purposes
Immediate follow-up by CO if diversion is
detected.
Defaulting risk
Some people default on their loans without a
direct reason.
This is prevented by the guarantee peer
group and partly by the mandatory savings.
Weekly loan tracking & loan repayment
performance per client / group / CO
Production risks
Marketing / price risks
When farmers have difficulty to sell their
coffee or if they can only do that at a low
price, defaults might increase
Financial Risks
29
After the training of participants, the Cordaid staff members continued to work on the risk
register. With a two day field visit, they were able to develop a risk management matrix. Many
risks are at farmer level. However, the risk for Wasasa MFI that farmers ultimately will not repay
their loans is low: current yields are already sufficient, loans can be rescheduled, farmers can
repay from other sources of income or group members pay for each other’s loans. Nonetheless,
quality and prices and thus income can be much higher for farmers if all “risk-mitigating
measures” will be implemented in effective and efficient ways.
One of the biggest risks is the world market price for coffee, which is impossible to be
influenced by the farmers or Wasasa MFI. The latter, however, intends to look for possibilities
in which the farmers can sell their coffee as specialty coffee, through which prices can be
stabilised.
2.3 What is the finance strategy?
After a thorough need assessment, appraisal of client repayment capacity and screening
on eligibility criteria, credit is provided as a direct loan to coffee farmers, to enable them to
implement proper coffee management and to ensure that they can harvest and process the
coffee properly. An individual loan offers up to Ethiopian Birr (ETB) 4,000 per ha of coffee, with a
minimum of 0.5 and a maximum of 2 hectares. An additional ETB 2,000 is offered for households
needs. This means that the minimum loan is ETB 4,000 (for farmers with 0.5 hectare) and the
maximum ETB 10,000 (for farmers with 2 ha or more).
The credit product is named as “Coffee Quality Improvement Loan”. The interest rate is 18%
per year or 1.5% per month. The service charge is 3% and the credit life insurance costs 1%.
The loan is based on one loan agreement but it is disbursed in two tranches: half in June/July
and the other half in August/September. The repayment is made in three equal tranches in the
months of January , February and March. The total repayment after 6-9 months will be less
than ETB 12,000 for a farmer with 2 hectares of coffee. So far the first instalment disbursement
of the 40% is given to pilot farmers to be used for weeding coffee, and the second instalment of
60% will be disbursed in August/September. It is assumed that this will be used for labour costs
and ‘Debi’ (costs of food and drinks for friends and neighbours who assisted them in harvesting)
and buying wire beds for improved drying. Part of it can also be used for children’s schooling
and personal consumption. The loan will be guaranteed by the peer group and additional
guarantee comes as mandatory saving (10% of the loan size).
Credit product(s) for agriculture
Name
# of
months
Interest %
Interest mode
Flat or R.B.
Repayment
Bullet / instalment
Coffee Quality
Improvement Loan
6-9
months
18% + 3% service charge
+ 1% insurance
Flat
Three instalments: one
per month in Jan- March
2.4 What capacity for agri-finance has the MFI installed?
As Wasasa MFI had no previous experience in providing financial services to smallholder coffee
farmers in the region, it had to build up its human resource capacity. In order to mitigate the
possible risks that might be involved in this value chain, it went through a stage of programme
design and product development. This included an organised field survey and the development
of a risk register in which the method of risk assessments, the risk mitigation measures and
the risk evaluation mechanisms were developed (as shown in table 2.1 above). Furthermore,
in order to have a better capacity of providing financial services, Wasasa MFI recently opened
a new branch in the Chora district, which will enable close assessment and to address credit
demand, appraise and monitor risks involved and ensure close follow-up. In the future, Wasasa
MFI hopes to achieve economy of scale through this value chain financing scheme in the coffee
sector, by mainstreaming the experience gained from this pilot value chain finance scheme.
30
At the head quarter level, a new position of “Operations Support” is being created. This can be
expanded in the future, once the product has been rolled out and responsibilities handed over
to branches. Cordaid, MicroSave and ICCO/Fair and Sustainable Advisory Services (FSAS) were
supporting in capacity building of both Wasasa MFI staff and farmers, by providing training and
related support. Wasasa MFI has a trained staff in marketing research, risk management and
hopes to maintain the good linkage with these development partners in the future.
2.5 What connections were entertained by the MFI with other stakeholders in
the sector? Who was the lead actor in orchestrating the chain?
This value chain is mainly orchestrated by Wasasa MFI, as it has been conducting the
preliminary study and then the process of programme design and product development.
This included the risk register, developed by Wasasa MFI with close support from Cordaid,
MicroSave and FSAS-ICCO. Apart from Wasasa MFI, there are also other chain actors and
supporters that have made their own contribution. Among these are the smallholders coffee
producers, Primary Cooperatives (PCs), processes, Cooperative Unions and the Oromia Coffee
Farmers’ Cooperative Union (OCFCU), traders and the ECX. In addition to the primary actors,
there are also secondary actors who have been supporting this vale chain by providing nonfinancial services to the farmers; these include actors such as the Woreda Agriculture Office
(WAO), the Woreda Cooperative Promotion Office (WCPO), TechnoServe and the Agricultural
Cooperative Development International / Volunteers in Overseas Cooperative Assistance (ACDI/
VOCA). TechnoServe developed business solutions for poverty alleviation by linking people to
information, capital and markets. TechnoServe is currently helping farmers by installing and
operating ecological coffee wet mills. It also helps farmers to gain the skills and organisation to
better defend their own interests and build up a stronger negotiating position. ACDI/VOCA began
implementing the USAID-funded five-year Agricultural Cooperatives in Ethiopia (ACE) project.
As part of the novel initiative, ACE aided the OCFCU, which is also directly linked to this pilot
coffee value chain.
3. What makes it tick?
3.1 What are the success factors in this case? What risk mitigation measures
proved effective?
The point of departure for Wasasa Microfinance Institution (MFI) has been the belief that a
support system of non-financial services is needed in order to secure the advantages of value
chain finance. It is noted that through its mother NGO, the Oromo Self-Reliance Association
(OSRA), Wasasa MFI embodies strong social objectives, and sees credit as supporting
development and a means of poverty alleviation. In line with the EU funded Agricultural Finance
Programme (AFPEU), Wasasa MFI has successfully piloted the financial feasibility study and
was able to design an effective intervention programme with other stakeholder and develop
an appropriate financial product, tailored to the needs and farming calendar of the coffee
farmers. As a result Wasasa MFI could launch the first financial services for coffee smallholder
farmers in Chora district. Wasasa MFI was able to map the value chain actors and orchestrate
them, so as to create a favourable business environment around the Chora Woreda. From
the needs assessment process and field data collection, Wasasa MFI learned a lot and was
able to come up with substantive know on the complex environment and the stakeholders
involved in the coffee value chain. The value chain finance approach is very demanding as it
requires a good understanding and collaboration with a variety of actors, starting from the
smallholder coffee growers up to the upper level of coffee processors and buyers. As quality
is the determining factor for both the price of coffee and (thus) the income of coffee farmers,
the coffee improvement loans are believed to have helped in creating new value added for the
farmers involved in the pilot. Any intervention (including credit) in the coffee chain should work
on improving the quality. This requires an integrated intervention to strengthen all chain actors:
farmers, traders, coops and unions. The Risk Register is a good example of a very systematic
approach towards the management of agricultural risks. It is more detailed then the risk matrix
format used in this study, as it also adds for each risk driver the likelihood of its occurrence and
an action plan for follow-up.
31
3.2 What are the (remaining) weaknesses/threats/risks?
The financial services provided by Wasasa MFI though this loan product can, strictly speaking,
not be labelled as value chain financing as intended by the AFPEU, as it only serves smallholder
coffee farmers with a limited amount of loan; of a maximum of Ethiopian Birr (ETB) 10,000
(around 375 euros). It does not (yet) finance other actors in the chain, for instance those who buy
the coffee from the farmers. However, Wasasa MFI successfully adopted a value chain finance
approach, so as to mitigate the risks for farmers and indirectly for the financier. The “return on
investment” comes in the form of lower default risk expenses and less administrative costs. In
this case, the potential to exploit the risk-mitigating potential of good chain organisation are
limited, as the capacities of the main actors in the chain are still rather weak. Hence Wasasa
MFI had to invest considerable time and expenses in Value Chain Development (VCD) activities.
This would normally go beyond the financial and human resources of Wasasa, but as a result
of external support through the EU/Cordaid programme, the investment became feasible and
offered good potential economics for scaling up to mainstreaming coffee smallholder finance.
As a result of this experience, Wasasa MFI took it as a “lesson learned” that the investment
in VCD should not be underestimated, as they do not have the financial and human resources
required to improve the coffee chain on its own. Other partners are needed and an orchestration
of all stakeholders in a round table meeting should be undertaken by external facilitators.
Despite the fact that this type of VCD obviously brings great benefits to the MFI in terms of risk
management, the full investment in it should not be expected from the MFI as it exceeds both its
professional and financial capacities.
3.3 Do stakeholders have a view on how to better deal with these remaining
risks in the future?
Even though the effort made by Wasasa MFI was a great beginning and a good experience,
for mainstreaming the programme there is a need for collaboration with other stakeholders,
financiers and development partners. The high cost of the product development process cannot
be recovered by the clients of the MFI, especially when the microfinance component is too small
and the number of clients too limited to have economy of scale.
Other banks and MFIs should also contribute, by financing different stages of the value chain
such as cooperatives, traders and other chain actors in this value chain. The support from
development partners should be continued in a sustainable manner as it has proven to be an
effective intervention for the smallholder farmers and their producers’ groups. This further
supports the country’s economy by having generated increased export revenues and foreign
exchange earnings.
3.4 How can linkage between financier (MFI) and Producer Organisation (PO) be
strengthened?
The pilot experience and the lessons learned from this value chain offer promising perspectives
for the replication of coffee farmers’ schemes and upscaling in other regions. In this value chain
the finance scheme capacities are still too limited to build sustainable linkages among the value
chain actors. Stakeholders and development partners should therefore be organised to build
their capacities and stimulate their willingness to collaborate. Financiers can play a very useful
role here. By financing the different actors in the subsequent stages of the value chain, banks
and other financial institutions can stimulate tripartite arrangements with e.g. farmers and a
coffee processor.
32
Sources
Persons contacted for interview:
• Ato Amsalu Alemayehu, General Manager of Wasasa MFI S.C.
• Ato Teklemariam Awoke, Marketing manager of Wasasa MFI S.C.
Documents used:
• Risk Register for Coffee Improvement Loan by Teklemariam Awoke (Wasasa MFI),
Mosisa Soboka (Wasasa MFI), Resi Janssen (Cordaid). June 2014.
• Coffee Value Chain Finance Chora Woreda by Wasasa MFI S.C., MicroSave Consulting LTD,
Fair and Sustainable Ethiopia PLC. September 2013, Addis Ababa.
33
Case Study E3
Buusaa Gonofaa MFI
“Value chain finance scheme for malt barley smallholder
farmers in the Arsi district, Oromia, Ethiopia”
Abstract
With support of ICCO Terrafina Microfinance, Buusaa Gonofaa Microfinance Institution (BG MFI)
identified the Malt Barley Value Chain (MBVC) as a promising sub-sector for a pilot scheme in Value
Chain Finance (VCF). It started with discussions with the main actors in this chain, the Assela Malt
Factory (AMF), the Oromia Seed Enterprise (OSE) and the local Zonal Agricultural Office (ZAO) in
2013. This resulted in a collaboration agreement in 2014 for the promotion of high quality barley as
a profitable crop for smallholder farmers. The agreement stipulated that BG MFI would implement
the financing for smallholder malt barley producers, whereas OSE would supply certified seeds to
farmer clients of BG MFI, and the ZOA to collaborate with OSE to provide technical support to these
farmers. As AMF is interested in obtaining high quality malt-barley, it agreed to purchase contracts
with the farmers and provide them with technical support. This value chain finance scheme aims to
reach 1000 farmers in two districts (Lima Kara and Sirbo). Actual adoption levels in the period 201114 have varied between 124 and 989. Loan retailing to farmers is done through Rural Service Facility
(RSF) centres promoted by BG MFI, which have substantial flexibility for determining loan size,
pre-disbursement conditions and loan management, as well as facilitation of seed distribution and
marketing for the smallholder farmers. BG MFI would provide loans to farmers from its loan funds.
For this BG MFI received a loan from the Central Bank of Ethiopia (CBE), backed by a guarantee of
50% from Rabobank and ICCO investment fund.
Acronyms
AMF
BG MFI
CBE
CIDR
DAO
DOA
ESE
ETB
MBVC
MFI
MoU
OSE
PA
PO
RSF
RU
SCC
VCF
ZAO
ZOA
Assela Malt Factory
Buusaa Gonofaa Microfinance Institution
Central Bank of Ethiopia
Centre International de Développement et de Recherche
District Agricultural Offices
District Office Association
Ethiopian Seed Enterprise
Ethiopian Birr
Malt Barley Value Chain
Microfinance Institution
Memorandum of Understanding
Oromia Seed Enterprise
Peasant Association
Producer Organisation
Rural Service Facility
Rural Unit (RU)
Savings and Credit Committe
Value Chain Finance
Zonal Agricultural Offices
Zonal Office Administration
34
1. Main characteristics
1.1 Farmers and their organisation
The Rural Service Facility (RSF) is an informal client grouping promoted by Buusaa Gonofaa
Microfinance Institution (BG MFI), with the aim to facilitate access to finance for farmers and
facilitate non-financial services such as seed distribution and marketing. Under the RSF the
producers are organised by groups at village level and at Kebele (peasant association - PA) level.
The groups are formed with thirty to fifty individual producers, and clustered to form a centre at
Kebele level. The group and centre will have representatives elected from members. The centre
is managed by a team of three elected representative members; a leader, a secretary and a
cashier.
Producer Organisation (PO) /coop profile data
Type of organisation
Number of members
Number of employees
Main crops
RSF
Not known
5 -7
Malt Barley
Each of the groups are represented by two representatives; a group-leader and vice groupleader. Both the group and the centre representatives are responsible for supply and delivery
of the right variety of seed, as well as for marketing and output pooling activities and loan
management. The seed supply and delivery role of centres and group representatives involves
conducting field meetings with farmer representatives, seed delivery to the RSF/PA centres,
managing logistics (timely transportation facilities for seed delivery) and marketing of the
farm produce, including the grain bulking / storage at PA level. With respect to the latter, the
RSF representatives will collect and manage storage of output at PA level: ensure and verify
members’ delivery of quality products, search and avail temporary products storage and
weighing scales. They also communicate with the Assela Malt Factory (AMF), BG MFI and the
District Office Association (DOA) for the sale of the output, the facilitation of logistics for delivery
of products to the buyer, and finally they deliver/sell the products to market level and collect
cash from buyer and handover to respective groups or individuals.
In addition, they also have responsibility for loan management and monitoring of their groups by:
• Participating in members’ loan assessment;
• Loan use of members’ utilisation of inputs;
• Reporting the same to RSF manager/ PA; and
• Ensuring timely repayment of loan.
If the borrower fails to repay the loan they also participate in enforcing default members, taking
the case to social court and representing BG MFI. The rural finance facilities were supported by
ICCO Terrafina Microfinance and the Centre International de Développement et de Recherche
(CIDR).
35
1.2 The MFI or bank involved
Buusaa Gonofaa Microfinance SC
MFI profile data
Buusaa Gonofaa Microfinance SC (BG
Total number of active clients
72,012
MFI) is incorporated as a profit making
Portfolio value (in euros)
8.6 million
Share Company. It is a non-bank financial
% of farming clients
More than 66%
institution regulated by the central bank.
% of portfolio in agriculture
66% (estimate)
It has a license, MFI/11/99, from the
OSS
149%
National Bank of Ethiopia with a mandate
to take deposits from the public at large.
It
started its operation with a tiny loan size of Ethiopian Birr (ETB) 300 per borrower (or less
than USD 40) and was able to build a network of 30 branches serving over 70,000 low-income
households in rural areas of the Oromia region. Generally, BG MFI aims to provide flexible
financial services to low-income groups, particularly women and smallholder farmers, to improve
their livelihood through mobilising micro savings, microcredit and microinsurance. BG MFI’s main
target groups are those low income households traditionally viewed as “un-bankable”, primarily
due to socio-economic barriers and traditional loan collaterals requirements. Currently, BG MFI
is one of the leading private MFIs in Ethiopia in terms of the number of the active client base.
1.3 Nature of the VCF scheme
With support of ICCO Terrafina Microfinance, BG MFI identified the Malt Barley Value Chain
(MBVC) as a promising sub-sector for a pilot scheme in Value Chain Finance (VCF). It was
established that AMF was interested in obtaining high quality malt barley and was willing to
purchase malt barley produced by the farmer clients of the MFI and provide them with the
technical support required to meet the quality standards. Starting from year 2012, BG MFI
entered into agreements with actors in this value chain which included, apart from AMF, the
Oromia Seed Enterprise (OSE), and the Zonal Office Administration (ZOA)/DOA office. The
agreements solidified a multi-stakeholder approach in which BG MFI agreed to implement VCF
for smallholder malt barley producers, OSE undertook to supply certified seeds to farmer clients
of BG MFI, whereas the ZOA collaborates with OSE in supplying seeds and providing technical
support to the relevant farmers.
The agreements aimed:
• To ensure that the malt barley farmer involved get their certified malt barley seeds from OSE at
agreed terms and conditions;
• To provide the technical advice required by farmers to meet the AMF quality standards, through
technical support services by AMF;
• To provide the technical services required by farmers to enhance their productivity in malt
barley production as mandated by the Zonal and District Agricultural Offices (ZAO/DAO); and
• To regulate the purchases of malt barley produced by AMF from the farmers, provided that it
meets its quality standards.
The project is implemented in the Arsi area consisting two Kebeles, namely Sribo and Biftu Bira.
These targeted places have easy access to the market centres, a good agro-ecological zone and
adequate potential for the production of malt barley. For the last three years in-kind seed loans
were provided by BG MFI through the RSF in collaboration with OSE, and subsequently credit for
fertiliser was given on cash bases through the RSF for each of the smallholder barley producers.
Table 1.1: Seed and fertiliser credit distribution for the last four years
Year
Total
Producers
Total loan
financed
1
2011/12
124
247,200
2
2012/13
989
3
2013/14
4
2014/15
Seed
Average
yield/hectare
Producer
sold to AMF
Total sales
to AMF
131
47
32
250
2,481,150
1042
48
48
6523
730
1,951,600
820
30
30
2493
200
420,686
177
-
-
-
36
This year (2014), besides the high demand for seed by the smallholder producers and a proper
arrangement by BG MFI, the seed-distributing actor OSE fails to provide the required quantity
and kind of seed by the smallholders.
Table 1.2: Buusaa Gonofaa MFI Malt Barley Variety Seed Request- 2014 Cropping Season
BG RSF
District Name
# PA
# farmers
Total land size
(0.9 hector/
farmer)
Quantity of Seed
(125 Kg/hector)
Variety
Limu Kara
Inkolo Wabe
5
700
630
78,750
Holker
Sirbo
Limu & Bilbilo
3
300
270
33,750
Holker
8
1,000
900
112,500
Total demand
1.4 Other stakeholders
With this MBVC finance it is aimed to develop reliable and sustainable market linkages between
malt barley producers and malt factory, through an inclusive financing scheme for smallholders’
malt barley producers. In line with this aim, the following chain actors and supporters were
involved.
A. Chain actors
Seed suppliers (OSE and ESE). Ethiopian Seed Enterprise (ESE) at the national level and Oromia
Seed Enterprise (OSE) at regional level, are responsible for adequate and timely supply of basic
inputs (seeds and fertilisers) and ensure a smooth flow of inputs supply from a reliable source to
the target producers. They also work on seed multiplication (Basic, C1, C2, etc.) with volunteer
farmers through contractual engagement.
Smallholder Barley Producers. The smallholder barley producers are outgrowers for AMF.
They accept seed on credit from OSE through the RSFs. Access to this credit is based on eligible
criteria. Furthermore, the smallholders receive technical support from different parties on
agronomic practice and post-harvest crop management, and accordingly improve the quality
of malt barley. Such support can be given through training, experience sharing and farm
coaching. ICCO Terrafina Microfinance has been instrumental in facilitating linkages between all
stakeholders in the chain.
Assela Malt Factory (AMF). AMF is purchasing the malt barley produced by the farmers and
gives them priority for the sale at its gates. It also collaborates with the ZOA/DOA to provide the
necessary technical support to farmers to produce malt barley that meet the quality standards.
AMF was the only malt barley factory in Ethiopia until this year (2014) the Gonder Malt Factory
(GMF) was established in the northern part of Ethiopia. AMF has a yearly demand of 500,000
quintals of malt barley from farmers, farmers’ groups, traders and from the international
market. The amount of imported barley depends on the amount of barley supplied by the local
market through traders, farmers and their organisations. The remaining supply gap will be
imported from abroad. For instance, in 2012/13 the barley harvest was very favourable and there
was enough malt barley supplied by the local market. As a result there was no need to import
malt barley by AMF. This year, 2013/14, because of bad weather conditions and the resulting bad
harvest, AMF was forced to import 176,000 quintals of malt barely. AMF offered a competitive
price with an incentive for large supply of malt barely. The price setting is based on the quality
of the products, measured trough a quality standard measurement tool. The tool has a sixgrade hierarchy where there are ETB 15-20 price-differences between two consecutive quality
grades. This year, 2013/14, the maximum premium price for the highest quality was ETB 1035
per quintal of malt barley with ETB 30 per quintal incentive for big bulk supply. The smallholder
farmers who have access to finance from BG MFI supplied around 6,000 and 4,000 quintals of
barley in 2012/13 and 2013/14, respectively. Compared to the total capacity of the malt barley
input uptake of AMF, the supply from BG MFI’s financed smallholder farmers was very limited.
Despite the size of the supply, this VCF showed that there is a big potential for smallholder
37
farmers to increase productivity and quality and create a platform for pooling products and
benefit from the premium prices. This means that the factory, with this 360,000 quintals
capacity, is able to satisfy 40% of the total malt demand of the countries’ beer industry. In the
future this percentage of coverage may even become minimised as Heineken is building and
soon starting its new brewery factory.
Heineken/Eucor. Heineken is a multinational brewery that ensures the market for the malt
barley produced by farmers through AMF. It facilitates the setting of quality standards and
grading mechanisms for the input materials of the malt production, and provides technical and
material support for this purpose to AMF. Furthermore, it also provides technical expertise on
varieties and crop husbandry for the malt barley farmers. Other functions of Heineken in the
value chain are:
• Ensure overall chain coordination and support to the malt factory;
• Support to AMF and HUNDEE (mother NGO of BG MFI) on quality issues;
• Provision of technical expertise on varieties and crop husbandry development;
• Facilitate input and output pre-finance;
• Test the adaptation of the new varieties in the target agro-ecologies;
• Ensure the supply and use of good quality seeds of the new varieties for the upcoming crop
season;
• Ensure there is effective barley marketing and system, and flexible market price setting
system for the target farmers;
• Provide training and field course to enhance the production capacity of smallholder farmers;
• Facilitate the formation of producer groups, either in cooperatives or in producer groups; and
• Capacitate producer groups to become strong producer and marketing groups.
• While farmers do not often directly interact with Heineken, it is the leading actor in the chain,
with a dominant position in directing its development.
B. Chain supporters
Zonal and Woreda Agriculture and CPA. The agricultural officers, who aim to provide
agricultural extension support to barley smallholder farmers and ensure the continuous use of
seeds for reasonable years.
Zonal/District Agricultural Offices (ZAO/DAO). They assist the MFIs to assess the seed
requirements in their area of operation when such assistance is sought by the MFIs. Based
on the requirements provided by the MFIs, they also issue a timely “Letter of Support” to the
seed supplier OSE, certifying that clients operate in their area and their seed requirements
are considered to be relevant and genuine. In addition, they collaborate with AMF’s agriculture
department to provide the necessary technical support services to clients to produce malt barley
that meet the quality standards of AMF. Furthermore they facilitate the acquisition by farmers of
other critical inputs such as fertilisers, pesticides, etc. within their mandate.
ICCO Terrafina Microfinance is a joint initiative in the Netherlands of Rabobank, Oikocredit
and ICCO. It aims to contribute to rural development and poverty alleviation through improved
access to microfinance and the facilitation of expanded rural outreach by sustainable
microfinance providers for rural producers and entrepreneurs in selected African countries in
general, and in Ethiopia in particular. With respect to this value chain finance, ICCO Terrafina
Microfinance has been an important catalyser in the chain. It facilitated the stakeholders to
come together and provided capacity building trough training, technical advice and institutional
support. It also supports the contract farming process (finance-related aspects) and is involved
in the monitoring and follow-up of the projects. Furthermore, it has facilitated MFIs to receive
loan funds for lending to farmers.
38
1.5. Nature of the financial transaction
BG MFI, as a financial institution, has a direct relation with the producers and BG MFI mainly
provides/facilitates financial loans to individual smallholders, depending on their needs through
the RSF modality. It tries to ensure adequate and timely supply of basic inputs (seeds, fertilisers,
finance) and a smooth flow of supply from reliable sources to the target producers. It also
provides support in developing simple and agreed upon accounting and financial reporting
systems at RSF level. The operation and management of this VCF scheme is implemented
through the RSF operations modality. An individual lending approach is applied through these
RSFs.
Loan Size. The size of the loan offered to the barley smallholder farmer depends on the size of
the land, the input cost for seeds and fertilisers, and the own capital of the client. BG MFI offers
loans that are estimated to cover the cost of seeds and fertilisers needed, with a minimum and
maximum limit per applicant. As a result the loan size varies, between a minimum size of ETB
1,200 (which is equivalent to 0.5 hectare of land in the investment plan) and a maximum loan
size of ETB 5,000 (which is equivalent to 2.5 cultivated hectares). Based on this, the loan size is
determined (see the calculations with an example in the text box aside).
Lending terms and conditions. Considering a
yearly agricultural cycle, the loan will mature
within a maximum term of one year. To avoid costly
loan management and transaction costs, the
minimum time duration for the loan is fixed to be
4 months. Therefore, the term for this individual
loan may vary from 4-12 months, based on the
individual applicant’s need and approval from the
credit committee of the RSF. The standard interest
rates for different loan products offered by RSF
are applied, i.e. 24 %, 21 % and 18 % per annum
for bullet repayment, big instalments loan and
regular repayment loan, respectively. The loan
disbursement time schedule could vary, depending
on the number of input items financed. If the loan
involves both a malt barely seeds and fertilisers
loan, the disbursement might be two times;
one for seeds and one for fertilisers. Seed loan
disbursement is done “in-kind” by OSE in presence
of the producer representative, and the fertiliser
loan disbursement is made through the RSF in
cash.
Calculations of the loan size
Assumptions
• 1.5 quintal of seed and 1. Quintal of fertiliser
is adequate for 1 hector of land.
• The cost of 1 quintal of seed and fertiliser
is estimated to be Ethiopian Birr (ETB)
800 and 1,200, respectively (price might be
adjustment as needed)
Based on this assumptions
Seed loan= land size* seed size*seed price
Fertliser loan= Land size* fertZ size*fertZprice
Total loan= Seed loan + fertiliser loan
For example: loan to 1 hector of land
Seed Loan
1 hector*1.5 quintals* ETB 800 = ETB 1,200
Fertiliser Loan
1 hector *1 quintal* ETB 1200 = ETB 1,200
Bullet loans are usually used with repayment at
Total Loan =ETB 1400
once at the end of the loan period (scheduled to
coincide with the harvesting period). However,
for some clients, an instalment loan with regular
N.B: To process the seed loan, first OSE
repayment is also possible, based on the applicant’s
seed price set information is collected and
need and nature of cash flow. Repayment is made
multiplied against amount of seed requested
in cash at the lending RSF office with respect to
and approved for each client.
the agreed prepayment schedule date, or before.
Repayment should be made irrespective of the
failure in agriculture and marketing link to the
agreed actors AMF.
Late payment leads to 1 % per-week cash penalty as a fine, calculated on the principal
outstanding. In addition, this leads to bad credit repayment history; jeopardising eligibility for
consecutive loans. In case the client failed to comply with the AMF supply contract, due to
reasons attributed to the borrowers’ own internal weakness, BG MFI will not offer him/her any
other loan again for similar purposes. The usual loan recovery process is followed in case of
delinquency. Social pressure will be exerted on the borrower, his family and personal guarantor.
Savings and Credit Committees’ (SCC)/RSF managers are involved in the activity. The last option
for BG MFI is taking the case to court.
39
Seasonal cash flow pattern for farmer and buyer. ICCO Terrafina Microfinance, as a long-time
partner and financier of BG MFI, facilitated the malt barley VCF through product development
support for specific financial products in the chain. As part of the design and development
process, it studied the seasonal cash flow pattern over the year, both for BG MFI (financing
the farmers) and for the AMF (buying from the farmers). This analysis is graphically presented
in diagram 1.3 below. It shows that, in accordance with the growing season for malt barley,
disbursements to farmers start in the first quarter of the year and loans outstanding to farmers
reach a maximum by the end of June. In September the first farmers start harvesting and
selling the crop to AMF, and subsequently repay their loans to BG MFI. During the fourth
quarter, all malt barley is harvested and sold, and so BG MFI is fully repaid. For AMF the liquidity
pattern shows a mirror image. While BG MFI is building up liquidity, AMF has to buy the crop
and pay the farmers in cash. This phenomenon shows the potential for a lender applying a VCF
approach, to better exploit existing cash flow throughout the year, if both the farmers and the
processor can subsequently be financed.
Diagram 1.3: Seasonal cash flow pattern for farmer and buyer in the malt barley value chain
40
2. Risk Management
2.1 How has risk management been approached?
Due diligence by the financier
Before loans are approved to the smallholder barley producers, the following due diligence
process and requirements are applied by Buusaa Gonofaa Microfinance Institution (BG MFI).
A. Appraisal and approval procedure: BG MFI has a rural branch at Assala town. This rural
branch undertakes the pre-assessment and verifies the reliability of client reference decision.
BG MFI’s Rural Unit (RU) coordinator/delegate is part of the loan application decision of the
rural facility management committee and is a signatory for loan approval. In addition, this
coordinator is responsible for:
• Giving orientation and loan negotiation activity;
• Timely and proper flow of information;
• Delivery of seed request to producers;
• Loan disbursement and repayment process; and
• Other communication to be made with all BVC actors.
The loan contract is then approved jointly by the Rural Service Facility (RSF) manager and the
RU Finance Committee.
B. Eligibility check: In the due diligence process the RSF loan eligibility criteria policy is
the primary factor to access the loan. The prospect borrower should be a permanent legal
residence in the Peasant Association (PA), with farm land suitable to cultivate for barley.
This will be confirmed by the District Office Association (DOA) of the PA. The credit eligibility
recommendation from the DOA is a necessary condition for the eligibility assessment of the loan
product. However, application can be rejected by the RSF loan eligibility criteria. Further, the
prospect borrower needs to submit a signed contract agreeing to respect, and comply with and
sustain the success and sustainability of the value chain.
C. Securities: For loan security purposes, permanent assets such as land and other properties
of the applicant are required. Additionally, the applicant needs a personal guarantor with
adequate assets, who is a permanent legal member of the PA and a trustworthy person willing
to co-sign with his/her spouse acceptance to cover the debt in case of the borrower’s default.
Furthermore, mandatory saving of 10% of the gross loan is required, deposited in advance by the
borrower. This mandatory saving shall not be accessed until the loan has been fully repaid.
2.2 Risk management by the stakeholders
In the design and development of the programme, the lead actors have jointly assessed the
risks for farmers and the Producer Organisations (POs), and identified means to mitigate these
risks. For the purpose of the case study, a distinction is made between the six crucial aspects of
smallholder production, i.e. risks related to:
• The specific crop, i.e. malt barley;
• The farming system and farm production;
• The strength of the farmer organisation / PO;
• The market for malt barley and food crops;
• The viability of the farming system promoted; and
• The financing of farmers.
These risks and the way they were mitigated and managed have been tabulated in a risk
catalogue (see table 2.1 and 2.2) and are briefly summarised below.
41
Table 2.1 Elements risk management (score 0 – 5)
Aspect
Appraisal by MFI/bank
Risk mitigation
measures
Risk monitoring
Product
4
4
4
Production
4
4
3
Partner/client
3
4
3
Market
3
4
4
Financial
4
4
4
(Note: 0 = opportunity not used; 5 = opportunity optimally used)
Product-related risks
With respect to the barley product, the foremost risk is the unreliable source of seed supply,
both in terms of quality and timing of seed arrival. In order to mitigate this risk, BG MFI has
entered into a Memorandum of Understanding (MoU) with the Oromia Seed Enterprise (OSE).
The agreement comprises that OSE will supply certified seeds to smallholder malt barley
producers receiving finance from BG MFI. The Zonal Office Administration (ZOA) collaborates
with OSE in the delivery of these seeds to the farmers. Even though this has been working well
for the last three years, this year (2014) OSE could not comply with the quantity and quality of
seed demanded by the clients. Moreover, the seed price setting is done at the central (federal
level) and usually made very late. This creates inconsistency in seed distributions and affects the
smallholder farmer’s agronomic practice.
The second main risk is the risk of poor quality barley produced by the smallholder farmers.
Quality may be impaired as a result of (a) infection by insects, (b) being mixed with food barley,
and (c) insufficient growth of the produce resulting in undersized barley. In order to mitigate
these risks extension services are offered, as well as education about post-harvest handling.
Furthermore, a competitive price setting mechanism has been applied, based on a standard
quality measurement (at Assela Malt Factory - AMF) to give an incentive for quality products. In
addition to follow-up by the producer group and centre representative to insure quality products,
were also the other mechanism to mitigate these quality-related risks.
Side selling by the producers is the other risk with respect to this Value Chain Finance (VCF)
agreement. When producers are attracted with a premium price at the local spot market or
discouraged with the process of bulking and selling for AMF, they are tempted to sell to the local
traders, which is against the contract made among the actors of this vale chain. To mitigate this
risk there is an agreement (at least between BG MFI and the farmer producers), stating that if a
client failed to comply with BVC actor’s contract due to reasons attributed to the borrowers own
internal weakness, BG MFI will not offer him/her any other loan again for a similar purpose.
Despite the agreement there is still side selling by the farmers.
Production-related risks
Several production-related risks were experienced in the programme:
• Poor weather conditions resulting in reduced harvest volume;
• Pest and diseases resulting in poor quality;
• Barley seed germination failure, affecting production volume; and
• Lack of farmers’ good agricultural practices, affecting yield and quality.
In order to mitigate these risks, agricultural experts of AMF and the ZOA provided education on
good agronomic practice, integrated farm management and post-harvest handling mechanisms.
These measures are rather limited however, and only provide partial mitigation of the risks
observed.
Farmers’ organisation-related risks
With respect to farmer organisation, the risks observed related primarily to the level of farmer
organisation and difficulty to make their needs heard. The RSF, though not specifically created
as PO, provided BG MFI with a platform for communicating with smallholder clients and for
42
facilitation of farm services. The human resources available at the RSF level are very limited
however, due to the self-help nature of the RSF (rudimentary payment structures, office
facilities and transport). As a result, RSF staff is usually only working one day in a week. As a
consequence, the level of farmer organisation remains rather weak. This is felt when it comes
to negotiations, and as a consequence the support of BG MFI was quite essential. Nevertheless,
the seed suppliers tend to give priority to the governmental organisations, resulting in
negligence to comply with the MoU between the chain actors. In addition, farmers were not
explicitly included in the MoU of the actors, which led to a limited sense of commitment and
persistent side selling. This does not only lead to inability to meet the marketing arrangement
with the buyer (AMF), but also to a weakening of the finance strategy of BG MFI. Inadequate
availability of extension officers results in sub-optimal yields and inability to meet the targets of
the farm investment plans.
Marketing-related risks
The main marketing-related risks for smallholder producers are the lack of stable and attractive
prices, poor infrastructure and lack of storage and transportation. The VCF approach by itself
mitigates market insecurity by selecting more attractive crops and by incorporating buyers in
the arrangement. This was achieved through an agreement (MoU), in which AMF will purchase
the malt barley produced by the farmers, and give them priority for the purchase at its gates.
Another vital component was the collaboration with the ZOA/DOA to provide the necessary
technical support to clients to produce malt barley that meets the quality standards of AMF.
Despite the agreement and efforts made, access to easy and economical transportation to AMF
proved a persistent problem. The RSF’s centres and group representatives played a good role in
mitigating marketing-related risks by a number of activities, which include:
• Collecting and managing storage of output at PA level;
• Ensuring members deliver quality produce;
• Searching and availing temporary produce storage and weighing scales;
• Communicating with AMF, BG MFI and the DOA for sale of the output;
• Facilitating the logistics for delivery of produce to buyer; and
• Delivering/selling the products on market level and collecting cash from buyer and handover
to respective groups or individuals.
With these measures the market risks appear to be very well managed. What remains is the
unwillingness of some farmers to supply AMF. It could be that the phenomena of side selling is
caused partially by a lack of faith of the farmers in the quality grading system, and by the need
for cash payment (the AMF pays with a delay). This risk may well be mitigated in the future by
creating even more transparency of the grading system and by facilitation of cash payment to
farmers by AMF, e.g. by financing AMF for this purpose.
Finance-related risks
There is a risk of loan diversion at borrower level due to unintended purposes, for instance by
reselling the seed provided on credit even before they start farming. A responsive measure to
mitigate this risk was the close follow-up by agricultural experts, RSF staff, group and centre
level representatives. A limiting factor is the quality of employees working at the RSF; they
are not well skilled, and poorly paid. They would need further capacity building by giving them
training and motivation would be strengthened by paying a better salary with more working
days.
There is also a risk of delay in repayment of loan by the borrower. A close follow-up on loan
repayment will be done by RSF staff, centre and group representatives and committees.
Repayment should be made irrespective of the failure in agriculture and marketing link to the
agreed actors (AMF). A monitoring mechanism of late repayment will lead to 1 % per-week
cash penalty as a fine calculating on the principal outstanding loan, and it will be considered as
bad credit repayment history after which a consecutive loan will not be given. Finally, there may
even be a default by the borrower. As a mitigation measure, the usual loan repayment follow-up
by the RSF credit committee will be done when social pressure is exerted on the borrower, his
family and personal guarantor. Finally, the last resort option is taking the case to court. This will
also be considered as a bad credit repayment history and any further or consecutive loan will
not be given for such a borrower.
43
Table 2.2. Overview of the risk assessment and risk mitigation measures
Risk Aspect
Risk assessment
Risk mitigation measures
Risk monitoring
Product
Timely seed pricing
Seed pricing at Ethiopian Seed Enterprise
(ESE) level
Always late price setting
Unreliable source of seed (absence of
required verity, and quantity of seed on
time)
Collaboration with OSE in the MoU
Worked well for the last three years. This
year OSE could not fulfill the demand
Product quality-related risks (infection of
insects, being mixed with food barley, and
very thin in size)
• Education on G.A.P and post-harvest
handling to ensure quality
• Competitive price setting mechanism to give
attractive incentive for quality products
• Follow-up by group & centre representative
• Compliance with the required standard
• High price margin between good and poor
quality
Side selling by producer
• BVC actors contract to comply the
sustainability of the vale chain
• Pooling by the centre and group
representative facilitation
Failure to comply with BVC actor’s contract
due to reasons attributed to the borrowers’
own weakness, will not offer him/her any
other loan again.
Bad weather condition
Agricultural expert follow-up
-
Pests and diseases
-
-
Germination failure
• OSE assumes non-germination risk
• Producers’ production compliance follow-up
Compensation to smallholder evaluation on
poor quality seed
Lack of good agronomic practice
Extension service by agricultural extension
servants
Limited extension service
Lack of wall furnished storage facility
Farmers sometimes store it at schools
Poor know how and literacy of farmers
Education and training, follow-up
Still the big problem
OSE government mission and programmes
priority
Proper follow-up towards the MoU
Actors meeting to review on MoU
Negligence of actors to comply MoU
MoU
Follow-up needed, as still there is failure to
comply such as OSE
Failure to include the producers in chain
contract
There is an alternative farmers’ supplier
compliance contract with BG MFI
• Number of compliance of producers
supplied to AMF
• There is still a side selling
Inadequate extension service officers
Full time extension service
Extension service is still limited
Lack of qualified workers at RSF
• Working and training RSF employees
• Doing a well-organised multipurpose
committee
This remains a gap
AMF unattractive price
Including AMF in the MoU
Agreement with AMF and farmers to
comply the MBVC aim
Lack of reliable price for malt barley
products
• AMF Competitive price setting mechanism at
the factory gate
• Only bulk purchase (more than 2,000
quintals) would be purchased at field
Price based on 5 standard scales with a
difference in price at AMF
Side selling
• Including AMF in the MoU
• Farmers’ contractual agreement to the MBVC
Need for constant follow-up, as still not all
producers are selling to AMF
Lack of good transportation to the market
(AMF)
AMF provide discount for bulk selling and
transportation
This remains a problem
Absence of adequate local malt barley
supply to AMF
AMF Partly import from abroad
Absence malt-barely regular quality supply
that ensure sustainability of the input for
AMF
MoU with BG MFI and OSE
The % contribution of these farmers is very
limited less that 10-5%
Seasonal cash flow and liquidity problem
Request for a bigger loan
Timely financial need assessment and
distribution of cash and seed credit
required
Diversion of loan
Proper follow-up by the RSF and RU
coordinator
Need for better employee salary
Close follow-up loan repayment by the RSF
credit committee
Production
Farmer
organisation
Market
Financial
Delay in repayment by borrowers
Default risk
• Late payment leads to 1 % per week
cash penalty as a fine calculating on the
principal outstanding loan
• In addition, this leads to bad credit
repayment history and consecutive loan will
not be given for the borrower
• Close follow-up loan repayment by the RSF
credit committee
• Social pressure is exerted on borrower, his
family and personal guarantor. The Savings and
Credit Committee (SCC)/RSF manager involve
in the activity
44
• This leads to bad credit repayment history
and consecutive loan will not be given to
the borrower
• The last resort option is taking the case
to court
2.3 What is the finance strategy?
Financial appraisal. The financial appraisal in terms of viability of smallholder barley
production and the risks associated with it, is not done on the level of the individual farmer, as
this was part of the programme design and development phase. The MoUs are agreed upon
with the value chain partners and renewed annually. For the individual farmer the appraisal is
based on a standard set of credit eligibility criteria and related screening process. During this
process the RSF applies these loan eligibility criteria to decide on access and size of the loan.
The prospective borrower should be a permanent legal resident with a farm suitable to cultivate
barley. Permanent assets, such as land and other properties of the applicant, and a personal
guarantor will also be considered while appraising the loan. The personal guarantor should
have adequate assets, be a permanent legal member of the PA and a trustworthy person who is
willing to cover the debt in case the borrower fails to repay. In addition, the prospective borrower
should have 10% of the gross loan deposited in advance as a mandatory saving in BG MFI,
which will not be accessed until the loan is fully repaid. The credit eligibility and feasibility of the
applicant’s business plan will be confirmed with a letter of support from the PA authority and
the DOA as a necessary condition. The prospective borrower should also be willing to respect,
comply with and sustain the success of the value chain by selling the products to AMF.
Table 2.3 Barley producers’ demand for seed and fertiliser for the year 2014 harvest1
Malt Barley Credit Need Assessment in Ethiopian Birr (ETB)
Input Credit#
May
June
July
Aug.
Sept.
Oct.
Nov.
Total
# of Clients
250
750
0
0
0
0
0
1,000
Seed
239,063
717,188
0
0
0
0
0
956,250
Fertiliser
318,750
956,250
0
0
0
0
0
1,275,000
Malt Cash Need
557,813
1,673,438
0
0
0
0
0
2,231,250
Finance needs assessment. The credit needs of smallholder farmers are assessed every year
well before the seeding season. The assessment is made based on a bottom- up approach
where the RSF gives orientation and lists out the producers after having all the confirmations
from PAs and the DA, and screening against the eligibility criteria. The total demand for eligible
credit will be pooled together by the RSF and the RU and will be reported up to the head office.
Based on this demand, BG MFI will instruct OSE to facilitate seed distribution for the approved
list of smallholder barley farmers and ensure timely distribution.
Table 2.4 Credit product(s) for agriculture
Name
Amount
Interest %
Interest
mode
Repayment
Mode
Security
mode
1. Balloon Loan
ETB 1200-5000
24%
Flat
Bullet
Land
2. Big instalment loan
ETB 1200-5000
21%
Flat
Big installation
Land
3. Regular repayment loans
ETB 1200-5000
18%
Flat
Regular
Land
Financial products / instruments. There are three different products that are provided to
smallholder farmers (see table 2.4 above). The products mainly differ in terms of repayment
and the interest rate charged. A borrower can repay at once after harvest (bullet loan), opt for
a few instalments in the harvest season or choose for regular monthly/weekly repayment. The
loan is assumed to cover the costs of seed and fertiliser, with a minimum and maximum limit
per applicant. The minimum loan size is limited to 1,200 and the maximum to Ethiopian Birr
1
It is assumed that an average land per household head is 1 hr. The need for fertiliser and seed per hector in is 125kg and
100 kg respectively. The price for the seed and fertiliser per kg was estimated (with the current price) to be ETB 9.
45
(ETB) 5,000, which is meant for 0.5 and 2.5 hectare(s) of land investment plans, respectively.
The loan disbursement is usually made in two instalments. The first disbursement is an in-kind
input loan (barley seed) and will be made by OSE or indirectly through the RSF. The second
installation is meant for fertilisers, and is usually given on cash at the RSF in the presence of
authorised parties.
2.4 What capacity for agri-finance has the MFI installed?
Since its establishment, BG MFI has been expanding its service and product coverage in Oromia
region, where this VCF is implemented. Currently, BG MFI has built a network of 30 branches
serving low-income households in rural areas of Oromia region. One of the branches is Haasasa
rural union, which is a nearby office of BG MFI to these smallholder farmers and RSFs. This
shows that BG MFI already had experience of working with farmers in the region, even though
the VCF scheme for malt barley was new. In the Arsi zone, there are 12 RSFs. Each facility
has its own manager, casher and credit appraisal committee ranging from 5-7 members.
Furthermore, BG MFI’s RU) and its coordinator are authorised to follow up the whole process
of this scheme. BG MFI RU coordinator takes part in the loan approval process of the RSF
management committee and is a signatory on loan application. In addition, this coordinator
is responsible for communication with farmer groups and other BVC actors, which includes
loan orientation, timely credit needs information, delivery of seed request to supplier, loan
disbursement timing etc. At RSF level, even though they are not well educated and skilled, there
are employees who are responsible to follow-up these steps in the finance process. At this level
the RSF committees are responsible for credit appraisal and farmer screening, as well as for
a follow-up on loan disbursement and repayment. In addition, at the head office level there is
an employee, operation manager, who is looking after the whole progresses and responsible
for reporting on the scheme. It is noted that the rural service modality was an already existing
platform, organised and supported by BG MFI. It greatly facilitated the implementation of the
Malt Barley Value Chain (MBVC) process. ICCO Terrafina Microfinance supported BG MFI’s rural
interventions through technical assistance for product development; small grants and linking to
investments for expansion of the loan portfolio.
2.5 What connections were entertained by the MFI with other stakeholders in
the sector? Who was the lead actor in orchestrating the chain?
To develop reliable and sustainable market linkages over the malt value chain, BG MFI, with
strong support of ICCO Terrafina Microfinance, created collaboration and linkage with other
main chain actors and chain supporters. In line with this aim, agreements were concluded with
the following chain actors and supporters in this MBVC finance scheme.
• Oromia Seed Enterprise (OSE): Oromia Seed Enterprise is charged by the government with
the responsibility to multiply and distribute barley seed all over Oromia. It was therefore
necessary to have a proper linkage to and collaboration with OSE. An agreement between
BG MFI and OSE was made to ensure that clients receive their certified malt barley seeds
from OSE at agreed terms and conditions. The agreement also stipulates that OSE will supply
certified seeds to farmers at a determined price and get fully paid by the MFI for the seeds
supplied through the credit arrangements set forth.
• Zonal and District Office Association: ZOA/DOA and the concerned District Agricultural
Offices (DAO) agreed to provide the technical services required by farmers to enhance their
productivity in malt barley production as per its mandate.
• Assela Malt factory: AMF agreed to purchase the malt barley produced by the farmers, under
the condition that it meets its quality standards. It also agreed to provide relevant technical
support to these farmers, including transportation discount, training and extension services.
The negotiation and formulation of these agreements was part of the design and development
of the scheme. It was quite intensive labour, and BG MFI CEO indicated that the expenses could
not be recovered from the credit services provided to these farmers. Hence success of this
programme depended critically on the availability of grant support and technical assistance
from ICCO Terrafina Microfinance.
46
3. What makes it tick?
3.1 What are the success factors in this case? What risk mitigation measures
proved effective?
The investment in staff time of Buusaa Gonofaa Microfinance Institution (BG MFI), its Rural
Services Facilities (RSFs) and ICCO Terrafina Microfinance in the design and development of
smallholder inclusion in the Malt Barley Value Chain (MBVC) have paid off. The smallholder
farmers were able to significantly increase their yields (land productivity) and product quality
and as a result they enjoyed better prices, not only by Assela Malt Factory (AMF) but also by the
local market of barley traders. Even those farmers with marginalised farming plots were able to
improve their incomes through higher yield and better quality. Without the collaboration of chain
actors and the investment in contract formulation, this would not have been possible.
The RSF modality of BG MFI served as a useful platform for contact with participating farmers. Hence the operation and management of the MBVC finance scheme were integrated with
the RSFs in the area. It greatly facilitates the implementation of a Value Chain Finance (VCF)
scheme like this, as a degree of farmer organisation is essential to meet buyer requirements
and to communicate related agricultural advice. The RSF also played an important role in credit
screening and appraisal of farmers, financial need assessment, seed and fertiliser distribution
and follow-up, marketing and logistics, and loan repayment activities. The RSF’s joint accountability and responsibility in terms of serving both the MFI and the farming community is a remarkable characteristic, which made this value chain finance work well, despite the problems
observed. The close collaboration of BG MFI, AMF, and Oromia Seed Enterprise (OSE) in this
value chain finance was quite essential, despite the fact that implementation has not always
been going as agreed in the Memorandum Of Understanding (MoU). Many of the risks involved in
this value chain finance scheme were effectively mitigated through an MoU, and in time stakeholders may move towards a higher degree of compliance and closer collaboration, as success
of the scheme is clearly a common interest.
3.2 What are the (remaining) weaknesses/threats/risks?
Apart from the success in this value chain finance scheme there are a number of problems still
existing. Among the remaining problems in this value chain the uncertainty and sometimes lack
of the required quantity and quality seed at the right time, remains the main problem. Secondly,
the MoU is not always strictly followed by all the actors involved. This may partly be attributed
to the fact that for some of the actors (like AMF and OSE) this smallholder scheme is small in
comparison to their commercial business operation. AMF is mostly buying malt barley from
traders and sometimes from Producer Organisations (POs), such as cooperatives. As about
90-95% of the local malt barley supply is from traders, the VCF scheme of BG MFI is of limited
importance. On the other hand, AMF is still importing some 60% of its malt barley from outside
the country. As a result there is good prospect for import substitution when smallholder barley
production can be scaled up. OSE has a governmental mission and hence they give less priority
to a relatively small private sector initiative like this. The process of setting seed prices has been
done at the central government level and the decision is always slow and late. This led to late
distribution of seed to the farmers, often defeating the advocated good agronomic practices.
The third remaining weaknesses are the human resources and facilities available at RSF level.
It is envisaged however, that a scheme like this will boost farmer confidence in the RSF, thus
creating a stronger support basis and increasing willingness to contribute to their proper
functioning.
47
3.3 Do stakeholders have a view on how to better deal with these remaining
risks in the future?
Based on the current performance of the malt barely value chain scheme, the following views,
suggestions and recommendations are given by the stakeholders.
• Farmers claim that the loan with a maximum amount of Ethiopian Birr (ETB) 5,000 is very
limited and rather small. They propose that BG MFI reviews the loan maximum limit and
adjusts the loan amount based on good credit history and relationship with the RSF, and the
traditional requirements of collateral.
• The current seed supplier is not reliable and there is a need for an alternative or additional
seed supplier. This alternative supplier will reduce the bargaining power of the OSE and minimise the risk of depending on a sole and uncertain source. This might also solve the problems related to late pricing decisions and seed distribution times for the end users.
• Low level of financial education and knowhow about good agronomic practice by barley farmers is one of the biggest problems. Farmers are insufficiently aware of BG MFI‘s basic products, procedures and requirements. This, as a result, needs a continuous sensitisation trough
training, education and follow-up.
• The human resources of RSF staff and representatives of the centre and group include
elected farmer representatives whom have no better knowhow of financial education than the
member farmers. They are not well educated and skilled with leadership, accounting recording and better financial management. These, therefore, need common capacity building
through training and education on the gaps observed, as they are very basic for the day-today operations of the RSF, centres and groups.
3.4 How can linkage between financier (MFI) and Producer Organisation (PO) be
strengthened?
There is a need for continued capacity building at RSF level which is playing a key role, being
jointly responsible for both the smallholder farmers’ community and BG MFI. The better the
RSF’s operations and management, the stronger the link facilitation and smooth flow of activities between the producers and financers. Access to better training and education to the
RFS, Rural Unit (RU) and all the other chain actors in this value chain is important in order to
strengthen the efficiency and link of this value chain finance.
48
Sources
Documents used:
1.BG MFI Seed Value Chain Financing Workshop, Pilot Malt Barely Value Chain Financing Implementation process, Status and Its Challenges 2012 (PowerPoint document).
2.BG MFI Barely Value Chain Pilot Loan Product Operation Guideline (draft doc, 2012).
3.Buusaa Gonofaa MFI Malt Barley Value Chain Pilot Project Financing Implementation and Its
Challenges 20 November, 2012 Derartu Hotel Assela, Ethiopia (PowerPoint document).
4.Buusaa Gonofaa MFI Malt Barley Variety Seed Request- 2014 Cropping Season.
5.Buusaa Gonofaa MFI Hasasa Branch Malt Barley Financing Workplan-2014.
Persons contacted and interviewed:
Name
Organisation
Responsibility
1
Ato Aeshome Y.
BG MFI
General Manager
2
Ato Bula Kenea
BG MFI
Operation manager
3
Ato Gelgelu Tusa
BG MFI
Hasasa rural union coordinator
4
Ato Mekonen Abera
AMF
Agri-service &malt barley unit head
5
Solomon Nega
Sirbo RSF
Manager
6
Abiuot Argu
Sirbo RSF
Accountant
7
Kassim Geletele
Sirbo RSF
Farmer and members
8
Teshome tesfaye
Sirbo RSF
Farmer and members
9
Abera Tadesse
Sirbo RSF
Farmer and members
10
Agamn Shankie
Sirbo RSF
Farmer and members
11
Gemechu Tefera
Biftu bira RSF
Accountant
12
Kebede G.
Biftu bira RSF
BG Field Agent
13
Abedela kuteru
Biftu bira RSF
Farmer and committee
14
Aman tusse
Biftu bira RSF
Farmer and committee
15
Haji arr
Biftu bira RSF
Farmer and committee
16
Alr h. Geletu
Biftu bira RSF
Farmer and committee
15
Feye guta
Biftu bira RSF
Manager
16
Negusie belew
Biftu bira RSF
Farmer and committee
17
Omer haji
Biftu bira RSF
Producer and committee
Websites:
www.bgmfi.com
49
Case Study E4
Setit-Humera Ltd. Farmers’ Cooperative Union
“Sesame value chain finance”
Abstract
The Setit-Humera Union (SHU) was established in 2002 with four primary cooperatives (PCs) and
some 2000 farmer-members. Currently, the SHU includes 19 PC members with about 12,000 farmer
households. With support of Cordaid and Agriterra, the SHU has been able to acquire finance for
the production and export of sesame. It provides its services to smallholders through 19 PCs with a
combined membership of 12,000 farmers. The finance was provided by two banks; the Commercial
Bank of Ethiopia (CBE) and the Cooperative Bank. The CBE provided an export credit of Ethiopian
Birr (ETB) 25 million, which was 25% of the actual finance application. The Cooperative Bank of
Oromia (CBO) provided ETB 7 million for pre-harvest expenses (farm inputs) of some 400 farmers,
on the basis of a 50% guarantee by Agriterra. It also provided ETB 5 million for marketing, which fell
short of the need (ETB 22 million), despite collaterals offered. The SHU passes on these bank loans
to PCs that are considered sufficiently creditworthy, based on standard criteria such as strength of
leadership, size, landholding, trade participation and credit record.
Acronyms
ACDI/VOCA
AGP
CBE
CBO
ECX
ETB
MFI
PC
PO
SBN
SHU
TMF
WFP
Agricultural Cooperative Development International / Volunteers in
Overseas Cooperative Assistance
Agricultural Growth Programme
Commercial Bank of Ethiopia
Cooperative Bank of Oromia
Ethiopian Commodity Exchange
Ethiopian Birr
Microfinance Institution
Primary Cooperative
Producer Organisation
Sesame Business Network
Setit-Humera Union
Tigray Marketing Federation
World Food Programmea
1. Main programme characteristics
1.1 Farmers and their organisation
Setit-Humera Union (SHU) is a farmers’ cooperative union, which primarily finances smallholder
farmers who are mainly producing sesame via their primary cooperatives (PCs). Sesame is an
important agri-business sector in Ethiopia as it is one of the main export products with significant
turnover and foreign exchange earnings for the country. It is also one of the six priority crops in
the Agricultural Growth Programme (AGP). More importantly, the sesame agri-business sector
has significant potential for further growth and development in terms of production and yield
improvement, reduction of post-harvest losses, domestic value addition and in marketing higher
market access and net turnover. The largest part of the Ethiopian sesame production and export
originates from the Humera and Metema
production zones in the North-western part
Producer Organisation (PO)/coop profile data
of the country, namely: the Humera, Tsegede
and Wolkayit Woredas (districts) in the Tigray
Type Of Organisation
Cooperative Union
region and the Metema, Quara and Tach
Number Of Members
19 Primary Cooperatives
Number Of Employees
10
Armachiho Woredas in the Amhara Region.
Main Crops
50
Sesame And sorghum
The area. In the North-western part of Tigray there are three unions namely Lemlem Wolkayet,
Dansha –Orera and the SHU. Unlike the other regions, unions in Tigray are structured and
established on Woreda level, where there are as many PCs as the number of Kebele (peasant
associations). Kafta Humera is one of the three Woredas of the West Tigray zone. Member
farmers and cooperatives of the SHU are from this Woreda. There are 21 PCs in each Kebeles
of this District. Among the 21 PCs in the district, 19 of them are members of the SHU. Two PCs
are not members because of the fact that they do not have the financial capacity, the minimum
management structure and neither the mandatory saving practices. The SHU as a Union
was established in December 2002, starting with four PCs and about 2222 farmer household
members. Currently, the SHU includes 19 PC members with about 12,000 farmer household
heads.
Market position. The SHU has a relative strong membership base which produces approximately
30-40% of the Ethiopian sesame to the market. The SHU is privileged to directly export without
passing through the Ethiopian Commodity Exchange (ECX) and have full control over the
traceability & quality of sesame, especially for the high-end market. Sophisticated European
standard sesame cleaning machinery is already in place, with adequate warehouse facilities.
With the new manager on board, an ambitious action plan in place and better alignment of
supporting partners around the SHU, it is believed that the Union can do a much better job than
before.
Finance. Agriterra supported in mobilising a 7,000,000 Ethiopian Birr (ETB = 264,000 euros)
trade loan at the Cooperative Bank of Oromia (CBO). An input finance scheme was also piloted
successfully with the support of Agriterra and CBO. An ETB 2 million loan was distributed to
the PCs, which in turn distributed it to farmers. A total of 470 smallholder farmers from two
cooperatives benefited from this loan, and they fully paid back in-kind with 498 quintals of
sesame seeds. Sound contractual agreements were made between the Union, the two selected
cooperatives and the farmers.
Performance. The majority of the finance was released late, which meant that the SHU bought
the produce at a relatively high price. The SHU channelled 6,309 quintals to the Tigray Marketing
Federation (TMF). Because of unfavourable weather conditions for sesame, many farmers
shifted to sorghum, which is also reflected in the purchase performance of the SHU. Around
10,000 quintals are currently in stock, and are being contracted by the World Food Programme
(WFP). A stakeholder workshop was also organised to strengthen the relationship between
PCs and the Union. The workshop attempted to identify and address the challenges of both the
cooperatives and the Union. Recruitment of key staff was implemented with the objective of
commercialising the Union to enter into competitive sesame seeds markets, both locally and
internationally. A marketing officer was hired and is posted in Addis Ababa, and an accountant
with a good understanding of Peachtree accounting was also recruited.
Main services provided by the SHU to the PCs. The SHU aimed to address the social economic
challenges of smallholders through creating market linkages as well as achieving better prices.
The Union is primary providing the following services:
A.Input supply such as fertiliser (Urea, Dap and NPS a new variety), Agro-chemicals,
Agricultural implements;
B.Capacity building of PCs which closely collaborate with other development organisations such
as VCDI/VOCA, USAID, Agriterra, CORDAID and Sesame Business Network (SBN)/NP;
C.Output marketing mainly sesame and sometimes sorghum;
D.Sesame supply to local and export markets, exploiting its high end-market standing since
2008;
E.Providing adequate storage facility services; and
F.Credit provision to the PC members.
51
1.2 The financial institutions involved
A.Cooperative Bank of Oromia (CBO)
Range of services. The CBO is established to provide a wide range of banking services and
products within the cooperative sector. It was registered in 2004 and was licensed by the
National Bank of Ethiopia. The bank aimed to provide full-fledged and customer responsive
banking services for Ethiopian cooperative societies, other entities and individuals, with special
emphasis to agricultural and agro-based business financing. The bank is by far the most
agriculture-oriented private bank in the country with 7,000 shareholders, out of which 1400 are
cooperative societies and unions. It currently operates 53 branches nationwide. The CBO has
launched the idea to establish a specialised Cooperative Business Department, offering advisory
services to their cooperative clients. The CBO is interested in receiving support services from
Rabobank Development and Agriterra in establishing this unit. The key services the CBO wants
to focus on are business planning and financial management. This coaching track also aims to
increase CBO’s competence in providing those services to its cooperative clients by training &
coaching CBO professionals.
Finance to the SHU. In 2012/13 Agriterra supported the SHU in mobilising a total of ETB 7
million (264,000 euros) trade loan from the CBO. It was approved and realised timely for the
pre-harvest lending season. With the further support of Agriterra, the SHU was able to present
a business proposal to the CBO and managed to have ETB 2 million input finance loan approved
by the CBO. This input finance scheme was also piloted successfully with the support of
Agriterra and the CBO. The loan was given against a 50 % guarantee from Agriterra and a 50%
risk sharing with the CBO. The input loan was distributed between two PCs, namely Fana-Limat
and Maebel, who in turn distributed it to farmers. The loan was meant to serve the harvesting
labour cost requirements of smallholder farmers. A total of 470 smallholder farmers of the
two cooperatives benefited from this loan, and they fully paid back in kind with 498 quintals of
sesame seeds. Sound contractual agreements were made between the Union, the two selected
cooperatives and the farmers. The objective of this financing was to gain confidence of the
CBO, starting the relationship with small and relatively less risky PCs. By developing a good
credit track record, the SHU aims to create better access to less costly sources of financing for
the union, PCs and smallholder farmers. Reduction of the current finance gap is needed for
increasing the supply of sesame seeds to the union and a precondition for strengthening the
relationship among farmers, coops and the union. In this way it hopes to establish a long-lasting
relationship with the CBO, so that the SHU can rely upon it for its input and export financing
requirements, opening savings and current accounts and possibly even buying shares from the
CBO. As a result of the good repayment history, the SHU planned to propose a business plan of
ETB 8 million input credit this year. The SHU also requested a marketing loan from the CBO of
about ETB 22 million against collateral. From the 22 million loan application, only ETB 5 million
was approved and released timely. In total the Union was able to mobilise an ETB 7 million loan
from the CBO.
B. Commercial Bank of Ethiopia (CBE)
Services. The Commercial Bank of Ethiopia (CBE) is the largest commercial bank in Ethiopia
as it holds approximately 63.5% of deposits and about 38% of all bank loans in the country.
The bank has around 18,000 employees who staff its headquarters and its over 550 branches,
positioned in the main cities and regional towns. Apart from the normal commercial credit
services (Overdraft, Merchandise loans, Short term credit, Medium and long term loans), it
offers a range of services in support of the agricultural sector such as:
• Pre-shipment Export Credit facility;
• Revolving Export Credit Facility;
• Special Truck Loan Financing;
• Agricultural Input Loan;
• Agricultural Investment Loan;
• Coffee farming Term Loan Financing; and
• Microfinance Institution (MFI) Loan.
52
Finance to the SHU. The SHU is the strongest and biggest client of the CBE in Humera. In
2012, the SHU first applied for loans from the CBE, with support of a guarantee by the regional
governments. One of the credit proposals to the CBE was an export credit financing of ETB
100 million at an interest rate of 9.3 %. The credit approval was very slow and took almost a
year for approval. It was risky for the SHU to depend on it, as it was not approved and released
timely. This loan only approved ETB 25 million IC 80%. Despite this, the SHU intends to continue
its relationship with the CBE, as there are few alternatives. MFIs do provide financial services
to small-scale farmers that fulfil their eligibility criteria, which do not include all of the SHU
members. Ethiopian banks cannot provide loans to small-scale farmers, except for commercial
agricultural producers (large-scale farmers). On the other hand, the CBE believes that the
Union is a promising partner. It is seen as the strongest of the unions in the district, the
financial reporting is adequate and the communication with the staff and board is good. The
CBE indicates it likes to work with Unions such as the SHU, so as to contribute to the overall
development programme of the country.
1.3 Nature of the business, crop and market
Farm production. The SHU focuses on sesame as its main crop. Sesame as a crop is
characterised by the very high manpower requirements at the harvest time. It allows for a
relatively short period of harvest collection with a huge amount of labour workers employed at
the farm. The harvest collection cannot be handled by family labour and needs a labour force
employed. In order to attract the daily labour workers, farmers need to pay in cash, and thus
have a very high need for pre-harvest finance.
Export potential. With an increasing demand for the sesame seeds, international buyers
are showing interest to develop a relationship directly with farmer Producer Organisations
(POs), like the SHU. Some of the international buyers require specific quality, quantity and full
traceability of products. These buyers are targeting high-end markets and are willing to invest
into the sesame value chain to increase productivity, quality and ensure full traceability. More
importantly, the SHU has a competitive advantage in better access to the highly demanded
whitish sesame. It is also a trusted business partner in view of its membership base (PCs)
and its capability to ensure long-term product quality and productivity. It has well established
organisational facilities, including cleaning and warehouses and proven ability to export directly
(i.e. outside the ECX market), unlike most other traders in Ethiopia.
The SHU has ample experience in marketing sesame seeds through the ECX system and to the
TMF, of which it is an affiliated member.
Finance gap. Despite the fact that the SHU is in a better position to benefit from the export
marketing, it has not been performing according to the required trade volume level, mainly
because of a lack of access to farm input finance (pre-harvest) and output finance (postharvest). Consequently the members have been selling only a limited portion of their total
production through the Union. To partly address this finance problem, the union has access
to finance from the CBO and the CBE, with the support from development partners, mainly
Agriterra. In the year 2012/13, the Union was able to have a loan from both the CBE and the
CBO.
53
1.4 Other stakeholders
The following development partners were involved in the SHU business operation. Agriterra was
the key role player in helping with the business proposal, providing guarantees and providing a
variety of capacity building activities and support. The development partners involved are briefly
listed below.
A. Cordaid
Cordaid funded the project “Chain empowerment of sesame producers and their organisations
in Humera” and supported the Union via different capacity building activities. The project was
focused on capacity building of all member cooperatives. It started with 14 and increased to 19
PC members. Under this project the core capacity building / training focus has been on business
management, financial management and agronomy. Cordaid has been providing at least the
following main services/ supports.
• Provide management and leadership trainings;
• Training on financial management systems;
• Agronomy services to enable quality and productivity; and
• Human resource development as it recruited employees to support the unions by working
with them and with PCs, with the aim of improving quality and productivity.
B. Agriterra
Agriterra is an agri-agency; a development agency founded by Dutch farmer organisations
and agricultural cooperatives focusing on supporting their colleagues in developing
countries. Agriterra directly addresses farmer organisations, cooperatives and farmer-led
businesses in Africa, Asia and South America. In 2013, in collaboration with the CBO and
Rabobank Development, Agriterra designed the “Cooperatives for Change” programme
framework - a joint programme of Agriterra and SNV Ethiopia. The programme supported a
successful business planning coaching track for cooperative managers of unions, meanwhile
strengthening the cooperative service delivery of the CBO. Generally, Agriterra operationalises
its work in three teams (1) Agri-business: farmer-led business development; (2) Promotion
of grassroots entrepreneurship; and (3) Advocacy and innovation. The services of each team
are complementary. Agriterra has also been supporting the SHU with the aim of making
cooperatives bankable and banks financing cooperatives. As a result, the SHU was able to
develop a bankable business plan.
In line with this, Agriterra has been providing the following main services for the SHU:
• Support to facilitate access to finance (guarantee ETB 1 million pre-harvest loan from the
CBO);
• Providing training on financial system;
• Training on Peachtree accounting to improve accounting and bookkeeping;
• Help in designing bankable business plans and proposal preparation;
• Exposure visits to successful business cases; and
• Support to staff expenses by co-financing 75% of the management employees‘ salary.
C. Sesame Business Network
The Sesame Business Network (SBN) has a three-year support programme (2013-2015) with
the aim of establishing and maintaining a stakeholder-owned innovation network for improved
value chain performance and farmer benefits. The SBN has cooperated with the PCs in the
following main activities:
• Post-harvest loss minimisation scheme;
• Training of trainers (ToT) for model farmers and development agents; and
• Trainings and coaching to increase the awareness, knowledge and skills of sesame farmers
on optimal sesame production practices.
D. Agricultural Cooperative Development International / Volunteers in Overseas
Cooperative Assistance (ACDI/VOCA)
ACDI/VOCA is an economic development organisation that fosters broad-based economic
growth, raises living standards, and creates vibrant communities. Its areas of practice are
agri-business, food security, enterprise development, financial services, and community
development. ACDI/VOCA began implementing the USAID-funded five-year Agricultural
54
Cooperatives in Ethiopia (ACE) project. ACDI/VOCA has been helping the union more on capacity
development including:
• Bankable business plan development;
• Training;
• Access to finance;
• Support storage facility buildings (about 75%); and
• Support quality improvement by providing quality management standard checker both to the
unions and the PCs.
Local and export
market (ECX)
Cooperative bank
of Oromia
Commercial bank
of Ethiopia CBE
Seti-Humera
union
Development partners
Regional government
Primary Coops
Primary Coops
Primary Coops
Smallholders sesame producers/farmers
Financial to union to coop to farmers
Loan repayment from farmers to coop to union to banks
Loan guarantee by regional government or development partners
Sesame value chain
Figure 1.1 Financial flows from and to the Setit-Humera Union (SHU)
1.5 Nature of the financial transactions
With respect to input finance loan for harvesting labour costs, the SHU was able to access an
ETB 2 million loan from the CBO, with a 50% guarantee from Agriterra and a 50% risk sharing
from the CBO side at an annual interest rate of 9.9%. This input finance loan was distributed
among two PCs in which these cooperatives received ETB 1,000,000.00 each at an annual
interest rate of 12% in which the Union put 2.1% interest for administering the loan, and the
two PCs channel the amount to carefully chose farmers from each cooperative to cover the
harvesting labour costs at an annual interest rate of 15% (fairly below the microfinance interest
rate (18%)). Each PC took 3% interest for covering the costs of administering the loan. Agriterra
supported in mobilising an ETB 7,000,000 (264,000 euros) trade loan at the CBO as well.
55
Credit product(s) for agriculture
Name
# of
months
Interest
%
Interest mode
Flat or R.B.
Repayment
Bullet / instalm.
Security mode
Input Finance
12
12
Flat
Bullet
Agriterra 50% &
CBO 50%
Trade Loan
12
12
Flat
Bullet
Regional
government
12
9.5
Flat
Bullet
Regional
government
Cooperative Bank
Commercial Bank
Export Financing
One of the credit proposals to the CBE was an export credit financing. The SHU managed to have
ETB 25 million credit on IC 80% at an interest rate of 9.3%.
2. Risk analysis
2.1 How has risk management been approached?
The due diligence process can be seen from three perspectives. The first one is when the
Union receives finance from the bank, either from the Commercial Bank of Ethiopia (CBE)
or the Cooperative Bank of Oromia (CBO). The second one is when the Union provides loans
to the primary cooperatives (PCs), and lastly when the PCs gives loan to the farmers. The due
diligence between the Setit-Humera Union (SHU) and the financer such as the CBO and the
CBE is based on:
• Support through a development partner’s guaranty’; Ethiopian Birr (ETB) 2 million input
finance was partly guaranteed by Agriterra;
• Regional government is also served as a guarantor when they borrow from the CBE. An ETB
25 million loan was approved through this mechanism; and
• In addition based on the union’s collateral and truck record a 5 million trade loan was
approved from the CBO.
Among the services that the SHU has been providing to the PCs, financial serviced constitute the
main type. Generally, the SHU has highly conservative credit grant procedures of disbursement.
While providing the services to these member PCs as a due diligence process, the following
criteria were taken into consideration to minimise the risk and determine the amount of loan
that is going to be provided:
• Leadership quality and the financial strength of the PCs;
• The size of the PC and the number of household heads included per member of the PCs;
• Total land holdings by member household heads;
• The credit repayment history of the PCs;
• Trade participation of the PCs with the SHU. This participation can be measured in terms of
volume of input purchased from the union, and the volume of sales to the union at harvest
time; and
• Quality of the accountant and employee.
Based on the above criteria, the SHU has for the last two years been classifying the PCs as high,
medium and low creditworthy and providing loans accordingly to as stated below.
56
Creditworthiness
Characteristics of the member primary
cooperatives (PCs)
Loan ranted
in 2012/13
Loan granted
2013/14
High
• PCs which are characterised as highly credit
worthy and less risky
• Fulfil all or most of the due diligence criteria
listed above
ETB 1-3
million
ETB 1-3.5 million
Medium
• PCs which have been weak but transformed
to better position
• Has a good progress
• Becomes less risky as a result
• Fulfilled many of the criteria listed above
ETB 500,000
ETB 500,000
Low
• PCs which have poor performance
and track record on the above criteria
• Considered as highly risky
Not at all
Little for some
of them
Note that the union has called a meeting and clarified the criteria for all the cooperatives, and
mutual agreement was reached on the credit provision and the criteria for loan grant.
Lastly, the cooperatives internally provide loan to the farmers, based on a proper loan screening
and conservative criteria. Some of the selection criteria include the track record of the farmer,
the number of hectares cultivated for sesame, the number of transactions the farmer has
been doing with the cooperative, and the number of shares the farmer has bought in the coop.
Once the loan is approved, the farmer and PC sign a contract, which spells out the conditions
under which the farmer is lending such as interest rate, payback period, pay back in kind,
the implications of default. Mostly, the farmers will repay the loan in sesame seeds to the
cooperative, which in turn comes to the union mid to late December and then it can be directly
traded for export.
Elements risk management (score 0 – 5)
Aspect
Appraisal by
MFI/bank
Risk assessment
by Producer
Organisation (PO)
Risk mitigation
measures
Risk monitoring
Product
3
3
3
3
Production
3
4
3
3
Partner/client
4
4
4
4
Market
4
4
4
4
Financial
4
4
4
4
(Note: 0 = opportunity not used; 5 = opportunity optimally used)
Product-related risks
The SHU focuses on sesame as a main crop. It needs a short period of harvest collection
with a huge amount of labour workers employed at the farm; otherwise the crop will be at a
very high risk. The harvest collection cannot be handled by family labour and needs a labour
force employed by the labour workers who seasonally flow to this area. To employ the daily
labour workers, farmers have a very high need of finance. Last year’s season became quite
troublesome as a result of volatile prices, insufficient risk reducing strategies in relation to
the contracts and late disbursement of the loan from the commercial bank. All these factors
led to major default on the export contracts of the SHU. An input finance loan of ETB 2 million
was distributed to two PCs. Since the financial access from the union is very limited, farmers
are forced to have credit from the traders and local money lenders at a very high interest rate,
and they directly hand over the produce after harvesting. This leads the farmers to lose all
the benefits that they would have got if they had sold to the union, the Ethiopian Commodity
Exchange (ECX) or the Tigray Marketing Federation (TMF). As an evaluation strategy with
Agriterra’s support, the Union set up a stakeholder meeting involving the Regional Cooperative
Agency, the Zonal and District Cooperatives Agencies, the CBE and the CBO in order to gain
support for the coming export season and for evaluation of the previous year’s performance.
57
Table 2.1. Overview of the risk assessment and risk mitigation measures
Risk Aspect
Risk assessment
Risk mitigation measures
Risk monitoring
Product risks
Post-harvest loss
• Training about post-harvest management
Financial need is still not sufficiently
and testament.
provided by the union through the PCs.
• Providing finance to labour needed to collect
harvest.
Side-selling
Contract farming through input financing.
Farmers will repay in kind, but the
percentage of sells to the union is very
minimal.
Very sensitive harvesting
• Input loan meant to serve the harvesting
• A total of 470 smallholder farmers from
labour cost requirements of smallholder
two Cooperatives benefited from this loan.
farmers.
• Only ETB 2 million for only two PCs
• Employing enough human resource at the
• There is mostly a shortage of finance as a
right time.
result shortage a labour.
Pre-harvest (early ) selling of sesame to
• Providing input loan.
The percentage sold to the union is still
traders and many lenders
• Contract farming contract.
minimal (about 10% of the total production
by the farmers.
Production Risk
Farmer & PO Risk
Bad weather condition
Shifting to sorghum as an alternative crop.
-
Shortage of finance and manpower at the
Financing farmers to finance their harvest
Good start but it is still limited in scope and
harvest time
manpower need.
coverage (loan was given only for two PCs).
Very sensitive (perishable nature of sesame
Right man power employment at the right
Financing needed to employ manpower is
harvesting) harvesting
time.
always a problem.
Late disbursement by commercial bank
-
-
Poor managerial and human resource at
• Recruitment of key staff at the union level
There is still a need for better capacity
the union level
such as general manager.
building at the union and PC level.
• In addition, with the objective of
commercialising the union to enter into
competitive sesame seeds markets, both
locally and internationally, a marketing
officer was hired and is posted in Addis
Ababa. In addition, an accountant with a good
understanding of Peachtree accounting was
recruited.
Poor awareness of the farmers and the PCs A stakeholder workshop
Still much has to be done to make
improvements
Market Risk
Volatile prices
The union is a member of both the ECX and
the TMF
Lack of market
• Union is privileged to directly export with
Around 10,000 quintals are currently in
full control over the traceability & quality of
stock, and are being contracted by the
sesame.
World Food Programme (WFP). Setit
• The union is a member of both the ECX and
channelled 6,309 quintals to the TMF
the TMF.
Financial risks
Default by the union
• Guaranteed by regional government
• Default as a result of delay of loan
• Guaranteed partially by Agriterra
disbursement
• Successful repayment of input loan
Delay of loan by farmers
Strict follow-up
Default by the borrower on input loan
Strict criteria and loan appraisal by the unions
Farmers fully paid back to the PC.
Default of PCs for the input finance
Sound contractual agreements were made
They fully paid back in kind with 498
between the Union and cooperatives, and the
quintals of sesame seeds.
farmers.
Default for the export loan from the CBE by
Strict follow-up
the borrower
As a result of unfavourable weather
conditions, price fluctuation and delay of
disbursement, there was a considerable
default with respect to this loan.
58
Production-related risks
For sesame harvest, one of the main production risks is bad weather conditions. Last year there
was a bad weather condition and as a result the harvest was not as good as expected. Because
of unfavourable weather conditions for sesame, many farmers shifted to sorghum, which is
also reflected in the purchase performance of the SHU. In addition, the majority of the finance
coming from the CBE was released late, which meant that the SHU bought at a relatively high
price. Loan repayment, especially for loans from the CBE, was not successful as a result of price
volatility, bad weather conditions and late disbursement of loan. A stakeholder workshop was
also organised to strengthen PC and Union linkage. The workshop attempted to identify and
address the challenges of the cooperatives and the unions, and forward a possible solution for
the future.
Farmers’ & Producer Organisation (PO)-related risks
With respect to partner related risks, we can mention the following main risks:
• Poor coordination and timely disbursement between commercial bank and the union;
• Poor awareness of the farmers and the PCs on collective bargaining and selling through the
union, or ECX or the TMF; and
• Poor managerial and human resource, both at the union and the PC level.
Even though the financial access from commercial bank is indispensable for the desperate
farmers’ financial need at the harvest time, the timing of disbursement is still a bottleneck.
As a result, farmers shafted to a risky credit access from traders and local lenders at a very
high cost. The human resources at the union and PC level are not of a high quality in the key
positions. As a mitigation measure, recruitment of key staff including a general manager was
implemented. Furthermore, with the objective of commercialising the Union to enter into
competitive sesame seeds markets, both locally and internationally, a marketing officer was
hired and is posted in Addis Ababa. In addition, an accountant with a good understanding of
Peachtree accounting was recruited.
Marketing-related risks
Price volatility at the international price level was the main risk related to sesame marketing.
The product is mainly cultivated for the export market. The price volatility was a big risk for the
Union and for the PCs. As a mitigation measure the farmers had contract finance for which the
repayment is made in-kind to the union. The Union is a member of both the ECX and the TMF.
However, the Union is privileged to directly export, without passing through the ECX, and have
full control over the traceability & quality of sesame. In addition, the Union is able to link and
close contracts with buyers, like the World Food Programme (WFP).
Finance-related risks
With respect to the financial risks involved, default risk of the Union for loans granted through
the CBO and the CBE is one of the main risks. Since unions have a limited collateral guarantee
for some of the loans - such as the loans granted from commercial banks - the regional
government provides guarantee for the bank in case the Union is unable to pay back the loan.
With respect to the loan granted from the commercial bank, there are two methods of risk
mitigation with respect to the type of loan granted. The first one is for an input finance pilot loan
and Agriterra gives a 50% guarantee. The remaining 50% risk is shared by the CBO itself. The
other part of the loan from the CBE is the marketing loan against collateral of the Union. The
bank granted ETB 5 million against the Union’s collateral and track record.
The other level of financial risk is the risk involved between the SHU and the PC. The possible
default risk of PCs to pay back the loan was mitigated by having a strict scrutiny of the PCs and
selecting and providing only for the strong PCs with a better financial position, track record, and
with a good leadership.
For the financial risks such as delay and default of the final farmers to repay the loan back to
the PC, the cooperatives also put strict criteria of eligibility to provide loan. For instance, for the
input finance, two cooperatives were selected and granted the loan and this PC put criteria for
the farmers to access the loan. The criteria include the track record of farmers, the number of
hectares cultivated for sesame, the number of transaction the farmer has been doing with the
cooperative, and the number of shares the farmer has bought in the coop. In the end, a contract
will be signed by both parties spelling out the terms and conditions such as interest rate,
payback period, options for paying back in kind, and the implications of default.
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2.2 What is the finance strategy?
The need for finance for sesame producing regions in general, and for the Setit-Humera region
in particular, is very high at harvest time. At harvest time, there is a need for huge manpower
since the harvest and family labour is way less than the need for harvesting the sesame. This
therefore demands daily labour, seasonal and manpower recruitment, specifically at harvest
time in order to avoid a huge post-harvest loss.
Despite the huge demand for post-harvest loan, there is no collateral to be for land. Even
regional government loan guarantee is was less than the actual need for finance. Furthermore,
unions have a very small or limited collateral to be used to have loan and reimburse to each
cooperative and finally to reach the smallholder sesame farmers at the post-harvest period.
Therefore, the gap between the demand and supply for loan is very huge at this point in time.
The smallholder farmers are able to get financing from various sources to cope up their
financial need at this disparate time period, and each source requires different criteria. The
easiest and most readily available source for input finance is normally financing from loan
traders and money lenders, which are by far more expensive than the loan from microfinance
and banks, but easier sources to obtain. As a result of absence or limited coverage of formal and
semiformal financial institutions service and support in this region, buyers and informal money
lenders have absolute control over the farmers as they lack input finance and rely on traders
for their finance. Thus, these traders and money lenders demand unreasonable interest rates
and as a result the farmer loses profit which could have been obtained from selling the sesame
in the right time and to the right buyer. Interest rates required from loan traders usually range
between 200-400% per annum). The traders offer a lower price than what the farmers can get
from selling their sesame to their union, the TMF or the ECX. The problem is that the farmers
are in desperate need of cash advance, which the traders are willing to supply at a very high
interest rate. The financial institutions located in this region are either not willing to provide loan
or require conservative criteria to be fulfilled. Having access to input finance at the right time
with the right financier would have alleviated this problem of the farmers being controlled by the
buyer.
Local private banks are willing to engage in the farming sector and support smallholder farmers
for their cropping requirements, but they require collateral which farmers are not able to supply.
With the support of development partners, banks are willing to provide input finance through
the concept of contract farming for traceable sesame. Through contract farming arrangements,
four member PCs of the SHU (Fana, Shewit, Maebel and Miebale) get access to input and output
finance from processors. Despite this effort, the amount of financing through this contract
farming is very limited as compared to the volume of sesame seeds these processors source
from the member PC. In termers of coverage, this contract farming only covers 4 PCs of the
total 19 PC members that fall under this union, which is very limited.
2.3 What capacity for agri-finance has the MFI installed?
Setit-Humera Union (SHU)
As shown in figure 2.2, the SHU has a total of 10 employees, including the general manager,
accountants, secretary and casher, marketing officer, machine operator, store operator and
guards.
Union Manager
Two accounta
Three guards
Secretary and
casher
Store operator
Machine
operator
Figure 2.2 Staff composition and organisational structure of the Setit-Humera Union (SHU), author’s competition
60
Marketing
officer A.A
According to the manager, there is still need for more skilled manpower requirements beside
the need for skill and knowledge improvement of the existing human capital. The human
resources at the union and PC level are not of a high quality in the key positions. Efforts have
been made to strengthen the human resources by means of recruitment of key staff, including
a new general manager. Furthermore, with the objective of commercialising the Union to enter
into competitive sesame seeds markets, both locally and internationally, a marketing officer
was hired and is posted in Addis Ababa. In addition, an accountant with a good understanding of
Peachtree accounting was recruited.
Cooperative Bank of Oromia (CBO)
The bank aimed to provide full-fledged and customer-responsive banking services for Ethiopian
cooperative societies, other entities and individuals with special emphasis to agricultural and
agro-based business financing. The bank mainly focuses on agricultural finance and is by far the
most agriculture-oriented private bank in the country, with 7,000 shareholders out of which 1400
are cooperative societies and unions. It currently operates 53 branches nationwide. The CBO has
launched the idea of establishing a cooperative department offering advisory services to their
cooperative clients. Key services the CBO wants to focus on are business planning and financial
management. This coaching track also aims to increase the CBO’s competence in providing
those services to its cooperative clients by training and coaching CBO professionals.
2.4 What connections were entertained by the MFI with other stakeholders in
the sector? Who was the lead actor in orchestrating the chain?
The leading role so far was realised by the development agent, Agriterra, which initiated a
bankable business planning and support through an innovative way of having credit, other than
the credit against government guarantee. Unions learned how to access credit grant without
the traditional regional government guarantee. The bankable business plan development was
a good initiation to show how creditworthy unions are and that will create a good opportunity to
request a clan loan from banks.
Agriterra supported the SHU in mobilising a total of ETB 7 million trade loan at the CBO. This
support and linkage was done in two phases. The first is that, through support of Agriterra, the
SHU was able to propose a bankable business proposal and managed to have ETB 2 million
input finance loan. This input finance scheme was also piloted successfully with the support of
Agriterra and the CBO. The loan was given against a 50 % guarantee from Agriterra and a 50%
risk sharing with the CBO. A total of 470 smallholder farmers from two cooperatives benefited
from this loan, and they fully paid back in kind with 498 quintals of sesame seeds. Sound
contractual agreements were made between the Union, the two selected cooperatives and the
farmers. As a result of this good repayment history, the SHU planned to propose a bankable
business plan of ETB 8 million input credit this year. The SHU also requested a marketing
loan from the CBO and was able to have an ETB 5 million loan grant. With Agriterra support,
the Union set up a stakeholder meeting involving the Regional Cooperative Agency, the Zonal
and District Cooperatives Agencies, the CBE and the CBO, in order to gain support for the
coming export season and for evaluation of the previous year’s performance. The support of
stakeholders from Government offices enabled continuous pressure and follow-up in getting an
ETB 40 million (1.5 million euros) loan from the CBE against a government guarantee.
61
3. What makes it tick?
3.1 What are the success factors in this case? What risk mitigation measures
proved effective?
• The Ethiopian Birr (ETB) 2 million pre-harvest loan from the Cooperative Bank of Oromia
(CBO) was a good initiation as an alternative to the loan from the commercial bank via
government guarantee and unions-owned collaterals. The successful loan repayment history
of the same loan from the CBO makes the union proud, and that will create a good base for
the future creditworthiness and track record of the union, the primary cooperatives (PCs) and
member smallholder farmers.
• The union was successful in developing a bankable business plan which was approved by the
financier; the CBO. The assistance of development agents was very crucial in guiding how to
create a bankable business plan development and becoming guarantee for the loan provided
by the CBO.
• With the increasing demand for the “Humera type” of sesame seed, international buyers are
showing interest to develop a direct relationship with farmer Producer Organisations (POs),
like the Setit-Humera Union (SHU). Some of the international buyers require specific quality,
quantity and full traceability of products. These buyers are targeting high-end markets and
are willing to invest into the sesame value chain to increase productivity, quality and ensure
full traceability.
• The SHU has a relatively strong membership base and produces approximately 30-40% of
the Ethiopian sesame to the market. A sophisticated European-standard sesame cleaning
machine is already in place with adequate warehouse facility. With the new manager on
board, a supportive action plan in place and better alignment of supporters around the SHU, it
is believed that the union can do a much better job than before.
• The SHU has a strong competitive advantage in having better access to the highly demanded
whitish sesame, membership bases, better capability in terms of ensuring long term product
quality and productivity, and well established organisational facilities, including cleaning and
warehouses. The SHU has also excellent experience in marketing of sesame seeds through
the Ethiopian Commodity Exchange (ECX) system and to the Tigray Marketing Federation
(TMF, from which it is a member as well. However, members have been selling less than 10%
of their total production through the union, due to scarcity of finance.
3.2 What are the (remaining) weaknesses/threats/risks?
Despite the fact that the SHU is in a better position to benefit from the export marketing, it
was not performing according to the required level, mainly because of a lack of access to input
and output finance. Currently, the buyers and informal money lenders have control over the
farmers as they lack input finance and rely on traders for their finance. The traders demand
unreasonable interest rates and the result is that the farmer loses profit that could have been
obtained from selling the sesame in the right time and to the right buyer (interest rates to
loan traders are between 200-400% per annum). The traders offer a lower price than what the
farmers can get from selling their sesame to their union, the TMF or the ECX. The problem is
that the farmers are in desperate need of cash advance, which the traders are able to supply
and other financial organisations are not. Having access to input finance at the time they require
it, will alleviate this problem farmers being controlled by the buyer.
Despite the effort made at the union level, there is still a huge human capital requirement.
Farmers themselves manage the whole administrative, financial and accountancy services.
This, therefore, leads the PCs not to be strong in keeping financial accounting and bookings.
They consequently need a fulltime employee who will take over the management, accountancy,
marketing, purchasing and sales operations of the PCs.
62
3.3 Do stakeholders have a view on how to better deal with these remaining
risks in the future?
• The link between PCs and unions are very limited, mainly financial service provisions. More
trade relationship should be devised. Furthermore, training and capacity building via different
human capital development through training, experience sharing and the like, should be
continued as it helps the unions, cooperatives and their relationship with the financiers.
The support from development partners on capacity building schemes through training,
experience sharing, staff co-financing should continue as well.
• Sesame is more expensive than most crops. The Union has a shortage of finance and
the government is urging it to gain independence by securing its own finance. Internal
capitalisation should thus be emphasised for the coming years. Instigating internal
capitalisation in kind could easily bring an impact if farmers are willing to contribute their
sesame and if the Union could convert the product to cash by exporting it.
• A strategy should also be developed for alternative crops, such as sorghum, in order to create
market linkage and value addition. Peachtree accounting training would also add to the
efficiency of the Union’s accounting department.
3.4 How can linkage between financier (Microfinance Institution - MFI) and
Producer Organisation (PO) be strengthened?
• PC level access to finance from the bankers.
• Unions and PCs should have a strong and skilled recourse and good leadership. This will be
a good base for creditworthiness for both the unions and PCs. This, as a result, will create
better and greater access to credit from the financial institutions, including clean loan or with
a minimised condition for loan guarantee and collateral.
• A clean loan to unions and PCs should be given based on the credit history, management
and organisational structure and with a minimal collateral requirement. Alternative financial
schemes are needed, such as trade finance, merchandise loan against the harvest stored,
and union level stores should be devised in the future.
Sources
Documents used:
• Business planning coaching track. A Cooperative Bank of Oromia, Rabobank Development,
Agriterra and SNV Ethiopia co-production.
• Setit-Humera Ltd Farmers’ Cooperative Union, Innovative Input Financing Pilot Project (SetiAgrittera/CBO), September 16, 2013.
Persons interviewed:
• Ato Abereham Geberemedehin, Setit-Humera Union General manager.
• Ato Getachere, Cooperative Bank of Oromia (CBO) branch manager (contacted but not
interviewed).
Websites:
www.agro-info.net/?menu=projects&view=project&project_id=25092#
63
Case Study M1
Mali Biocarburant
Abstract
The “Fondation Mali Biocarburant” (FMB), or Mali Biocarburant Foudation (MBF), is a farmers
association created in June 2010 by the Mali Biocarburant Enterprise (MBE); a company
that produces biodiesel from the Jatropha nut. Guided by the principles of the Triple bottom
line (Population, Planet, Profit), the MBE created the MBF to develop Jatropha cultivation by
smallholder farmers and to diversify their activities in order to improve farmers’ livelihoods and
ensure the protection of the environment. Over the past three years, a Jatropha nut value chain
was developed in Mali for the extraction of oil and the production of biodiesel. The described
project involves a private biocarburant enterprise (MBE), several farmer cooperatives, the
MBF supporting the farmers, and PASECA OSK Microfinance Institution (MFI), financing the
participating farmers. The financial services of PASECA OSK MFI were facilitated by ICCO
through a guarantee fund, while ICCO Terrafina Microfinance supported the linking of Producer
Organisations (POs) involved in the pilot with PASECA OSK MFI.
Acronyms
CVECA OSK
FCFA
MBE
MBF
MFI
PASECA OSK PO
TA
Caisse Villageoise d’Epargne et de Crédit Autogérée – CVECA (Self-reliant
Village Savings and Credit Bank – Operating in the regions of
Ouélessébougou-Siby-Kangaba (OSK)
Franc des Communautés Financières d’Afrique (“Franc of the French
Community of Africa”)
Mali Biocarburant Enterprise
Mali Biocarburant Foundation (Fondation Mali Biocarburant – FMB)
Microfinance Institution
Programme d’Appui à la mise en place d’un Système d’Epargne et de Crédit
Autogéré - PASECA (Self-reliant Support Programme for the establishment
of a Savings and Loan System) – Operating in the regions of
Ouélessébougou-Siby-Kangaba (OSK)
Producer Organisation
Technical Assistance
Figure 1: Farmer Field School (FFS) and preparation of nursery for Jatropha seeds
1. Main characteristics of the case
1.1. Farmers and their organisation
Mali Biocarburant Foundation
The “Fondation Mali Biocarburant” (FMB), or the Mali Biocarburant Foundation (MBF), is a
Malian farmers association, created in June 2010 by the Mali Biocarburant Enterprise (MBE);
a company that produces biodiesel from the Jatropha nut. Guided by the principles of the Triple
bottom line (Population, Planet, Profit), the MBE created the MBF to develop Jatropha cultivation
by smallholder farmers, to diversify their activities in order to improve their livelihoods and to
ensure the protection of the environment.
64
Foundation Mali biocarburant profile data
Type of organisation
Number of members
Exploitation area
Number of employees
Number of cooperatives
Field schools
Main crops
Other crops
Districts of operation
Association of producers of Jatropha
600
600ha
5
7
50
Jatropha
Sweet sorghum, Beans, Soya and Maize
Ouélessébougou, Koumantou and Bougouni
The main objective of the MBF is to promote Agroforestry systems and increase the biofuel
products in Western African Countries. To achieve this objective, the MBF has developed an
economically sustainable business model to assist farmers to plant trees of Jatropha, mixed
with food crops, in a system of intercropping. Thus, the objective of larger self-reliance for
energy is achieved, without threatening the food security of participating farmers.
The crop
Jatropha is an oil-producing plant; very suitable for cultivation in arid and semi-arid lands
in high-temperature zones with extended periods of drought. It can be grown on abandoned
or sandy soils. A dried cutting pushed into the soil will take just two days to take root and
can produce seeds after two years. Based on these characteristics, Jatropha requires little
care and is suitable to complement food crops (rather than competing with them). Due to its
natural production of insecticides and fungicides, Jatropha is also a plant that does not require
pesticides or other chemicals. In Mali this plant is traditionally cultivated in hedges, usually
around gardens, to protect the soil and surrounding crops from wind and erosion. In this way,
it actually contributes to environment protection. In the harvest period, an individual tree of
Jatropha yields from 0.2 to 2 kg of seeds (Francis et al., 2005).
Figure 2: Plant, Fruits and Nuts of Jatropha
Use and Processing
Since Jatropha production has opened the door to local production of carburant, the government
of Mali has offered private companies the right to develop the Jatropha industry with the aim to
increase biofuel, so as to meet the country’s domestic energy needs and electricity production.
The nuts of Jatropha contain 27-40% of oil and present a good return for the producers. The
farmers produce and sell the decorticated nuts of Jatropha to the MBF. The Jatropha nuts are
pressed and, together with other inputs added, used to produce oil (glycerine), shea nut butter,
soap and biodiesel (diesel). The production of biofuel from Jatropha is a solution to reduce the
cost of diesel in Mali, as imported fuels are costly to transport. As a consequence, diesel is
affordable for much of the population in remote areas. Its production also offers great potential
for import-substitution, as currently around USD 89 million is paid for around 904,100 TEP.m3 of
fuel imported every year (INFORSE, 2013). The Jatropha nuts can be harvested two years after
plantation.
65
Farmers’ – beneficiaries
The MBF currently collaborates with seven cooperatives in three regions: Ouélessébougou,
Koumantou and Bougouni. These cooperatives have agreed to participate in a programme to
grow Jatropha mixed with food crops, such as sweet sorghum, beans, soya and maize. The
project enables farmers not only to increase income from the sale of the nuts of Jatropha, but
also from increased production of these associated food crops. In the pilot phase, 276 farmers,
grouped into 3 cooperatives, have participated in the project and each farmer was authorised to
exploit one hectare. Thus, a total of 276 hectares has been exploited in the three villages:
• Ouélessébougou: 96 farmers (Jatropha/sweet sorghum);
• Bougouni: 99 farmers (Jatropha/maize); and
• Koumantou: 81 farmers (Jatropha/maize).
The project was able to guarantee the planned available supply of Jatropha nuts for producing
biodiesel by the Mali Biocarburant industry and succeeded in contributing to food security. It
also increased farmers’ incomes, because of mixed crop cultivation (maize and sweet sorghum
combined with Jatropha).
Cooperatives of Jatropha producers
Three cooperatives participated in the first pilot phase of financing Jatropha and food crops
production: Cooperative of Ouélessébougou, Cooperative of Koumantou and Cooperative of
Bougouni. They have been provided with a total loan of 38,420 euros for farmers to access farm
inputs (seeds, fertilisers and others) for the crops intercropped with Jatropha.
• The Cooperative of Ouélessébou Mali Biocarburant gou is growing Jatropha intercropped with
sweet sorghum since 2012. For the first pilot phase of campaigning the production sorghum
with Jatropha, this cooperative has obtained a loan of 8,784 euros from the “Programme
d’Appui à la mise en place d’un Système d’Epargne et de Crédit Autogéré”, operating in the
regions of “Ouélessébougou-Siby-Kangaba” (PASECA OSK).
• The Cooperative of Koumantou is composed of 99 members growing Jatropha associated with
maize since 2012. The cooperative has received a loan of 13,336 euros to grow maize with
Jatropha.
• The Cooperative of Bougouni is composed of 81 members growing Jatropha associated with
maize or beans. The cooperative has received a loan of 16,300 euros to grow maize associated
with Jatropha.
However, the 2012 security crisis in Mali has put the MBF into financial problems after the
withdrawal of their main donor, because of the country’s political instability. In 2013, the labour
contract of the Director has been interrupted and no more money was available to cover the
training needs of farmers. In addition to that, the MBF could not fulfil some of its promises to
farmers, such as the creation of a unit that can transform sweet sorghum sticks into juice and
providing 4,575 euros to each cooperative as financial incentives. This had a negative effect on
the members of the cooperatives that participate in this project. For example, the members of
the cooperative of Ouélessébougou reduced from 96 farmers in 2012 to 42 members in 2014.
Actors and supporting partners in production of Jatropha
The main stakeholders in the programme are the MBF, the MBE, Trees for All and KIAK Motors.
The other two main partners, ICCO and ICCO Terrafina Microfinance, support the financial
services component (see paragraph 1.3 below).
The four stakeholders in the programme have different functions:
Mali Biocarburant Foundation (MBF)
•
•
•
•
•
•
Assisting farmers in producing jatropha, mixed with food crops;
Providing seeds and fertilisers, technical support to farmers;
Assisting farmers to find market for the food crops;
Organising the training on modern agriculture techniques, for farmers;
Supervising the daily activities of farmers; and
Assisting farmers to sell the grains of Jatropha to the Mali Biocarburant Enterprise (MBE).
66
Mali Biocarburant Enterprise (MBE)
•
•
•
•
Organisational support to the MBF;
Buying the grains of Jatropha from the MBF;
Transforming the grains of Jatropha into bio diesel and glycerine; and
Marketing and selling Jatropha products.
Trees for All
• Providing technical assistance (TA) in the production of Jatropha seeds.
KIAK Motors
• Providing financial support to add value to Jatropha products, like the carbon sequestration;
• Supporting the daily operations of the foundation.
1.2 The financial institution
In order to enable farmers to produce Jatropha associated with food crops, the farmers receive
loans from PASECA OSK at an 18% interest rate. PASECA OSK, a microfinance institution (MFI),
is an autonomous savings and credit organisation, created with the mission of developing
microfinance for marginalised people in the Ouélessébougou-Siby-Kangaba regions, through
the provision of savings and credit services.
PASECA OSK profile data
Type of organisation
#Active clients
#Employees
Portfolio value (in euros)
# of farming clients
% of portfolio in
Credit Union/Cooperative
11202
17
€451302
1120
10%
Currently, PASECA OSK has 11,202 active clients. Some 1,120 borrowers are farmers (10%).
Other clients consist of retailers (8,513 customers) and artisans (1,568 clients). The MFI’s credit
portfolio is 451,303 euros, and credit allocated to agriculture varies between 73,452 euros and
114,337 euros (16% - 25%). This shows that the average agricultural credit (102 euros) is much
larger then the average credit in the other sectors (30 euros). However, it is difficult to make a
clear separation of the financing of agriculture from other credits, as many granted credits are
sometimes related to agriculture activities. PASECA OSK is financed by deposits of its members.
Products and services delivered to members
PASECA OSK offers a diversity of services to its members. The major services are:
• Loans; PASECA OSK provides loans to its clients at a negotiated rate, ranging between
18% and 24% per annum. The interest is linearly calculated over a maximum duration of
12 months. The types of guarantees accepted are small equipment, animals and the joint
guarantee of the farmers group. Moreover, there is a 50% cover from a guarantee fund
established with financial assistance of ICCO. For agriculture loans, the repayment is made
after harvest (i.e. bullet loan) and maturity is determined according to the type of funded
agricultural activity. The overall repayment rate is reportedly 92%.
• Voluntary saving; just like other MFIs, PASECA OSK uses the deposits and savings of its
clients as a source of finance for its credit portfolio, and partly uses it as collateral (the
mandatory savings component).
• Training; PASECA OSK organises training sessions on financial literacy for its clients, in order
to ensure proper use and repayment of the credit.
PASECA OSK is looking for additional resources to increase its capital, so as to meet the
increased demand for loans.
67
1.3 Other stakeholders
The MBF and PASECA OSK MFI are supported by two Dutch development agencies;
• ICCO Terrafina Microfinance supported the institutionalisation process of the “Caisse
Villageoise d’Epargne et de Crédit Autogérée” (CVECA), operating in the regions of
“Ouélessébougou-Siby-Kangaba” (OSK), and PASECA Kayes. In the meantime, the 2 networks
decided to merge. This process was facilitated by Pamiga. PASECA OSK is also involved in
other CVECA associations; in a 3 year comprehensive capacity building programme aiming
at professionalisation according to the new microfinance regulation. This programme
is implemented thanks to ICCO Terrafina Microfinance support. Finally, ICCO Terrafina
Microfinance offered a small grant to facilitate the linking of producers involved in Jatropha,
with the PASECA OSK. This grant has been used for training of farmers on financial
education.
• ICCO has granted financial support to the MBF, which was deposited into the PASECA OSK as
a guarantee fund to facilitate farmers with access to loans. The total loan could be the double
of the guarantee fund (i.e. a 50% guarantee).
1.4 Nature of the financial transactions
The financial support of 17,154 euros offered by ICCO to the MBF has been deposited in the
PASECA OSK as a guarantee fund to facilitate farmers to receive loans from that MFI. The
following tables show the loan requirements from the PASECA OSK and the amount of loans
received by cooperatives of the producers of Jatropha associated with food crops.
Credit characteristics
Name
# of
months
Interest
%
Interest
mode
Repayment system
Security mode
Agricultural
production loan
10-12
18-24
flat
Bullet or two harvest
instalments
Joint guarantee
Guarantee fund for 50% cover
Other loans
10-12
18-24
flat
two or more instalments
Houses, equipment, animal
livestock, etc.
PASECA OSK gives the loan to its clients for buying the agriculture inputs. Interest rates
vary between 18-24% and loans payable within 10-12 months. The repayment mode and the
repayment time are based on the type of agriculture activities financed, and are subject to
negotiation between PASECA OSK and their clients.
A training session on financial literacy was organised for each Producer Organisation (PO)
involved in the programme. In total, 80 farmers were trained on several modules such as budget
elaboration, importance of saving, and debt management.
Farmers involved in the production of Jatropha intercropped with food crops, have received
a loan to purchase chemicals, fertilisers and seeds for their food crops. The PO is in charge
of collecting individual credit needs of their members, submitted to the PASECA OSK. When
approved, the loan amount is disbursed to the MBF, which is involved in inputs and seeds
purchasing and supplying. This loan was given at an 18% interest rate, payable within 8 months
after harvest. The loan contract is signed between the MFI and the individual farmer selected
by the cooperative, but is secured by a joint guarantee and the guarantee fund deposited by the
MBF to the PASECA OSK. The loan is repaid in kind by farmers that stored their production
within the PO warehouse. The MBF is supporting the PO for group selling by facilitating
intermediation with potential buyers, such as “les Grands Moulins du Mali”. After the marketing
operation, the loan amount is repaid to the PASECA OSK and the balance is transferred to the
farmers’ individual accounts.
The pilot phase revealed that the farmers are willing to maintain the Jatropha intercropped with
food crops (sorghum and maize). The loan provided in 2012-2013 was 100% repaid and we can
conclude that this initiative had a positive impact on food security, as only 31% of the production
was sold to enable loan repayment. Nevertheless, some repayment delays were observed as one
PO refused to sell the production under pressure when the prices on the market were still low.
68
Loan received
In order to make farmers able to get a
better price for their food crop, it was
decided to extend the loan duration to
10 months the second year.
The other issue that appeared is the
lack of involvement of PASECA OSK
in the recovery process, which was
mainly done by the MBF.
Cooperatives
FCFA
Euro
Bougouni
10 692 000
16,300
Koumantou
8 748 000
13,336
Ouélessébougou
5 762 000
8,784
Total
25 202 000
38,420
st pilot phase financing to grow food crops intercropped with
Jatropha (2012-2013)
1
2. Risk analysis
2.1 How has risk management been approached?
Loan appraisal by the Microfinance Institution (MFI) - due diligence
The due diligence on the level of individual (farmer) clients is done by means of a check
on eligibility, based upon some standard criteria. In order to benefit from the credit of the
“Programme d’Appui à la mise en place d’un Système d’Epargne et de Crédit Autogéré”,
operating in the regions of “Ouélessébougou-Siby-Kangaba” (PASECA OSK), the borrowers must
fulfil the following loan conditions:
• Every borrower must be a resident in the range of operating areas of the PASECA OSK;
• Have a current account within one of the sub-branches of the PASECA OSK;
• Be a member of a cooperative;
• Have own guarantee or be guaranteed by the cooperative (joint guarantee);
• Be recognised by others as a practitioner of agriculture activity;
• The loan is individually given to members of a cooperative and all members bear the liability
for the total payment of the loan; and
• A loan agreement is signed between the individual borrower and the president of the
cooperative, and the representative of the PASECA OSK.
2.2 Risk management by the stakeholders
In the design and development of the programme, the lead actors have jointly assessed the risks
for farmers and the MFI, and identified means to mitigate these risks. For the purpose of this
case study, a distinction is made between the six crucial aspects of smallholder production, i.e.
risks related to:
• The specific crop, especially Jatropha;
• The farming system and crop production;
• The strength of the farmer organisation / farmer cooperative;
• The markets for Jatropha;
• The viability of the promoted crop farming system (Jatropha and food crops); and
• The financing of farmers and farmer cooperatives.
These risks and the way they were mitigated and managed, have been tabulated in a risk
catalogue (see table 2.1 further on) and are briefly summarised below.
Jatropha / Maïs
Jatropha / Haricot
69
Jatropha / Sorgho
Product-related risks
Jatropha is a highly resilient species and the risk of ‘crop failure’ hardly exists. It can be grown
on arid land and persists in drought. As it is intercropped with food crops, it does also not lead
to the risks normally related to concentration on a commercial monoculture. About 80% of the
land remains available for foods crops, while 20 % is planted with Jatropha. Based on the 6%
of nitrogen contained by the seeds of Jatropha, this plant is deemed to serve as a fertiliser for
the food crops (Barbee, 2012). Finally, it contributes to reduction of soil erosion. Given these
characteristics, Jatropha could be characterised as a risk-mitigating crop for smallholder
farmers in the semi-arid regions of Mali.
For the food crops, the risks relate particularly to seed selection. This issue came up during a
discussion with the coordinator of producers of sweet sorghum. The quality of sweet sorghum
seeds used in the programme was considered poor, as farmers have not been consulted in
the selection of seeds. One of the problems observed with the seeds is long germination, and
a poor quality product that is not easily accepted by the buyers. The seed does not fit with the
properties of the soil of the region. The solutions for these risks were to look for new seeds
providers who might have more appropriate seeds and involve producers in decision-making
about seed selection.
Production-related risks
As the use of Jatropha was already widespread in the region for fencing, the production risks
are very low in comparison to other crops. An individual tree of Jatropha yields from 0.2 to 2 kg
of seeds. Jatropha does not need fertilisers to grow; farmers only use fertilisers for their food
crops.
The food crops are also more dependent upon the right farming practices. Farmers have been
observed not properly using fertilisers and pesticides in their food crops. They argue that only
few fertilisers reach rural areas. Scarcity leads to a very high price that is generally unaffordable
to smallholders. The loan offered by the PASECA OSK is insufficient to pay the quantity of
fertilisers needed for their plantations. Farmers are being trained and advised to create
awareness on the benefits/importance of using sufficient fertilisers to increase the production.
Some mechanisms, like group purchase of fertilisers and inputs, have been adopted to facilitate
farmers to have fertilisers nearby their home locations.
The dry season (and, hence, possible extended drought) is not problematic for Jatropha, but
it does constitute a serious risk for the food-crops. Farmers are being trained to reserve
the water in a dug, well covered with a plastic sheeting. While waiting for the rain, the water
reserved in this way remains at least two to three months. It is used for watering the vegetable
garden during the dry period. Farmers are also sensitised on the merit of listening to weather
forecasts, in order to make proper plans for their agricultural activities. In general, farmers
are still using traditional agronomic methods in their cultivation practices, which limit their
yields of, and returns on their agriculture investment. More training, sensitisation and extension
services are needed to improve on these practices.
Post-harvest risks are frequently disturbing the development of agriculture in Mali. For
example, there are no storage facilities for maize and sorghum crops; farmers keep their crops
at home until they find buyers.
Producer Organisation (PO)-related risks
The Mali Biocarburant Foundation (MBF) is closely collaborating with the three participating
farmer cooperatives: Cooperative of Ouélessébougou, Cooperative of Koumantou and
Cooperative of Bougouni. Thus, the success of the programme is closely monitored and, if
necessary, the MBF works with the individual farmers. To facilitate farmers to have access to the
loans, the MBF and PASECA OSK have agreed on the following distribution of tasks:
PASECA OSK to:
• Give loan to farmers and make a follow-up of the use of loan;
• Sensitise the farmers and train them on financial education;
• Open the sub-branches located nearby the location of farmers if the conclusion of the
feasibility study shows good potential; and
• Install recovery mechanisms of the loan offered to farmers.
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Mali Biocarburant Foundation (MBF) to:
•
•
•
•
Organise the farmers of Jatropha into cooperatives;
Select and propose the cooperatives to be financed by the PASECA OSK;
Facilitate the farmers access to farm inputs nearby their farm location; and
Supervise and provide technical assistance (TA) to farmers.
However, there are risks associated with the project set-up and field-level collaboration between
actors. Though the PASECA OSK extended its services to the producers of Jatropha, it is
challenging to recovering its loans. The PASECA OSK accuses the MBF of not ensuring that the
loan is used for its intended purpose and that farmers correctly implement the technical advises
related to production. On the other hand, the MBF feels that the PASECA OSK is not rendering
good services to farmers, because their offices are not near to farmers’ locations. This
illustrates the generally observed phenomenon of tension between providers of financial and
non-financial services. While they need one another for effective programme implementation,
they also tend to blame each another once problems come to the surface. It requires mutual
trust, patience and good communication to exploit the win-win potential in these approaches.
Marketing-related risks
As a chain actor, the Mali Biocarburant Enterprise (MBE) and the MBF are orchestrating the
production, demand for the product is ensured for the Jatropha crop. The collaboration between
the MBF and Grands Moulins helps farmers grouping into cooperatives in order to sell their
products in large quantity, limit the competition among them and thus gain more from that
market. In addition, through better negotiation farmers were hoping to increase the price for
Jatropha nuts (€0.11/Kg), as they consider it low compared to prices of other industrial crops,
like cotton. The MBF promised to negotiate with the government and external buyers to increase
the price.
The price for food crops (maize and sorghum) on local village markets barely covers the cost
incurred in producing them. As farmers sell their vegetables and food crop production only
individually, they do not gain from bulking in the way they do with Jatropha.
Finance-related risks
To the extent that loan delinquency occurs, it is attributed mainly to loan diversion. Some
farmers were apparently thinking that the 50% guarantee fund was freely donated to them.
Instead of using the loan for the project, they have covered family expenses with it. This required
the PASECA OSK to regularly control/supervise the use of the loan. Also the MBF decided
to control the use of inputs into the crops, in order to check the adoption of the Jatropha
production campaign.
The cooperative members, who are also liable for loan delinquency of group members, must
investigate if every member respects the contract specification and the purpose of the loan.
On the other hand, farmers still complain about the delay in disbursing the loans since this
sometimes has impact on their investment. The farmers were requested by the PASECA OSK
and the MBF to submit their loan request on time, in order to finalise them and hence facilitate
earlier financing. The lack of agreement between wife and husband to participate in the project
is sometimes challenging. This requires continuous education and sensitising the family
members about the project.
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Table 2.1: Risk catalogue - Overview of the risk assessment and risk-mitigation measures
Aspect
Risk assessment
Risk mitigation measures
Risk monitoring
Product risks
Resistance of some farmer to grow Jatropha
Continuous sensitisation of farmers to be
involved in the project
Agriculture monitors keep sensitising farmers to
grow Jatropha
Poor quality of sweet sorghum seeds
• Looking for seeds providers who can supply
selected seeds that fit with the soil and are
accepted by the sorghum buyer
• Involving farmers into seeds selection decisions
The problem of seeds was claimed to be the long
germination period (find the best seeds providers)
Post-harvest risks
Training of farmers about post-harvest
techniques
Post-harvest handling of food crops
Weather changes (specifically drought)
• Good planning of agricultural period
• Digging the water wells to anticipate on the
droughts periods
Good mechanism to reserve water for agriculture
activities
Low use of fertilisers and pesticides to food
crops (maize and sorghum)
• Training and sensitisation of farmers to use
enough fertilisers
• Have fertilisers and other inputs nearby the
location of cooperatives
• Sensitisation of the private seeds providers
(individuals or cooperatives)
• Agronomist will make a follow-up on the use of
fertilisers
• Negotiate with inputs providers
Traditional farming practices
Training the farmers on modern agricultural
practices
Agronomist to assist farmers
Few agronomists to assist and guide
farmers in modern agricultural practices
The MBF will recruit competent people to assist
and guide farmers in their practices
Keep assisting farmers.
Risks associated with the project set-up (low
collaboration between actors)
Improve the contract between the MBF and
the PASECA OSK. Improve the loan agreement
(recovery process) between the PASECA OSK and
cooperatives of farmers. Clarifying the role of
each actor in the chain (MBF and PASECA OSK)
To enforce the sustainability of the project
Lack of farmers’ involvement in decisionmaking on Jatropha project
The MBF promised to give a flow to farmers in
Jatropha project
New decision for the future of the project
Lack of leadership in the cooperative
management board
• Education and training of management board
members of cooperatives
• Continuous training of members of
cooperatives about cooperatives principles
Training is still needed
Lack of market for Jatropha nuts
The MBF will negotiate the international market
for Jatropha nuts
Undergoing negotiation
Lower price of Jatropha compared to food
crops (Jatropha 50-75 FCFA/kg, sorghum
115-125 FCFA/kg, maize 100-110 FCFA/kg)
Continuous negotiation with the government and
potential buyers in order to increase the price of
Jatropha (au moins 200 FCFA/Kg)
The negotiation is still under way
Lack of market for sweet sorghum and maize
production.
• Look for the market of sweet sorghum.
• Group selling of the production in other big
buyer towns (Grands Moulins du Mali)
Keep negotiating with buyers, with the purpose to
sell the whole production
Late disbursement of the loans required
The PASECA OSK requested the producers to
deposit their demands a bit earlier, to allow the
MFI to speed-up the loan analysis
The measure worked for the 1st phase
The PASECA OSK located far from farmers’
locations
The PASEC OSK accepts to open sub-offices
close to location of farmers
To be open in 2015
Loan Diversion
• Close control of loan use, by the PASECA OSK
• Make a follow-up on the use of inputs by
agricultural staff from the MBF
• Continuous training and sensitisation of
farmers about effective loan use in the project
• Members of cooperative will check each other
on respecting the purpose of the loan
The PASECA OSK does currently not have a followup strategy or recovery, because it relies on the
guarantee fund only
Lack of agreement between wife and husband
to participate in the project
Continuous education and sensitisation of the
family members about the project
Family consent still needed in this project
Production risks
Partner/client risk
Market risk
Finance and viability
risks
72
2.3 What is the finance strategy?
The MBF and PASECA OSK have agreed to facilitate farmers, who are involved in Jatropha
production intercropped with food crops, with access to credits. Reaching this agreement was
facilitated by the guarantee arrangement offered by ICCO and the capacity building offered
by ICCO Terrafina Microfinance. The MBF is required to select the farmer members of the
cooperatives and to submit the list to the PASECA OSK. The nature of the agreement is that
the recommendation of the cooperative is a necessary condition, yet not a sufficient one for
loan approval; the PASECA OSK maintains the right of appraisal. In practice the outcome of
the appraisal is rather predictable, however, as the PASECA OSK maintains a standard set of
eligibility criteria. In order to be financed, every borrower must be a resident in the range of
operating areas of the PASECA OSK, be a member of a cooperative, have a warranty and be
recognised by others as a practitioner of agricultural activities (farm plan).
The beneficiaries are selected by cooperatives and all demands are submitted to the credit
committee of the PASECA OSK for analysis. Once approved, a contract agreement of in
average FCFA 60,000 (92 euros) is signed between the applicant and the PASECA OSK. This
loan is secured for 50% by the guarantee fund granted by ICCO to the MBF, another 50% is
secured through a joint guarantee (cooperative becomes guarantor of members with shared
liabilities). The loan is given at 18% (out of which 3% is reserved as an intermediation fee to the
cooperative) for 10 months. The loan is given to enable farmers to buy fertilisers, seeds (maize
or sorghum) and pay for other exploitation expenses.
2.4 What capacity for agri-finance has the MFI installed to perform these tasks?
The PASECA OSK Headquarter is located in the region where agriculture is the main economic
activity. This MFI has been operating in rural areas for 15 years, providing loans to rural farmers
to buy fertilisers, seeds and to pay for the family’s first needs. ICCO Terrafina Microfinance has
supported the PASECA OSK with TA and a grant, aiming at improving the overall performance of
the network. It currently has 17 employees from different disciplines (including agriculture) to
serve its clients.
2.5 What connections were entertained by the MFI with other stakeholders in
the sector? Who was the lead actor in orchestrating the chain?
The MBF, together with the MBE, has been the lead actor in the development of the value chain
and the orchestration of the finance arrangement with the PASECA OSK. Regarding the latter,
the partnership with ICCO Terrafina Microfinance has been vital (for capacity building and
financial literacy).
73
3. What makes it tick?
3.1 What are the success factors in this case? What risk mitigation measures
proved effective?
The Mali biocarburant case is a good example of the potential of risk mitigation to be exploited
through a value chain finance approach, in which a chain actor (Mali Biocarburant Foundation
- MBF/ Mali Biocarburant Enterprise - MBE) has been the driving force. First of all, the
introduction of a new crop providing additional income for farmers, created a solid base for
farmer participation and commitment. The fact that the Jatropha crop does not interfere
with their food crops, helps to mitigate the risks for farmers. Other cases of specialisation/
other crops may not have resulted in the same situation; they may have inhibited farmers’
participation. The fact that a chain actor has been orchestrating the collaboration with the
financial institution and international funding agencies, is the best starting position for
sustainable development of the value chain.
The case also shows how a win-win situation is created for all parties concerned; the farmers
and their cooperatives, the agribusiness (MBE/ MBF) and the financial institution (“Programme
d’Appui à la mise en place d’un Système d’Epargne et de Crédit Autogéré” - PASECA OSK).
The partnership between the MBF and the PASECA OSK appears to be a good way of widening
outreach for the microfinance institution’s (MFI’s) products, increasing the number of its
customers and raising more income from the loans disbursed to them. The support activities
of the international organisations (ICCO, ICCO Terrafina Microfinance) has substantially
contributed to mitigate risks, partly through the guarantee arrangement, and partly through
capacity building and improved expertise for the PASECA OSK.
3.2 What are the (remaining) weaknesses/threats/risks?
Although the PASECA OSK extended its services to the producers of Jatropha, it still wonders
whether it can handle the challenges related to loan recovery. This is based upon the experience
of the first phase of 2012, during which it has been dependent upon assistance by the MBF for
debt collection. For the second phase, this is considered an acceptable financial risk for the
PASECA OSK, as it relies on the 50% guarantee funds deposited by the MBF. Nevertheless, the
guarantee mechanism set-up is not very clear and the convention between Mali Biocarburant
and the PASECA OSK has to be revised in order to better clarify the use of the fund and define
the procedures for the guarantee call.
The MBF’s high dependency on external funding remains an important risk for the continuity
of the programme and for the upscaling phase. One of the weaknesses of the approach was
the lack of vision about how to sustain the offer of no financial services. The 3% interest rate
promised to the cooperatives has not been deposited on the cooperatives’ accounts. This is
undermining the confidence of the cooperatives, which hence constitutes a potential threat for
continued collaboration between the parties. Another issue arose between the farmers and the
MBF. The MBF reportedly promised farmers to purchase the sticks of sorghum which could then
be transformed into juices, but this plan was not implemented which consequently discouraged
the farmers.
3.3 Do stakeholders have a view on how to better deal with these remaining
risks in the future?
• Based upon discussions with different stakeholders, it appears that farmers are not aware of
the different products offered by the PASECA OSK. They are still dependent upon information
given by the MBF. More frequent sensitisation visits by the PASECA OSK to farmers is
needed, together with training and the establishment of an effective communication network
(i.e. field visits by the Chiefs of Staff (COSs) of the MFI).
• Outreach for microfinance would be enhanced when the PASECA OSK would open more (sub-)
branches at proximity to the farmer members in the programme, to facilitate the recovery
process and improve services delivered to its clients.
74
• Having permanent staff to insure the technical support to farmers, is a very expensive option.
The costs could be reduced by involvement of farmer leaders that could play a more active role
in training duplication on village level and dissemination of good crop-growing practices in
the farm. Part of those training costs could be supported by farmers and the other part by the
MBE, yet the cost-sharing mechanism has to be defined.
3.4 How can linkage between financier (MFI) and Producer Organisation (PO) be
strengthened?
To strengthen the linkage with its clients, the PASECA OSK is thinking of various activities. These
include the organisation of an open door day for farmers in the region so as to create more
awareness about the opportunities to finance the various chains in agriculture. Other activities
would relate to extended training of (potential) clients, the development of new agricultural
finance products, and a more systematic investigation of market outlets for the agriculture
products financed under PASECA OSK credits.
Sources
Contact persons:
•
•
•
•
•
•
Abdoul Karim Sacko, Director PASECA OSK.
Djodji AKIBODE, Communication officer, MBF.
Sanou Cna, Technical Director, MBF.
Anita samake, Coordinator Producers of Jatropha.
Maximé Kulibalé, President of cooperatives/Jatropha.
Idrissa Ba, coordinator of ICCO-Mali.
References and links:
1.International Network for Sustainable Energy. (2013). CASE: Jatropha Oil Production for
Local Energy Use, Mali. Warsaw, Poland. www.infose.org/africa , www.malifolkecenter.org.
2.Barbee, J.M.(2012). Preliminary Investigation of the Risks Associated with Applying
Non-composted Jatropha curcas Seed Cake as a Fertiliser.
3.Francis, G., Edinger, R. and Becker, K. (2005). A concept for simultaneous wasteland
reclamation, fuel production, and socio-economic development in degraded areas in India:
need, potential and perspectives of Jatropha plantations. Natural Resources Forum. 29:12–24.
4.www.malibiocarburant.com/malibioen/carbon-credits.
5.www.new-ag.info/en/focus/focusItem.php?a=116
75
Case Study M2
Soro Yiriwaso MFI
“Increasing the productivity and production of smallholder
farmers in Mali through access to finance”
Abstract
Founded in 2000, Soro Yiriwaso is a Malian rurally oriented microfinance institution (MFI) financing
mainly agricultural activities. The main objective of this MFI is to increase the productivity and
production of farming activities in Mali in order to improve the economic situation of disadvantaged
smallholder farmers, particularly women. To achieve its mission, the MFI has initiated various
agricultural finance products to help farmers have access to credits for agricultural inputs. Soro
Yiriwaso is currently serving over 59,000 farmers, growing millet, sorghum, maize, cotton (mostly
grown by men), rice and peanuts (mostly grown by women) and to market their production. It carefully
addresses the gender differentiation of agricultural practices by recognising the differences in needs
and by serving them appropriately.
Acronyms
COPAM FCFA
MFI
PO
Centre Commercial des Produits Agricoles du Mali
(Commercial Centre of Agricultural Products of Mali)
Franc des Communautés Financières d’Afrique
(“Franc of the French Community of Africa”)
Microfinance Institution
Producer Organisation
1. Main characteristics of the case
1.1 Farmers and their organisation
For the purpose of this case study, three different producer organisations (POs) of farmers have
been visited so as to have a fair idea of the diversity encountered in agri-finance.
The POs described in this section are:
A. COPAM (Commercial Centre of Agricultural Products of Mali);
B. Producers’ associations of Benkadi-Bougoura - Association of Women producers of rice; and
C. Producers’ Cooperative of Koumbri village Yoyoka commune.
COPAM profile data
Type of organisation
Number of members
Exploitation area
Number of employees
Main crops
Other crops
Turnover
Operating income
Cooperative Society
2074
2045 ha
10
Maize
Sorghum, millet and sesame
FCFA 2,325,000,229 (€3, 544, 440)
FCFA 1,425,000,330 (€ 2,172,399)
76
A. COPAM (Commercial Centre of Agricultural Products of Mali)
The COPAM is a cooperative society founded in March 2011, to organise, support and provide a
safe and profitable market for producers of food crops. The vision of the COPAM is to increase
economic growth in rural areas through the promotion and diversification of cash crops, like
sesame, maize, millet, sorghum and soy, in rural areas.
To achieve its mission, the COPAM offers the following services to farmers:
• Organising smallholder farmers into producer cooperatives;
• Organising the market for agriculture production;
• Enhancing the capacity and skills of farmer members of cooperatives or cooperative unions; and
• Developing the relations and partnership between farmers and the local financial institutions.
The intervention of the COPAM starts with: the provision of agricultural inputs (certified seeds,
chemical fertilisers, herbicides and pesticides); technical support in the production of food crops
(agricultural techniques, entrepreneurship); marketing the agricultural production; facilitate the
process of negotiation, and signing contracts and partnership agreements between local and
international Institutions on behalf of farmers.
The COPAM is responsible for the promotion and diversification of cash crops such as sesame,
soya and almond for shea butter. The cooperative is currently composed of 2,047 producers
from 67 villages and it operates in 2 regions: Koutiala and Sikasso.
Figure 1.2: COPAM office and members of the administration committee (youth initiative)
The main partners of COPAM
The COPAM closely collaborates with the Yiriwaso microfinance institution (MFI) for financing its
member-farmers, with Planet Guarantee for crop insurance and with several other parties for
the marketing of agri-products for non-financial services.
Soro Yiriwaso. As both Soro Yiriwaso and the COPAM aim at improving the life of rural
farmers, they concluded a collaboration agreement on financing agricultural activities. In this
agreement, the COPAM is responsible for:
• Making annual agricultural planning on behalf of farmers and submitting to Soro Yiriwaso for
funding;
• Selecting the farmer beneficiaries for loans (pre-screening);
• Joint monitoring of beneficiaries in the implementation of agricultural activities;
• Contracting the company in charge of surveillance and control of agricultural stock
(UNICONTROL);
• Collecting the quantity of production released for the payment of loan obtained under the
UNICONTROL procedures;
• Selling the stocks under control of UNICONTROL (in collaboration with Soro Yiriwaso); and
• Depositing sales revenues directly into the bank accounts held by Soro Yiriwaso, with
notification of the members.
In accordance with the agreement, Soro Yiriwaso is responsible for:
• Elaborating a disbursement plan and preparing the loan contracts;
• Timely loan disbursement in accordance with the agreed disbursement plan;
• Joint monitoring of stocks collected from farmers;
• Joint monitoring of the sales process in collaboration with the COPAM and UNICONTROL; and
• Monitoring the loan repayment and depositing balances due to the account of the COPAM.
77
UNICONTROL - UNICONTROL is a private warehouse company, managing third party holdings
of the cereal stocks of agriculture products (maize, millet and sorghum), collected from
farmers. The company’s aim is to create buffer stocks of cereals so as to safeguard continuous
supply in case of unexpected food problems in Mali. Each farmer receives a notification
certificate of the quantity of crops kept in stock. These stocks are supervised by UNICONTROL,
in collaboration with Soro Yiriwaso and the COPAM, and may also guarantee all loans received
by farmers.
Planet guarantee - Planet Guarantee is a known insurance company in Mali that intervenes
in securing weather risks. As farmers do not have sufficient funds to pay the premium, Soro
Yiriwaso deposits the premiums which are deducted from the loans provided to farmers.
Marketing of agricultural products is done by PROSEMA (Society for Promotion of Sesame),
ELHAQ INDUSTRY Mali, SOKL and Grands Moulins du Mali.
Other partners and donor institutions include SNV, DIGNAFRIC, SWISSCONTACT and various
other NGOs for capacity building of the COPAM members.
B. Producers’ associations of Benkadi-Bougoura (Cercle of Bla, Region of Ségou)
In this PO, the women and men have organised themselves separately, making it an example of
how gender roles in agriculture can be distinguished. There is equal status for both sexes when
it comes to income generation and access to finance.
Association of Women of Benkadi profile data
Type of organisation
Number of members
Exploitation area
Number of employees
Main crops
Turnover (in euros)
Operating margin
Association
55
100 hectares
0
Rice
FCFA 39, 690,000 (€60, 507)
FCFA 13, 779,000 (€21, 006)
Association of women producers of rice
This association was created by women twenty years ago, to ensure social cohesion and to
generate income for the members. It currently has 55 members individually producing peanuts
and rice. The total area cultivated by the members of this association is 100 hectares. It has
benefited from agricultural production campaign loans from the Soro Yiriwaso MFI. In the latter
case, loans were only provided to women, at an interest rate of 25% per year for 8 months
payable after the harvest. One of the achievements of this association is a storage hall with a
capacity of 1000 tons to store production before decortication and sale. The production table for
this association is attached (Annex 1).
Association of men producers of maize
After seeing the success of women organised in an association, the men decided to set up their
own association with 11 members. This association is also financed by Soro Yiriwaso, yet men
are not the target clients of the MFI. They are therefore only allowed to have other loans like
a maize production loan (“PPM-Prêt Production Maïs”). However, the interest rate and loan
conditions are the same as for women. This association has received a loan of FCFA 1,750,000 at
a 25% interest rate for 8 months payable after the harvest.
78
C. Producers’ Cooperative of Koumbri village Yoyoka commune
Also in the case of Koumbri village, separate POs for women and men have been established.
Cooperative of Women and Men of Koumbri profile data
Type of organisation
Number of members
Exploitation area
Number of employees
Main crops
Cooperative
111
105 hectares
0
Peanuts, maize
The cooperative of women was created in 2006. Membership has increased from 25 members in
2008 to 66 members in 2013. The members are mainly occupied with the production of peanuts,
beans and sesame. This cooperative has recently benefited from a loan from Soro Yiriwaso
worth FCFA 3,800,000 (5,793 euros) to produce peanuts on 38 hectares of land cultivated
by women, at a 25% interest rate for 8 months payable after harvest. Each farmer member
requests the loan according to her production area and the total of the loans is secured by a
solidarity guarantee in the name of the cooperative.
The cooperative of men has started its activities in 2009, with 12 members grouped together to
address food problems in the region. This cooperative focuses on the production of maize. It has
grown from 17 members in 2010 to 51 members in 2014. The cooperative has benefited from a
loan of FCFA 6,700,000 (10,214 euros), provided by Soro Yiriwaso, to access agricultural inputs,
selected seeds and to rent agricultural machinery for the exploitation of 67 hectares., cultivated
by the men. Each member sells his production at the spot market. Up until now there is no
coordination for the bulking and marketing of the total production of the cooperative.
1.2 The MFI
Background - Soro Yiriwaso is a Malian rurally oriented MFI, founded in September 2000, to
support mainly agricultural activities. This MFI is an affiliate of Save the Children and supported
by the Grameen Crédit Agricole Foundation, with the aim to improve the economic situation of
disadvantaged smallholder farmers, particularly women.
Its objectives are: to facilitate disadvantaged women to have access to financial resources and
income generating products; to promote solidarity and cooperation between the members; and
to become a solid, autonomous and sustainable MFI in the region. Its products and services
include:
• Loans;
• Voluntary Savings;
• Insurance;
• Funds Transfer Services; and
• Training and Consulting
Soro Yiriwaso profile data
Total number of active clients
# Staff (credit officers)
#Agricultural promoters
Portfolio value (in euros)
% of farming clients
% of portfolio in agriculture
59,514
9
21
2,852,534
42%
37.3%
79
Achievements of Soro Yiriwaso - From 2000 to 2013, Soro Yiriwaso has increased its
geographic coverage in the district of Bamako and three other main regions: Sikasso, Koulikoro
and Ségou. It currently has 59,514 active clients of which 91% are women, spread over 600
villages. This MFI finances commercial (50%), agricultural (42%) and handicrafts (8%) activities
of 50,867 borrowers, of which 47,561 are female (93.5%) and 3,306 are male (6.5%). Soro
Yiriwaso is a proactive and effective microfinance provider in relation to the need of smallholder
farmers to increase land productivity and total production income of their agriculture initiatives.
The institution has since 2009 been supported by the Grameen Crédit Agricole Foundation in
order to increase its capabilities to meet the demands of its clients. The MFI offers different
types of agricultural loans: agricultural production campaign loans, maize production loans and
loans for the commercialisation of agricultural products.
Products and services delivered - Soro Yiriwaso prefers to collaborate with POs and farmer
organisations like the COPAM; the associations of producers of Benkadi-Bougoura, and the
cooperatives of producers of Koumbri-Yoyoka are examples of this finance policy. The MFI
primarily focuses on women to access agricultural production campaign loans and other loans,
at an interest rate of 25% payable between 8-9 months. Men are only allowed to access loans
for maize production (“PPM-Prêt Production Maïs”) at the same interest rate and with the same
loan conditions as for women.
The partnership agreement signed between the COPAM and Soro Yiriwaso has facilitated
farmers access to financial facilities and increase the production and productivity of food crops.
Under this partnership, the COPAM has received a loan of more than FCFA 111,000,000 (169,218
euros) for maize production and FCFA 700,000,000 (1,067,143 euros) for the commercialisation
of production at a 20% interest rate for a minimum period of 9 months paid after harvest and
commercialisation.
Just as other Malian finance institutions, Soro Yiriwaso MFI has suffered from the 2011-2013
political, security and financial crises of Mali, which resulted in a decrease of its funding
portfolio from FCFA 6,285,004,277 (9,586,689 euros) in 2011 to FCFA 3,503,173,000
(5,343,485 euros) in 2013 (decrease of 45%). Therefore, Soro Yiriwaso currently does not have
sufficient resources to fund all the demands of its clients. The average loan amount for one
farmer is limited to 115 euros. At end of June 2014, the total credit portfolio was 2,852,534
euros of which 1,062,852 euros were already allocated to agriculture. These loans provided are
secured by a third holding mechanism of cereal stocks, kept with UNICONTROL and via joint
liability of the members of the COPAM.
1.3 Sources of funding
Soro Yiriwaso collaborates with several banks and international financiers; for both short term
and medium term (2-4 years) debt for portfolio finance. With the exception of KIVA, the costs of
funding amount to 8% - 9.5% annually.
80
Table 1.3: Sources of funding in 2013
Bank and other financial institutions
Borrowings 2013
Borrowings at
30 June 2013
Interest rate
Period
BNDA
175,000,000
250,000,000
8%
1 Year
OIKOCREDIT SHORT TERM
350.000,000
9.50%
4 Years
BMS SHORT TERM
550.000,000
550,000,000
8.25%
2 Years
KIVA
356.274,551
3,905,124
0%
N/A
TOTAL SHORT TERM LOANS
1,431.274,551
803,905,124
SHORT TERM
MIDDLE TERM LOANS
BMS MIDDLE TERM 2014
100,000,000
8%
2 Years
ADA/LMDF
325,000,000
8%
4 Years
9%
4 Years
AGRICULTURAL CREDIT
260.000,000
SYMBIOTIC REGMINFA
327,978,500
TOTAL MIDDLE TERM LOANS
260.000,000
752,978,500
TOTAL
1,691,274,000
1,556,883,624
3 Years
1.4 Credit product(s) for agriculture
Soro Yiriwaso prefers to do its agricultural lending through farmer organisations, as shown in
table 1.4 below. It has the advantage that, as an MFI, it can provide both microcredit and SME
loans; thus being able to serve farmer organisations as an institution as well.
Table 1.4: Agricultural lending through POs
Name of the
borrower
Type of loan
Amount
received
# of
months
Interest
%
Interest
mode
Repayment
Security mode
Association
Women
Bekandi
Credit for
agricultural
production
campaign
3,900,000
8
25%
Regressive
Bullet
Solidarity guarantee
Cooperative
women
Koumbri
Credit for
agricultural
production
campaign
3,800,000
8
25%
Regressive
Bullet
Solidarity guarantee
Association
Men of
Bekandi
Loan for maize
production
1,750,000
8
25%
Regressive
Bullet
Solidarity guarantee
Cooperative of
Men Koumbri
Loan for maize
production
6,700,000
8
25%
Regressive
Bullet
Solidarity guarantee
COPAM
Loan for maize
production
111,000,000
9
20%
Regressive
Bullet
Solidarity guarantee
& third holding stocks
mechanism
COPAM
Credit for
commercialisation
700, 000,000
9
20%
Regressive
Bullet
Solidarity guarantee
& third holding stocks
mechanism
(FCFA)
81
2. Risk analysis
2.1 How has risk management been approached?
As stipulated in its by-laws, Soro Yiriwaso’s vision is to become a solid, autonomous and
permanent association that serves low-income entrepreneurs, especially women. However,
before offering the loan to its clients, it has to check whether the borrowers fulfil the following
loan conditions:
• Every individual borrower or member of association must be aged between 18-65 years old
and have a current account within one of the branches of Soro Yiriwaso;
• The borrower must be either a woman or man whose principal activity is farming;
• Every association must comprise of at least 8 to 80 members living together and producing
the same type of farming crop, in order to have access to a group loan;
• For associations exceeding 80 members, extra analysis is done to accept or refuse their
demands as beneficiaries of group lending;
• The members of the association cannot be close family;
• The loan is individually given to members of the association, yet all members are liable for
non-repayment of the total loan;
• The loan cannot be used for collective farming exploitation; and
• A loan agreement is signed by the individual borrower or the president and treasurer of the
association, and the representative of Soro Yiriwaso microfinance institution (MFI).
2.2 Risk management by the stakeholders
In the design and development of the programme, the lead actors have jointly assessed the
risks for farmers and the producer organisations (POs), and identified means to mitigate these
risks. For the purpose of the case study, a distinction is made between the six crucial aspects of
smallholder production, i.e. risks related to:
• The specific crops;
• The farming system and production risks;
• The strength of farmer organisation;
• The markets for the selected crops;
• The viability of the crop farming system promoted; and
• The financing of farmers.
These risks and the way they are mitigated and managed, have been tabulated in a risk
catalogue (see table 2.1) and are briefly summarised below.
Product-related risks
The type of crops that Soro Yiriwaso finances for women (mostly rice and peanuts) and men
(mostly millet, sorghum, maize and cotton) can be stored for quite some time; the shelf life is
therefore not a limiting factor. Crop-specific risks are rather associated with poor quality and
low yields, due to poor farm inputs or farming practices and due to post-harvest losses.
The low-use fertilisers, the lack of farm inputs and the low use of selected seeds constitute
the main risks which hinder many food crops produced by client-farmers. To mitigate these
risks, continuous sensitisation is done among farmers. In order to allow farmers to improve and
increase their production, efforts are undertaken to link clients to reliable private seed- and
input- providers.
Poor post-harvest practices remain a constant challenge and, unfortunately, a source of lost
product value and farm income. To mitigate this risk, some member organisations have been
able to construct their own stores; e.g. in the case of the women association in BenkadiBougoura.
Production-related risks
The risks of weather conditions, pest diseases, traditional farming practices and a lack of
technical guidance are the main production risks encountered by the farmers. To mitigate these
82
risks, farmers are continuously sensitised to use selected seeds and follow modern agricultural
practices. Planet Guarantee, an insurance company, also intervenes to minimise the unexpected
weather changes and death risks of farmers. However, the lack of expertise in agronomy is still
a handicap for the good farming system.
Farmers’ organisation-related risks
The very high degree of illiteracy in Mali among PO members (associations or cooperatives) and
traditional resistance towards collaboration with other farmers, have been found as obstacles to
exploit the full benefits of farmer organisation. Smallholder farmers do not tend to travel very
far from their residence and hence often lack exposure to more successful and commercialised
farming systems. As a consequence, the associations and cooperatives active in the area of
research, seem to be rather weak. To mitigate these risks, the board members of farmers’
associations and cooperatives are continuously educating their members and organise field
visits from one region to the other. Soro Yiriwaso ensures that this activity is given sufficient
attention to and that the governance principles, like regular elections of the POs, are being
upheld.
Marketing-related risks
Under the agri-finance scheme of Soro Yiriwaso, there is no element of value chain development
facilitation with regard to marketing links. Hence, farmers continue to be exposed to the
traditional marketing problems of smallholder farmers. After harvesting, prices for serials
typically drop as a result of temporary excess supply. Seasonal price fluctuation regarding the
food crops, lower prices at the local spot market and poor connectivity with larger markets
in urban centres, are the main marketing risks that farmers are exposed to. At harvest time,
farmers only sell their products to local buyers or middlemen at a lower price (maize FCFA/
kg 100-110 instead of FCFA/kg 125 in urban centres). Similarly, rice is sold for FCFA/kg 90-100
instead of FCFA/kg 300 at terminal markets. The combination of poor road infrastructure, lack
of warehouse facilities and weak farmer organisation, are the reasons that farmers are not
connected to the more competitive and attractive markets. To mitigate these risks, farmers
are being trained and sensitised by the MFI to put their production together for selling in bulk.
Moreover, the farmers’ associations and cooperatives are advised to increase their bargaining
power by means of opening up the collection through local centres and through the opening of
rep-offices in terminal markets like Bamako (capital city of Mali). The Commercial Centre of
Agricultural Products of Mali (COPAM) serves as good example in this respect.
Finance-related risks
Finance-related risks can be approached both from the farmer’s point of view and that of the
financier. Farmers mention the risk of delay in disbursement (too late for their agricultural
calendar), the insufficient loan size for farm requirements, the high interest rate threatening
net income and the lack of collaterals. Farmers revealed that it sometimes takes too long for
Soro Yiriwaso to release the loan, and that the loan offered is insufficient for implementing the
production budget.
Soro Yiriwaso MFI is aware of such risks and advises farmers to prepare and submit their loan
requests well ahead of time. Loan sizes remain an issue for negotiation, partly based upon
credit eligibility (farm budget), but also on the financial resources available to meet all finance
applications. To mitigate the risk of inadequate funding resources, continuous negotiations
with the Ministry of Finance are being undertaken, in order to benefit from existing programme
to stimulate agricultural production through MFIs. As far as collaterals are concerned, joint
guarantees and third holding mechanisms of production within UNICONTROL (i.e. warehouse
receipts) have been found as mitigation measures.
Risk catalogue
Table 2.1 shows the identified risks, detailed in terms of risk assessment, risk mitigation
measures (mostly pre-loan) and risk monitoring (mostly post-loan).
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Table 2.1: Risk catalogue - Overview of the risk assessment and risk-mitigation measures
Aspect
Risk assessment by MFI/Bank
Risk mitigation measures
Risk monitoring
Product risks
Low access to selected seeds
Sensitisation of the private seeds providers (individual or
cooperatives)
Ongoing negotiation
Low access to fertilisers
Enforcing the advocacy of the chamber of farmers to the
government (subsidise the fertilisers for rural areas)
None
Low use of pesticides against pests
Training and sensitisation of farmers to use pesticides
Continuous training and sensitisation of farmers
Lack of storage facilities for agricultural
products
• Direct sale of production to spot market
• Make more savings to build own facilities
• Some farmers have built their own store (association
of women of Benkadi Bougoura)
Farmers accepted but still need support from
government or NGOs
Weather changes (droughts or floods)
• Digging the water wells to prevent drought periods
• Crop insurance (Planet Guarantee) against the
unexpected weather problems
• Mechanism to secure the agriculture activities
• In case Planet Guarantee pays inputs and seeds
used
Traditional farming practices
• Train farmers the modern agricultural practices
• Use of tractors (hire the agricultural)
• Farmers are supported by other local farmer
organisations
• Members of association of men in BenkadiBougoura are also planning to buy one tractor
Pests and diseases
• Use of pesticides
• Use selected seeds resisting pest
• Follow modern farming practices
None
Lack of extension services
No solution found as associations are not able to pay a
regular agronomist
None
Lack of technical guidance in agricultural
practices
• Continuous training of farmers and capacity building
• MFI has accepted to hire an agricultural expert/agent
to guide farmers in their practices
None, because agricultural expert/agent has not yet
been hired
Illiteracy of members of association or
cooperative
Education and literacy training for members
In progress
Poor collaboration with other farmers
Field visits of farmers to other associations or
cooperative
None
Price fluctuation of food crops (maize and
rice)
• Strengthening the association or cooperative;
organising them into marketing organisations
• More training on marketing strategies
COPAM is helping farmers from the Koutiala
region to find a good market
Lower price to farmers compared to
production cost (maize FCFA/kg 100-110
instead of FCFA/kg 125 and rice FCFA/kg
90-100 instead of FCFA/kg 300 at terminal
market)
• Exhaustive control of the local market
• Collective marketing of the production of all the
members of association or cooperative (rice or maize)
Rice producers would like to sell their production in
bulk (store capacity of 1000 tons)
Lack of connectivity with the big market
Local collection centres of production and opening
offices in terminal markets (in Bamako and other big
buyer towns
COPAM is now connected to French , Korean and
Swiss markets
Delay in disbursement of loans
MFI opted for quick analysis of the demands for loans
Soro Yiriwaso accepted to offer loan in May instead
of June and July
The loan is too low (need for credit is only
partially covered)
Negotiating with banks and other financial institutions
for more money
None
Limited financial products to farmers
Soro Yiriwaso intends to create new financial products
adapted to the need and capacity of farmers
Short-term project being discussed with MFI
members
High interest rate and low repayment period
• Negotiating with governments for subsidies or grants
for agricultural loans in order to reduce the interest rate
• Extending the payback period from 8 to 10 months to
increase credit supply to farmers
Still being discussed with MFI partners
Lack of collaterals
• Joint guarantee (liability of all members for the total
payment of the loan)
• Keeping 1/3 of production with UNICONTROL as a
guarantee for the loan
• Secure the loan received ( farmers know each
other)
• Soro Yiriwaso has accepted this mechanism and
it works well
Production risks
PO
Marketing risk
Finance and
viability risks
84
2.3 What is the finance strategy?
Soro Yiriwaso has taken up the challenge of being lead actor in promoting livelihood
improvements for the smallholder farmers in the region of operation. As a financial institution,
it is prepared to go the extra mile necessary to educate and guide these farmers in their
business and in their farmer organisations. To finance the members’ activities, different steps
are undertaken beyond the normal client appraisal and screening practices in microfinance.
This includes a market and feasibility study of the project, product concept analysis and
short sensitisations of expected beneficiaries. The collaboration with farmer associations
and cooperatives is not only of help to the MFI, but also a reflection of its long-term vision
on agricultural development for smallholders. These processes help to define the finance
strategies, product development, financial needs assessment and selection of borrowers.
Due to the financial and political crises of 2012-2013, however, Soro Yiriwaso faced a decline
in available sources of funding. Hence, it had to decide to reduce its disbursements by
approximately FCFA 100 million. This meant a reduction of approximately 40% of refinancing
its customers and a reduction of the average loan amount: from FCFA 120,000 to FCFA 75,000.
Currently, with a new Oikocredit loan, Soro Yiriwaso has improved its financial position and
therefore proposes to increase agricultural lending again to satisfy to farmers’ needs.
2.4 What capacity for agri-finance has the MFI installed?
To achieve its objectives, Soro Yiriwaso has nine credit officers in-charge of agricultural
production campaigns and 21 promoters having a certain percentage of agriculture credit
portfolios to finance the clients. Soro Yiriwaso has also expertise in financing agricultural
activities: distribution of inputs (fertilisers), financing producers (individual, associations or
cooperatives) and insuring the production and commercialisation of agricultural production.
Soro Yiriwaso is in partnership with more experienced institutions, such as the Grameen Crédit
Agricole Foundation and Oikocredit, which support the MFI’s human and financial capabilities to
serve its farmer clients.
2.5 What connections were entertained by the MFI with other stakeholders in
the sector? Who was the lead actor in orchestrating the chain?
Soro Yiriwaso is always in connection with its partners to improve its service delivery in order
to meet the clients’ needs. However, due to its achievements many POs, particularly women
associations, want to become member of this MFI. They are motivated by the MFI’s strengths
and opportunities, such as being in the proximity of its clients, offering credit products and
services adapted to the need of clients and being supported by the government, all of which is in
line with the promotion of agriculture through MFIs in Mali.
85
3. What makes it tick?
3.1 What are the success factors in this case? What risk mitigation measures
proved effective?
Soro Yiriwaso has introduced a microinsurance product to minimise the risk of droughts or
floods, and death risk. This allows the microfinance institution (MFI) to grant loans to many
farmers and to increase access to inputs in order to improve the productivity and production.
Soro Yiriwaso and the Commercial Centre of Agricultural Products of Mali (COPAM) have
signed a Memorandum of Understanding (MoU) to finance the farmers. Via this agreement the
COPAM requests the loans on behalf of farmers, provides all inputs, coordinates all farming
activities, and collects and sells the production at local or international markets. Together these
arrangements reduce the risk of having a lack of collateral and a lack of market for farmers,
and it also secures the MFI for any loan offered to an individual farmer member of the COPAM.
3.2 What are the (remaining) weaknesses/threats/risks?
Mali is a big country with poor infrastructures (roads, markets, etc.). Whereas the majority of
the population of Mali consists of farmers, the availability of fertilisers in rural areas remains to
be a challenge, due to poor infrastructure. Farmers have generally less access to fertilisers and
selected seeds.
Apart from the lack of fertilisers, the risk of poor farming systems persists which contributes
to reducing the product quality. There is also a lack of agricultural extension to assist farmers
in their farming activities. In addition to this, there is not yet a fully organised market for
agriculture products.
Many financial institutions are concentrated in Bamako, whilst the majority of farming activities
are undertaken by rural populations. This means that there is a great challenge for farmers to
access financial services (only around 25% have access to credit).
Soro Yiriwaso does not satisfy all farmers’ demands, due to a limited capacity of its financial
resources. Moreover, the MFI claims that the interest rate from the financial markets (both
locally and internationally) is too high, especially for the target market of agricultural finance.
Another limiting factor is that farmers do not reimburse on time. Hence, some of the farmers’
demands are rejected because of the failure of others in using credits. This is the case for some
farmers from Koumbri, whom could not be provided with credit for the last 2 years.
The last remaining challenge concerns the diversity of interest rates the borrowers are charged,
due to negotiation between the MFI and customers. In our discussion with the director of
Soro Yiriwaso, he said that the interest rate is between 16-18% while in the contracts of some
customers the interest rate is set at 20% (COPAM case) and 25% (association of women and men
of Benkadi).
3.3 Do stakeholders have a view on how to better deal with these remaining
risks in the future?
The regional coordinator of ICCO and ICCO Terrafina Microfinance promised to meet the MFI to
discuss the case of interest rates.
86
3.4 How can linkage between financier (MFI) and Producer Organisation (PO) be
strengthened?
To strengthen the linkage between Soro Yiriwaso and its clients, the following may be taken into
account:
• Soro Yiriwaso should increase its financial capabilities and create new products that are less
expensive and adapted to the needs of farmers. It should also speed up the assessment of
demands and timely provide loans to farmers.
• Soro Yiriwaso should hire agriculture specialists for continuous assistance/advice about
the farming systems in order to increase production and improve the quality of agricultural
products.
• Strengthening the cooperation agreements between the MFI and its clients will facilitate the
promotion of agri-business in Mali. Both the farmers and MFI need to acquire access to the
market (local or international) to sell their products.
• The MFI should organise more trainings for farmers on savings systems, use of credit, use of
agricultural inputs, insurance and marketing strategies. Education of farmers will, therefore,
be a key factor to the success of the agriculture sector in Mali.
Sources
Contact persons:
•
•
•
•
•
•
•
•
Adama Camara, Managing Director, Soro Yiriwaso.
Moussa Coulibaly : Director general COPAM : 79389793.
Abdoulaye Dembélé : Secretary general of COPAM : 79429888.
SORO : Karamoko Coulibaly : Credit officer Soro Yiriwasso : 66768848.
Souleymane Diarra : Credit officer COPAM.
Youssouf Coulibaly : Commercial Officer COPAM.
Presidents and all members of association of women and men Benkadi- Bougura.
Presidents and all members of Producers’ Cooperative of women and men Koumbri.
Documents:
• Partnership agreement between Soro Yiriwaso and COPAM.
• Interview between ADAMA CAMARA, managing director of Soro Yiriwaso and Grameen Crédit
Agricole Foundation communication officer of 23/7/2013.
Websites:
www.mixmarket.org/mfi/soro-yiriwaso#ixzz3McwCew1w
87
Appendices
Appendix 1: Production table (for association of women of Benkadi)/Rice production
Production/Rice
Quantity
Unit
Value (1 ha)
Value (100ha)
FCFA
FCFA
EURO
FCFA
EURO
300
396900
605.07
39690000
60507
1. Decorticated rice
TOTAL SALES
1323
Inputs
1. Seeds /ha
2
15000
30000
46
3000000
4573
2. DAP
2
13500
27000
41
2700000
4116
3. Urea
2
13500
27000
41
2700000
4116
4. Herbicide/ bidon
4
6000
24000
37
2400000
3659
5. Labour (cultivation)
30000
46
3000000
4573
6. Harvest
20000
30
2000000
3049
7. Pick up rice (collection)
2500
4
250000
381
8. Beating
35 sacks
9. Decortication
35 sacks
750
45360
69
4536000
6915
27000
41
2700000
4116
10. Bags (35 sacks)
35 sacks
250
8750
13
875000
1334
11. Transport field-village
35 sacks
250
8750
13
875000
1334
12. Transport village-market
35 sacks
250
8750
13
875000
1334
TOTAL per ha
25911
395
25911000
39501
PROFIT
137 790
21 0.06
PROFITABILITY RATIO
21 006
34.7%
€1= FCFA 655.957
88
89
Case Study M3
myAgro Social Enterprise
“Promotion of agricultural activities through myAgro’s mobile
savings layaway programme”
Abstract
myAgro (n’gaSènè) is an award-winning social enterprise (non-profit) in Mali that uses a mobile
technology platform to provide a comprehensive set of services to farmers. It sells agricultural
inputs (fertilisers and seed packages) to farmers on a layaway basis, via a mobile phone (SMS)
platform and a network of local village vendors. myAgro’s model aims to increase farm income
and help farmers to move out of poverty. Currently, myAgro serves more than 3,500 farmers and
targets to extend its services to 75,000 farmers in West Africa (Mali and Senegal) by 2017.
Acronyms
MFI Microfinance Institution
PO Producer Organisation
1. Main characteristics of the case
1.1. Farmers and their organisation
myAgro works with individual farmers and hence does not require intermediation of a producer
organisation (PO). Instead, it partners with local agri-businesses that supply farmers with
farm-inputs, such as seeds and fertilisers. myAgro chose Mali for a pilot of a savings-layaway
programme, giving farmers a way to save for training, seeds and fertilisers. The average Malian
farmer has around 5 hectares of land (10 acres) available, which makes them well-placed
to be mini agri-businesses – where small investments can make a big return. myAgro also
maintains a special “baobab” women’s programme. Women who followed the myAgro method
on their entire field, saw their harvest increase threefold during the pilot. One of the goals was
to improve trainings in order to ensure that more women could plant, using improved planting
techniques, in face of challenges like a lack of farming tools. In the 2013 growing period,
improvements were made regarding the training modules, to make it easier for more women to
adopt new farming techniques. For example, the planting was done in shallow furrows instead
of deeps holes - which is less physically demanding - while using the broadcasting method of
fertiliser application, which for this region has been proven to be more effective than microdosing.
Figure 1.1: Fields of gombo (okra) crops exploited by a myAgro member
90
Two farmers were selected for field research; Bakoroba Doumbia, from Kola village, and Abou
Ballo, from Diakoloba village (Ouélessébougou). These farmers are mainly living on the farming
activities and are members of the myAgro network. Bakoroba Doumbia has been a farmer for
more than 20 years. He has joined the myAgro network to have access to agricultural inputs
such as fertilisers, modern seeds and technical assistance for his farming. He cultivates millet
(2 hectares) and maize (4 hectares), vegetables (gombo, cucumber, pepper, eggplant-aubergine
and tomatoes). myAgro assists this farmer in the production of gombo spread over 0,5 ha. Abou
Ballo is also an individual farmer, experienced in the production of cucumber. This farmer has
joined myAgro to obtain the selected modern seeds, fertilisers and receive technical advice
on the cultivation and marketing of his products. On 0,5 ha of land he produced cucumber,
which resulted in a net income of 933 euros in 2012 and 762 euros in 2013. Through myAgro, he
procured seeds, fertilisers and pesticides, specifically for this crop.
1.2 myAgro as a financial intermediary
myAgro is a social enterprise (non-profit), operating in West Africa (Mali and Senegal) and
aiming to help small farmers to move out of poverty by facilitating improvement of their farming
business. It combines savings mobilisation for farmers with non-financial services, such as
guidance, training and the provision of appropriate farm inputs. It uses a mobile technology
platform to provide a comprehensive set of services (savings, training, fertiliser and seed
packages) to small-scale farmers that are mostly disconnected from agricultural inputs and
financial facilities. Farmers save through the purchase of myAgro scratchcards, via which they
basically acquire additional telephone credit. myAgro’s “Mobile Layaway Programme” rests
upon the following elements;
Stores: Partnering with local village stores results in a network that is
convenient, trustworthy and safe for farmers. Local stores are central
to village life (“they are the hangout spot of the village”). Since vendors
are from the community, they have gained a high level of trust and built
strong community networks. Vendors sell the myAgro scratchcards to
farmers when the latter come in to buy their other household goods.
Mobile Layaway: In most cases, farmers are expected to buy seeds
and fertilisers via one large payment; an almost unachievable task. The
Mobile Layaway plan helps small-scale farmers to pay for fertilisers,
seeds and training packages on a layaway basis, using their mobile
phone; a phenomenon similar to how people in developing countries
buy talk-time for telephone conversations. Registered farmers can
save easily when continuously topping up their myAgro accounts via the
purchase of additional cards (flexible amounts: $1 – $50). The Mobile
Layaway plan makes saving for these larger purchases as easy as buying
a bar of soap or cup of oil.
Training: myAgro agents provide trainings in modern farming methods
contextualised for the African farm, such as micro-dose fertiliser
trainings, planting techniques for different seed varieties, use of animal
drawn seeding equipment and guidance on off-season vegetable
growing.
Income: The myAgro goal is to push farmers beyond subsistence
farming and help them earn more than $4/day. With myAgro the hope
is that farmers will have more income available in order to deal with
economic shocks, take care of family needs and re-invest in their farms.
91
For this purpose, myAgro maintains a head office in Bamako to monitor and clear all mobile
savings and procurement transactions, as well as field staff in the different zones in which
it operates. Field supervisors play an important role as intermediaries between the farmerfacing field agents and the field coordinators that manage myAgro’s work across five zones of
operation around Bamako. myAgro maintains a high staff-to-farmer ratio during the planting
season; 1 on 50 in new villages and 1 on 120 in more experienced villages. This allows the
programme to reach out to farmers and provide council, advice and on-field support.
The layaway instrument: Layaway is a new financial instrument in Mali. It is in essence an
agreement in which the seller reserves an item for a consumer until the consumer completes
all the payments necessary to pay for that item. Rather than taking the item home and
subsequently repaying the debt according to a regular schedule - as in most instalment plans or
hire purchases - the layaway customer does not receive the item until it is completely paid for.
There is sometimes a fee associated, since the seller must “lay” the item “away” in storage until
the payments are completed.
Online layaway allows consumers to purchase items through scheduled deductions from
a checking account. Online layaway simplifies layaway for both merchant and consumer by
removing the costly, time-consuming storage and bookkeeping processes. In this case, the
layaways remain at the distribution centre during the layaway period instead of taking up
valuable retail warehouse space. Just as consumers used layaway payment plans to purchase
products at stores in the past, they can also use layaway to pay for online products and services,
which serves as an alternative budgeting tool and a means to avoid debt.
The Mobile Savings Layaway tool, developed by myAgro in Mali, shares some features of
the online layaway, but it uses the SMS platform. Thus, farmers do not need a smartphone in
order to access services. People living on $4/day or less tend to buy household items in small,
incremental amounts, such as 50 dollar cents for oil or $1 for sugar. Buying fertilisers and
seeds via myAgro’s savings layaway programme fits into the way households already think of
and manage their money. Cards are sold at the same store as where farmers do their daily
household shopping; allowing for frequent reminders, convenient access and a trustworthy
sales agent (their local shopkeeper).
Farmer mobilisation
To achieve its objective, myAgro has created an agricultural layaway plan to help farmers using
“their own” money more effectively. Before launching its services and recruiting clients in any
village, myAgro deploys its agricultural technicians to explain the village cultural committee gathered around the village chief - and the farmers’ representative about its service packages
and the advantages of working with myAgro. Once the chief of the village and its committee
approve the myAgro concepts, any person from that village may become a myAgro client. They
are thereby allowed to enrol for the programme, select their package goal (land size and seed
choice) and receive a unique ID to use whenever they buy a card.
92
Figure 1.2: Introduction of myAgro services to the chief of village surrounded by his advisors
1.3 Nature of the business services provided to farmers
Social business model
The main challenge faced by many farmers in Mali is access to selected seeds and fertilisers.
myAgro provides a comprehensive set of services to 180 villages of small-scale farmers in
Southern Mali, by using a mobile saving technology: access to fertilisers and seeds packages
on layaway, technical training, market access to premium buyers and access to asset loans for
appropriate small-scale farm equipment. myAgro intervenes in the production of millet, maize,
peanuts and vegetables (cabbage, cucumber, gombo (okra), tomato and onion).
This model intends to double farm income and help small-scale farmers to move out of poverty.
myAgro sells agricultural inputs (fertilisers and seeds) through an SMS platform and a network
of local vendors in the villages. It establishes partnerships with village shops to access their
existing clientele. This allows myAgro to easily and efficiently expand its operations; one
member-vendor may work with as much as 1000 producers, which is well above the average of
400 clients per credit officer in microfinance. The expansion of operations is further facilitated
by taking advantage of available mobile technologies for selling seeds and fertilisers to farmers.
Agricultural producers use the same SMS system to buy phone credit; it is a familiar and
convenient way of saving. myAgro encourages small producers to save money by granting linked
opportunities for the purchase of inputs and equipment that suit their needs. This allows them
to manage more than two hectares and hence, move beyond subsistence production. myAgro’s
objective is to lead a revolution in savings: producers can reinvest their earnings in their own
fields, and to prove that a model valuing the savings can be effective, scalable, and durable.
Services and products
myAgro now offers three agricultural products that can be purchased via SMS by gradual and
flexible payment before planting:
• Corn package - hybrid maize seeds, fertiliser, and training;
• Sorghum package - hybrid sorghum seeds, fertiliser, and training; and
• Peanuts package – hybrid peanut seeds, fertiliser and training.
Each package includes a bag of papaya seed to grow as well. Papaya is a fruit tree that grows
fast and can bring significant additional annual income ($ 150). In the coming period, myAgro
aims to test other agricultural packages. These tests will pursue better water management,
for example by using the watering systems and drip-drip developed by IDE-I, or treadle pumps.
They also aim for some high value crops for which demand exists, like chili, tomatoes and
ginger.
93
Figure 1.3: myAgro credit cards bought by farmers to save for future agricultural investment
How does it work?
Transactions with myAgro clients are conducted in five steps:
1.Farmers register with myAgro at harvest time and plan their goals for the following season
(6-9 months ahead);
2.Farmers receive a unique customer ID from myAgro;
3.Farmers buy myAgro cards from their local store and send an SMS with the secret code on
the back of the card and their customer ID;
4.myAgro receives their SMS via its website platform and add their data to the central database
to calculate and update the value of the cards they purchased, the total in their account and
the purchases procured from local vendors; and
5.Based on the data, myAgro can monitor and inform on their progress with regard to the
farming goals set.
By using the ID number of their mobile phone, farmers save money for agricultural inputs in
advance by simply paying for the myAgro scratchcards (prepayment) to have access to its service
packages. Each service package received by a myAgro client includes fertilisers, selected seeds,
pesticides and technical training. To improve the farming system and increase production, the
myAgro staff educate, train, and assist small-scale farmers in how to use the agricultural inputs
received.
The partnering with local vendors of the villages where myAgro is working, resulted in a
network which is convenient, trustworthy and safe. These vendors sell MyAgro scratchcards
to farmers whenever they come to buy their other household goods. The registered clients
(farmers) continuously top up their accounts with small flexible amounts, in order to save for
the myAgro service packages. For example, a farmer planning to cultivate an area of 1/4th ha
of maize is stimulated to purchase myAgro cards of 17 euros. A farmer wishing to exploit one
hectare of maize, receives 20 kg of selected seeds, 100 kg of diammonium phosphate (DAP) and
100 kg of urea. For each cropping package, an appropriate mix is formulated.
As financial institutions are usually too far located and banking services too expensive for rural
farmers to access, the purchase of seeds, fertilisers and other agricultural inputs via myAgro
services and local village vendors, becomes as easy as buying a bar of soap. The precise
formulation of the crop packages together with the training and field-coaching, assist farmers
in boosting their farm productivity. However, there still is the persistent problem of finding
a market for the products of farmers. The number of farmers who benefited from myAgro
services has currently changed from 176 (year 2012) to 3500 farmers (year 2014). myAgro has
the target to further expand its services; to 75,000 farmers in Mali and Senegal by 2017.
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Figure 1.4: myAgro agent and administration of myAgro work hand in hand to assist farmers in their farming activities
How is progress measured?
Through its central database of all transactions at the headquarters, myAgro can monitor
progress on the side of local vendors as well as on the side of farmers. In this way, it can
monitor how much village vendors and farm businesses are growing as a result of myAgro
products and services:
• How much more income do village vendors earn each year?
• How much more income do farmers earn each year?
An advantage of the myAgro model is that they can easily measure real income earned by
means of tracking each myAgro package sold and the number of bags of maize or sorghum
bought from farmers. It is envisaged that real income earned by myAgro village vendors and
farmers will increase as farmers can be assisted to have better and more reliable markets to
sell their increased harvests.
1.4 Other stakeholders
The myAgro funders are private financial partners:
• Syngenta Foundation;
• Kiva.org;
• One Acre Fund Mulago Foundation;
• DRK Foundation Echoing Green;
• Peery Foundation;
• Jasmine Social Investments;
• Sall Foundation;
• Planet Wheeler Foundation;
• Segal Foundation; and
• David Weekly Foundation.
All of these funders are organisations that focus on the promotion of agricultural activities in
rural communities.
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2. Risk analysis
2.1 How has risk management been approached?
Unlike most other microfinance cases, myAgro does not need to be concerned with finance
risks, as no credit is provided and hence no risk of loan delinquency exists. Yet, before a farmer
can access myAgro services, he/she must accomplish the following:
• Register for myAgro mobile Layaway;
• Buy myAgro saving cards suitable for the needed agricultural inputs packages.
Overall, myAgro focuses its risk assessment mainly on the risk of the farmers and on
environmental risks, as described below.
2.2 Risk management by the stakeholders
In the design and development of the programme, myAgro has assessed the risks for farmers,
the farming systems and the environment and subsequently identified means to mitigate these
risks. For the purpose of the case study, a distinction is made between the crucial aspects of
smallholder production, i.e. risks related to:
• The specific crop: millet, maize, peanuts and vegetables, like cabbage, cucumber, gombo
(okra), tomato and onion;
• The farming system and sustainability of crop production. This extends to environmental
issues and climate resilience;
• The markets for millet, maize, peanuts and vegetables, like cabbage, cucumber, gombo
(okra), tomato and onion;
• The viability of the promoted crop farming system; and
• The financing of farmers through the mobile savings layaway programme.
These risks and the way they were mitigated and managed have been tabulated in a risk
catalogue (see table 2.1 below) and are briefly summarised below.
Product/crop-related risks
myAgro observed that farmers are generally ignorant of the right quantities and mix of farm
inputs for specific crops. Thus, most farmers are exposed to the risk of under- or overdosing
of these inputs, both of which are undesirable. These risks are mitigated via carefully designed
support packages; adjusted to the crop, farming system and the land surface cultivated.
Although farmers are sensitised to save for their agricultural activities, their savings do not
satisfactorily cover all the inputs needed. They have limited funds to save, which results in
insufficient use of fertilisers and pesticides for their farming activities. It is envisaged, however,
that farmers will in time enhance their production and sales, thus eventually allowing them to
save the full amount needed.
Selected seeds are very rare and expensive in rural areas. The seeds are imported from outside
Mali and this becomes a serious problem for myAgro in terms of satisfying all the demands of
its clients. myAgro is currently proposing projects of locally producing the seeds appropriate for
the soils of Mali.
Production-related risks
Climate-driven desertification is transforming once nutrient-rich savannahs into unproductive
land. In Mali, desertification and land degradation pose a threat not only to the environment,
but also to the farmers who rely on the land’s fertility for their livelihood. The combination of
climate change and unpredictable weather change is a serious problem which hampers farming
activities in Mali. The most common obstacle is the lack of water for vegetable gardens and
crops in the field. Also the degenerated arable soil and traditional farming system constitute a
risk vis-à-vis the performance of agricultural practices in the region. In order to mitigate these
risks, myAgro is promoting conservation agriculture, crop rotation, tree planting, vegetable
gardening and the use of inorganic and organic fertilisers to nourish the soil.
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• Conservation Agriculture: Farmers in the region typically remove all leftover stubble
•
•
•
from cereal crops after harvest. A cleared field is more likely to become compacted and is
susceptible to wind and water erosion. myAgro therefore encourages farmers to leave organic
matter on the field, returning nutrients to the soil, holding moisture and decreasing the
effects of erosion.
Crop Rotation: Land degradation due to over-farming is a major issue in Mali. Growing the
same crop in the same field for many years in a row disproportionately depletes the soil of
nutrients. myAgro teaches farmers how to rotate crops each season. Peanuts (legume) and
corn are good candidates for rotation and key crops in this region. This practice also helps to
control erosion by guaranteeing that fields have crops and thereby eliminating the need for a
fallow year.
Tree planting: Farmer education also focuses on the benefits of planting trees to help
farmers become more climate-resilient. Trees like the Moringa can be planted as natural
fences that control livestock and double as natural wind breaks that fight wind erosion, a
major problem during the dry season. The green matter can also be cut and fed to animals or
left on the ground as additional organic material.
The packages offered by myAgro include a vegetable programme as well. Vegetables are
high-value crops on the local and regional market. myAgro supports farmers in the offseason by providing access to high-quality vegetable seeds and fertilisers as well as teaching
them dry season water harvesting techniques.
Marketing-related risks
There are no special arrangements for the marketing of the farming products. Specifically
for maize and millet production, farmers sell to spot markets at very low prices, which does
not cover all production costs. myAgro does not buy the products, but has started negotiating
with parties like Grand Moulin du Mali to buy maize and millet so as to link farmers to more
commercially attractive buyers.
Finance-related risks
The main risk with respect to finance is the gap between financial needs and financial
resources. For many farmers, their current savings are insufficient to meet the need of the full
input package. Farmers are encouraged to increase their savings. It is envisaged that in time
they will be able to bring annual savings to the level of the annual financial need for farm inputs.
Table 2.1: Risk catalogue - Overview of the risk assessment and risk-mitigation measures
Aspect
Risk assessment by MFI/Bank
Risk mitigation measures
Risk monitoring
Product risks
Limited selected seeds (maize,
peanuts)
• Increasing the stocks of selected seeds
• Initiating the local seeds production projects
Requires also increasing the
number of farmers
Perishable products (gombo and
cucumber)
• Quick sale of fresh products
• Training farmers about postharvest techniques for
perishable products
Storage risk
Drying gombo (okra) to facilitate storage
Limited use of fertilisers and
pesticides
Continuous training and sensitisation of farmers to save
more and use enough fertilisers
myAgro agronomist will make a
follow-up of the use of fertilisers
Lack of water in the areas
Digging drills to be fitted with water
There is a government project to
drill water tower in the regions
Wells dry up earlier
Traditional water tower
myAgro provides training to its
members
Type of arable soil degenerated
Training farmers to use organic and inorganic fertilisers
Traditional farming practices
• Training the farmers the modern agricultural practices
• Continuous assistance to farmers
Much supervision by myAgro
technicians
Farmer-related
risks
Farmers have limited knowledge
in agricultural systems and
recording the agricultural
products
Continuous training of farmers on agricultural systems
and recordkeeping
myAgro is the only recognised
partner accompanying farmers
Marketingrelated risks
Limited market for vegetables
(cucumber and gombo products)
Sell the fresh cucumber and gombo at spot market
N.a.
Lower price compared to
production cost for maize
• Group selling of maize production
• Negotiation with Grand Moulin to buy maize production
Undergoing negotiation
Limited resources to invest in
agriculture
• Keep sensitising farmers to save much
• Interesting many donors to support farmers’ activities
myAgro system helps some
farmers to access financial
investment (own savings)
Production risks
Finance and
financial risks
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2.3 What is the finance strategy?
The “portfolio” of myAgro transaction is in principle self-financing, as the farm inputs financed
equals the amounts saved. What myAgro does is only checking which farmers fulfilled the
needed amount in order to receive the service packages (fertilisers, seeds and training). Up
until now, myAgro is not operationally self-sufficient, however, as operating costs are not fully
covered by fee income. Hence, a continued dependency on donors and partners exists to meet
the shortfall.
2.4 What capacity for agri-finance has the microfinance institution (MFI)
installed?
myAgro operates in 180 villages, with 45 field agents (each agent covers 4 villages) who provide
training and advise farmers on their agricultural activities. The field agents are trained to deliver
the specific packages that have been designed for each crop. Staff of the headquarters office
also make frequent visits to its members.
2.5 What connections were entertained by the MFI with other stakeholders in
the sector? Who was the lead actor in orchestrating the chain?
myAgro is connected with Syngenta Foundation, Kiva.org, One Acre Fund Mulago Foundation,
DRK Foundation Echoing Green, Peery Foundation, Jasmine Social Investments, Sall
Foundation, Planet Wheeler Foundation, Segal Foundation, and David Weekly Foundation to
move small-scale farmers beyond subsistence farming, and out of poverty.
3. What makes it tick?
3.1 What are the succes factors in this case? What risk mitigation measures
proved effective?
myAgro teaches farmers to have a culture of self-financing, enabling them to invest in their
farms without taking the risk of using a loan. Moreover, the crop-specific packages have an
in-built guidance component and farmers have quick access to the right agricultural inputs.
Farmers also benefit from the training on modern techniques and advices on how to lower
their costs. It helps farmers to respect the agricultural calendar and adopt Good Agricultural
Practices.
3.2 What are the (remaining) weaknesses/threats/risks?
Though myAgro sensitises farmers to save much in advance to access agricultural inputs
for their farming activities, their financial resources are still limited with regard to satisfying
all their investment needs in agriculture. There is still a problem of inadequate seeds- and
fertilisers supply near to farmers, as well as a lack of access to remunerative markets.
As myAgro does not publish accounts the way microfinance institutions (MFIs) do (e.g. on
Mixmarket.com) it is hard to assess to what degree myAgro is operationally and financially selfsufficient (OSS and FSS). It seems that continued dependency on donor grants exists to cover
operating expenses and investments.
98
Sources
Persons:
1.Meghan Luckett, coordinator of myAgro, Tel 71470444.
2.Bakoroba Doumbia, farmer and member of myAgro, village of Kola-Ouélessébougou,
Tel 76346050.
3.Abou Ballo farmer and member of myAgro, Village of Dialakoroba-Ouélessébougou,
Tel 73429510.
4.myAgro agricultural animators.
Websites:
www.myagro.org
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Case Study R1
Duterimbere MFI Ltd / Nyagatare Branch
Abstract
Duterimbere microfinance institution (MFI) Ltd is an MFI founded in 2004 by the NGO
“Duterimbere ASBL” to support low-income entrepreneurs - particularly women - to improve
their socioeconomic conditions through access to credit. Duterimbere MFI helps farmers
improve their agricultural practices and with the production, processing and marketing of their
products. Currently, it serves more than 62,000 clients with a portfolio of Rwandan Franc (RWF)
3,248; 8.4% of this is invested in agriculture. The visited farmers’ cooperatives are supported by
Duterimbere MFI, Nyagatare branch and focus more on maize production. Through warehouse
receipts, the Duterimbere MFI offers credit to the cooperatives to pay 60% of the market
value of the stocks to farmers while waiting for a higher market price or buyers willing to pay
better price. Duterimbere has been supported by ICCO Terrafina Microfinance since 2006, first
with general capacity-building interventions and since 2010 also with loans (both Rabobank
Foundation and Oikocredit) and support in product development, such as warehouse receipt
lending, agri-finance, and finance for the honey value chain.
Acronyms
CIP
COAMSRU
COOPAMA
CRB MFI
PO
RAB
RWF
WFP
Crop Intensification Programme
Coopérative des Maïs et Soja de Rurenge
Coopérative des Agri-Eleveurs de Mahoro
Credit Reference Bureau Africa
Microfinance Institution
Producer Organisation
Rwanda Agriculture Board
Rwandan Franc
World Food Programme
1. Main characteristics of the case
1.1 Farmers and their organisation
The data of this study have been collected from three cooperatives of smallholder farmers and
financially supported by Duterimbere microfinance institution (MFI) Ltd, Nyagatare branch.
These cooperatives are “Coopérative des Maïs et Soja de Rurenge” (COAMSRU), “Coopérative
des Agri-Eleveurs de Mahoro” (COOPAMA) and “Nyagatare Seeds Production Cooperative”.
These three cooperatives are located in the Nyagatare district, which is characterised by the
arable soil favourable to maize. With respect to the national programme of crop intensification
and regionalisation of crops, most farmers are grouped into cooperatives to benefit both quick
access to such production factors as agricultural inputs and financial facilities. Duterimbere
MFI Ltd is one of the well-known MFIs that help farmers improve their living conditions through
access to credit.
Coopérative des Maïs et Soja de Rurenge (COAMSRU)
COAMSRU is a cooperative of 23 smallholder farmers (15 men and 8 women) located in the
Rurenge cell, Rukomo sector. This cooperative was created to improve the living conditions of
rural farmers and add value to local agricultural products, particularly maize and soya. The total
area cultivated by this cooperative is 35 hectares (25 hectares owned by the cooperative and 10
hectares owned by members themselves).
To achieve its mission, the cooperative has 2 milling machine to produce the maize flour that
is sold to the local market. The cooperative has also benefited from the support of the USAID
Post-Harvest Handling and Storage project to build a drying and storage area to ensure food
security through increased capacity and a better quality of maize grains. In addition, to increase
productivity and production the farmers get access to financial loans, paid after selling their
produce, either from Duterimbere MFI at 15 % or from other cooperative unions.
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COAMSRU profile data
Type of organisation
Number of members
Size of land
Number of employees
Main crops
Others
Turnover (in euros)
Operating margin
Cooperative of smallholder farmers
23
35 hectares
2
Maize
Soya
RWF 1,486, 400
(1,858 euros)
Debts (RWF):
• Duterimbere MFI
• Coop unions
• Others
500000
400000
500000
Coopérative des Agri-Eleveurs de Mahoro (COOPAMA)
COOPAMA is cooperative of 171 smallholder farmers (88 men and 83 women) located in the
Mahoro cell. This cooperative was created to develop maize production in order to improve the
well-being of rural farmers in the Nyagatare District. The cooperative focuses on maize and
bean production on 14 ha of cultivated land (6 ha owned by the cooperative and 8 ha owned by
members). From 2011, COOPAMA has been a client of Duterimbere MFI for financial help in
improving the quality and increasing the quantity of maize and bean production. In addition to
producing maize and beans, this cooperative looks for markets for its products.
COAMSRU profile data
Type of organisation
Number of members
Size of land
Number of employees (agronomist)
Main crops
Other crops
Turnover (in euros) (1 euro = 800 RWF)
Operating margin
Cooperative of smallholder farmers
117
14 hectares
1
Maize
Beans
RWF 9,870,000 (€12,337)
RWF 3,500,000 (€4,375)
Main assets: (RWF)
• Store hall
• Milling machine
• House
• Cash in bank
45000000
15000000
8000000
4800000
Debts:
Alliance for Green Revolution in Africa (AGRA)
2200000
This cooperative was designated the best performer of year regarding the development of its
members. Cooperatives in Nyagatare COOPAMA have broadened their investment by joining
other investment groups such as UNICOPROMA (Union des Coopérative Producers du Maïs de
Nyagatare), ECOAGIMU, NYAMGI (Nyagatare Investment Group) and others, with investments of
more than Rwandan Franc (RWF) 2,500,00.
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Nyagatare Seeds Production Cooperative
Nyagatare Seeds Production is a cooperative of 51 smallholder farmers (40 men and 11 women)
growing maize on 200 ha in the valley of Muvumba. The cooperative contracted with the Ministry
of Agriculture through the Rwanda Agriculture Board (RAB) to produce maize seeds in response
to the high cost of importing seeds from Kenya. The cooperative is advised by RAB experts on
how to produce, store and sort better seeds. This cooperative sells the rest of its production to
local markets, the World Food Programme (WFP) and post-harvest plus. However, to meet its
objectives and satisfy market demands, the cooperative has loans from Duterimbere MFI.
Nyagatare Seeds Production cooperative profile data
Type of organisation
Number of members
Size of land
Cooperative
51
200 hectares
Number of employees
• Agronomist
• Casual workers
1
15 Workers/hectare
Main crops
Turnover (1 euro = RWF 800)
Operating expenses
Operating margin
Maize
RWF 120,000, 000 (€15,000)
RWF 100,000,000 (€12,500)
RWF 20,000,000 (€2,500)
Debts:
DUTERIMBERE MFI
RWF 10,000,000 (€1,250)
The members of the three cooperatives face the common challenge of limited resources and
lack of collateral to individually access enough loans from the MFI or other financial institutions
operating in the District. They therefore request group loans, which are jointly guaranteed by all
members or guaranteed through a warrantage system.
1.2 The financial institution
Duterimbere MFI Ltd is a registered MFI operating in Rwanda since 2004 and created by the
NGO “Duterimbere ASBL”, which owns 94% of its capital shares (6% of the remaining is owned
by individual shareholder members of Duterimbere ASBL). It was approved by the National Bank
of Rwanda on 15 September 2005 with a registered capital of RWF 100 million with a mission to
provide financial services tailored to low-income entrepreneurs, primarily women, to help them
improve their socio-economic conditions.
Duterimbere MFI Ltd provides financial services (savings and credit) to solidarity groups in
rural areas, female entrepreneurs, agricultural cooperatives and others. In order to continue
to help people and farming cooperatives, Duterimbere MFI created new agricultural products
such as “Giramata”, which helps breeders to get loans, “Ibukwa muhinzi”, which helps farmers
and “Zibaye Impamo”. Currently, Duterimbere is one of the leading MFIs in terms of achieving
community outreach, mostly to women. Duterimbere MFI Ltd is currently serving 62,000 clients;
55% are women. It operates at 92% self-sufficiency.
Duterimbere MFI, Ltd profile data
Type of organisation
Total number of active clients
Portfolio value (in euros)
Portfolio at risk (PAR)
% of farming clients
% of portfolio in agriculture
OSS (operational self-sufficiency)
Savings and Credit limited liability company
62000
RWF 3, 247, 946, 473
27%
8.4-20%
92%
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Products and services delivered to clients
• Loans; Duterimbere MFI Ltd provides loans to its clients at a rate ranging between 1.252.50% per month (15-30% per annum) payable between 24 and 36 months. The maximum
loan offered to individual member is 625 euros (group lending) and 12,500 euros (individual
lending). The types of guarantees accepted by the MFI are small equipment, animals, the joint
guarantee and warrantage for agricultural loans. For agricultural loans, the repayment is
made at a single time after harvest. Although the portfolio allocated in agriculture is still low
(between 8.4-20%) its repayment rate is 100%, which is the best compared to other products
(consumption, production and crafts loans, service and trading loans and others).
• Voluntary saving; Duterimbere MFI Ltd keeps the deposits and savings of its clients. The
income interest rate paid on this type of saving ranges between 4.5-8% depending on the total
amount and the number of days kept by the MFI. The clients of Duterimbere MFI Ltd also
benefit from non-financial service, including training its clients in group lending, the savings
and credit system and managing micro-income generated projects.
Profile of clients
29%
31%
10%
33%
8%
9%
100%
71%
69%
90%
Previous year
needed
92%
42%
100%
67%
100%
91%
100%
58%
100%
% female clients
% male clients
% of urban clients
% rural clients
Figure 1.1: Profile of category of clients of Duterimbere MFI, Ltd
103
10%
Client retention rate
90%
100%
1.3 Nature of the business, crop and market
Duterimbere MFI Ltd offers different products and services to all categories of clients operating
from different economic sectors. In the agricultural sector, Duterimbere MFI Ltd provides loans
to individual and cooperative farmers from 18 of the 30 districts in Rwanda.
By sector
100%
0%
2010
2011
Consumption
2012
Service & Trade
Figure 1.2: Products and services investment sectors of Duterimbere MFI Ltd
The maize crop
In 2007 the government of Rwanda launched the Crop Intensification Programme (CIP) that aims
at increasing agricultural productivity in high potential food crops and ensuring food security
and self-sufficiency in farmers’ families. The CIP is implemented in conjunction with the land
consolidation programme, which aims at joining farms for large-scale exploitation to increase
food production. Due to its soil characteristics, the District of Nyagatare and its inhabitants
have given priority to maize as the best performing crop in the region. Duterimbere MFI Ltd and
other financial institutions intervene to minimise financial defaults by helping farmers to access
financial loans. Duterimbere MFI Ltd offers its services to many producers and processors of
maize, but also intervenes in promoting soya, beans and livestock production in this region.
1.4 Other stakeholders
• Duterimbere ASBL: promoter of the MFI and main shareholder (95%);
• ICCO Terrafina Microfinance: provided technical assistance, seed capital funds, loans (though
its consortium members) and assistance to product development for warehouse receipt
lending and value chain finance (maize and honey);
• Oxfam Great Britain: funding for promotion of mushrooms and pineapples;
• Oikocredit: loan of RWF 400,000,000 to support loan portfolios for small entrepreneurs and
funding for solidarity group lending;
• Rabobank Foundation loan (short-term for agri-finance);
• Trocaire: partners; and
• International alert: partners.
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General assembly of
shareholders
Boards of directors
Internal auditor
Director general
Administrative
assistant
Legal advisor
IT officer
Commercial Director
Director of operations
Branch
managers
Credit and
recovery manager
Cashiers
Credit and
recovery officers
Director of administration
and Finance
Chief
accountant
Human resource
officer
Figure 1.3: Organisation structure of Duterimbere MFI Ltd
1.5 Nature of the financial transactions (how much, how long, for what purpose)
The loan provided to farmers or producer organisations (POs) may be either a solidarity group
loan or an individual loan that covers pre-harvest, harvest and post-harvest steps.
Table 1.4: Credit product(s) for agriculture
Name
# of
months
Interest %
Interest mode
Flat or R.B.
Repayment
Bullet / instalm.
Security mode
Solidarity group
loan
6 months
2.50% per
month)
Flat
2 instalments
Joint guarantee,
Land/Houses
Post- harvest/
SARURA loan
3 months
3% per month
Flat
Bullet
Joint guarantee,
Land/Houses
Warrantage
3-6 months
1.25-1.5% per
month (15-18%)
Flat
Bullet
Stocks
Guarantying the financial loans from Duterimbere MFI Ltd
The main challenge for many farmers in Rwanda is the lack of collateral to guarantee
financial loans. To overcome this challenge, farmers are grouped into farming associations
or cooperatives to benefit from the creditability of the group members to access credit (joint
guarantee). A solidarity loan is given to farmer organisations or cooperatives to acquire
agricultural inputs (seeds, fertilisers and pesticides) and pay for labour expenses (pre-harvest
activities). This loan is paid after sales and it is at 2.50% monthly interest rate payable within 6
months. These farmers may also get loans to harvest, store or process their products before
sales (post-harvest activities); the loan is paid after sales at a 3% monthly interest rate.
105
The warrantage credit system
Warrantage is an MFI product that helps farmers to sell their produce at a better price. Through
warrantage, Duterimbere MFI Ltd offers credit to the cooperatives to pay 60% of the stocks to
farmers at current prices while waiting for an increase in market price or buyers willing to pay
a better price. The warrantage product allows farmers to meet the daily family needs and wait
for the remaining 40% paid at better price after selling the stocks. However, the cooperatives
and Duterimbere MFI Ltd agree to jointly manage the stock to guarantee the loan offered to
farmers until the whole stock is sold. The cooperative is responsible for market negotiations
and depositing the agreed amount in the farmers’ accounts opened in Duterimbere MFI Ltd. This
warrantage credit system is paid at a monthly interest rate of 1.25-1.5 % (15-18 % per annum)
over a period of 3 to 6 months. This system is applied mostly to cooperatives producing a great
quantity of maize.
2. Risk analysis
2.1 How has risk management been approached?
Loan appraisal by the microfinance institution (MFI)/bank - due diligence
Before providing a loan, the following are checked:
• Deposit of 20% of the loan demanded;
• Mandatory saving of 10% of the loan during the repayment period;
• A profitable agricultural project approved by an expert of MFI;
• Having collateral approved by the expert and signed by a local authority; and
• Signing a contractual agreement to accept loan use and repayment as indicated in the project.
The loan demands are deposited and assessed by the committee at the branch level. The
approved demands are submitted to the HQ for financing.
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Table 2.1: Risk assessment and risk mitigations
Risk Aspect
Risk assessment by MFI/Bank
Risk mitigation measures
Risk monitoring
Product risks
Delay availability of selected seeds and
fertilisers
• Production of local seeds
• Negotiations between private traders and
government to import seeds
Ongoing negotiation
Delay availability and expensive fertilisers
Coaching of farmers
Do problems persist?
Perishability of products
Use pesticides to control the pest in their
production
Lack of enough storage facilities for
agricultural products
• Selling production to spot market
• Making more savings and loans to build more
storage facilities
Lack of transportation facilities
Direct sell to spot market
Lack of drying facilities
Building drying hall
Poor shelling and handling technology
• Manual shelling machines locally made
• Use of sheeting to dry the shelled production
Weather changes (droughts or floods)
Hiring the Chinese project to irrigate the
valleys
Traditional farming practices
• Training the farmers in modern agricultural
practices
• Use of tractors
Germination problem
Use selected seeds
Pests and diseases
• Use of pesticides
• Use of selected seeds resistant to pest
Illiteracy of members of association or
cooperative
Education and literacy training for members
Poor management
Continuous training of management team
Lack of qualified workers
Hire trained workers (account and agronomist)
Poor collaboration with other farmers
Fields visits of farmers to other associations or
cooperatives
Low market price for maize
• Strengthening the associations or
cooperative to control market price
• More training in marketing strategies
This remains a problem
High price fluctuation
Warrantage system
No fixed price for maize
Limited market
• Continuous negotiation with government
storage task force
• Selling flour to local market
The problem remains
Production risks
Farmers &
Producers
Organisation (PO)
Marketing risk
Finance and
financial risks
Delayed disbursement of the loans required Speed analysis of the demands for loans
Some cooperatives own their storage but
not appropriate for the whole production
Still inappropriate technology
Farmers are thinking of buying their own
tractors through lease process
In progress
Gap not yet covered
Duterimbere opted for quick analysis of the
demands using internet system
The limited loan amount (credit is partially
covering agric. project)
• Request for big amount of loan
• Increase savings
Lack of collateral to guarantee agricultural
loan
• Joint guarantee (liability of all members for
the total payment of the loan
• Warrantage system
Warrantage serves farmers to get 60% of
their stocks to meet family needs
Lack of permanent accounting records
• Hire qualified workers
• (cashiers)
Not applied to all cooperatives
Low and delay in repayment
Recovery follow-up by credit officer of
Duterimbere
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Product-related risks
In Rwanda fertilisers and seeds are imported by the Ministry of Agriculture and reach the
farmers through local traders contracted to distribute agricultural inputs to farmers. The
availability of fertilisers and selected seeds are the risks for maize farmers. To mitigate the risk
of the limited availability of seeds, local seeds are being produced by local cooperatives (like
Nyagatare maize seed producers and others). However, there is no solution for getting fertilisers
to farmers on time.
The lack of appropriate, drying, shelling and storage facilities is the basis for the perishability
of products. The lack of proper post-harvest practices is also a challenge. To mitigate this risk,
cooperatives have tried to make local shelling machines and have requested loans to build
drying halls and to expand and equip the existing stores.
Production-related risks
Weather conditions, pest diseases, germination problems and traditional farming practices
and lack of are the main production risks encountered by the farmers. To mitigate these risks
farmers are in contact with a Chinese company to irrigate the valley, and farmers are being
trained in modern farming techniques including the use of tractors. Farmers are continuously
encouraged to use selected seeds and follow modern agricultural practices.
Partner-related risks
The illiteracy of cooperative members, poor management and lack of quailed workers are
partner-risks for farming activities. A dramatic example is the case of the president of the
Coopérative des Maïs et Soya de Rurenge (COOAMSRU) who withdrew Rwandan Franc (RWF)
1,700,000 and ran away to Uganda. To mitigate these risks, the board members and farmers
are continuously trained in management. Farmer associations and cooperatives started using a
qualified accountant and agronomist to reduce management problems.
Marketing-related risks
Fluctuating prices for maize, lower prices and a limited market for maize are the main
marketing risks for farmers. At harvest time, farmers only sell their products to the spot market
at lower prices. To mitigate these risks, farmers have initiated the warrantage system, which
consist of keeping the products at cooperatives stores, presenting this stock as a guarantee
for the loans requested from microfinance to meet family needs while waiting for the price
to increase. Cooperatives also negotiate with agricultural government institutions, such as
the Rwanda Agriculture Board (RAB), the World Food Programme (WFP), post-harvest plus
and other storage task forces, to buy a big portion of their products. However, the appropriate
(sustainable) solution for market organisation and price are still challenging problems for
farmers.
Finance-related risks
Delayed disbursement, limited loans, lack of account records, low and delay in repayment and
lack of collateral are the financial risks identified. Farmers have complained about the time it
takes to get funds to buy agricultural inputs. In addition, they have said that the loan is too low
to finance the whole chain (from plantation to harvest). To mitigate this, there are negotiations
between the cooperative and MFI about increasing the average loan given to one farmer but also
proposing to increase the savings to meet their farming needs. To mitigate the risks relating
to delays in repayment, MFI proposed increasing the number of credit officers who can make a
regular follow-up visit to recover the loan.
2.2 What is the finance strategy?
The loans are provided to farmers through their associations and cooperatives. To finance the
members’ activities, some requirements are checked to analyse the due diligence of borrowers.
This includes being an active member of an association or cooperative (member contribution
paid), being a trusted borrower by checking the credit-worthiness of members using the CRB
(Credit Reference Bureau Africa) or checking whether the borrower or the cooperative has
collateral certified by the local authorities. After the checking processes, the credit officer
and manager visit the borrower to check whether the value of the collateral covers the total
amount of the loan. Sometimes the farmers are not fully financed because of the limited lending
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capacities of MFI to meet all the credit demands.
2.3 What capacity for agri-finance has the MFI installed?
To meet its objective to help finance lower-income farmers, Duterimbere MFI Ltd uses AD
Banking software to keep its records and back-up data. But the network system with the HQ is
still mediocre. The MFI also has 2 staff from the Nyagatare branch and equipment to monitor
the clients. Also ICCO Terrafina Microfinance provided several training programmes in agrifinance and other products.
2.4 What connections were entertained by the MFI with other stakeholders in
the sector? Who was the lead actor in orchestrating the chain?
Duterimbere always works hand-in-hand with the cooperatives, local authorities, local NGOs
and its other partners to improve its service to its clients. However, it has to increase its staff to
be near its clients and offer credit products and services adapted to the need of clients. ICCO
Terrafina Microfinance advisors in the field also played an important role in connecting actors
such as cooperatives and the loan officers in the field.
3. What makes it tick?
3.1 What are the success factors in this case? What risk-mitigation measures
proved effective?
Duterimbere has introduced a warrantage system to help farmers meet their family needs after
harvest. In addition it also offers loans for the production, processing and marketing of the
maize products. This shows its commitment to financing the whole agricultural chain.
3.2 What are the (remaining) weaknesses/threats/risks?
• Duterimbere does not supervise the farming system used by farmers; this is very risky with
regard to the repayment of the loan provided to farmers. Duterimbere could link up with
service providers who provide technical expertise to farmers;
• Duterimbere and its members (farmers) may work more closely to improve the quality of crop
production and find new market;
• Duterimbere would also increase the loan portfolio (which is too low) invested in in
agriculture to allow members/clients to increase their income through increased crop
production;
• However, there is a need to introduce an insurance system to limit unexpected risks from
weather changes.
3.3 How can linkage between financier (Microfinance Institution - MFI) and
Producer Organisation (PO) be strengthened?
Suggestions to strengthen the linkage between Duterimbere MFI Ltd and its clients:
I. IMFs should continue to help farmers access credit but also keep thinking about new
innovations in avoiding risks of non-repayment;
II.Duterimbere should speed up the analyses of credit demands to allow members to invest in
time; this will motivate the clients;
III.Duterimbere should increase the average amount given to one individual client and increase
the capacity of credit officers in order to achieve the members’ demands; and
IV.The role of an external facilitator such as that of ICCO Terrafina Microfinance and Oxfam
Novib has been instrumental in creating the first alliances in the field.
109
Sources
Contact persons:
•
•
•
•
•
•
•
•
•
•
•
•
Delphin Ngamije, director of DUTERIMBERE MFI LTD/ Headquarters Kigali.
Michelle Ngarukiye: credit officer DUTERIMBERE MFI LTD / NYAGATARE Branch.
Manager of DUTERIMBERE MFI LTD / NYAGATARE Branch.
Patrick Birasa, ICCO Terrafina Microfinance programme advisor/Rwanda-Kigali.
Leopord Tunezerwe, president of COAMSRU.
Francois Ntihabose , secretary of COAMSRU.
JClaude Mbaraga, secretary of supervisory committee of COAMSRU.
Eugenie Mujawamariya, vice president of supervisory committee of COAMSRU.
All members of COAMSRU.
Faustin Ntawuruhunga, president of COOPAMA.
All members of COOPAMA.
Sousane, president of Nyagatare seed promotion.
110
111
Case Study R2
Uniclecam Ejo Heza
“Farmers’ accessibility to credits through local microfinance
institutions”
Abstract
Uniclecam Ejo Heza is a Microfinance Institution (MFI) founded from a union of ten (10) local
Cooperatives of Savings and Mutual Agricultural Lending (CLECAMs) and a women’s Savings and
Credit Co-operative (SACCO), Ejo Heza. It is a registered MFI operating in Rwanda with a mission to
help reduce poverty by mobilising savings and giving credit to farmers. This MFI serves 45,952 clients
with a total portfolio of Rwandan Franc (RWF) 1.256 million; 64% of this is invested in agriculture.
Currently Ejo Heza has a network of service points related to its primary societies and a union
structure. ICCO Terrafina Microfinance has supported Ejo Heza in its merging process, management
structure, MIS and product development.
Acronyms
CCA
CLECAM
CRB
CSC IABM
MFI
PO
RAB
RWF
SACCO
UATA
WFP
Canadian Co-operative Association
Cooperative of Savings and Mutual Agricultural Lending
Credit Reference Bureau Africa
Service Centre Cooperatives
Iterambere ry’Abahinzi Borozi ba Makera
Microfinance institution
Producer organisation
Rwanda Agriculture Board
Rwandan Franc
Savings and Credit Co-operative
Ubumwe bw’Abahinzi ba Tambwe
World Food Programme
1. Main characteristics of the case
1.1 Farmers and their organisation
For this research, two farmers’ cooperatives: Iterambere ry’Abahinzi Borozi ba Makera (IABM)
and Ubumwe bw’Abahinzi ba Tambwe (UATA), were visited. Both have substantial experience in
handling credits
Iterambere ry’Abahinzi Borozi ba Makera (IABM)
IABM is a cooperative founded by farmers to develop farming activities in the Makera valley,
where it produces more than 900 tons of corn per season. Farmers in Rwanda traditionally
have their farm plots on the hillsides because the bottom of the valley is often unsuitable or
not available for agriculture (e.g. swamps). Hence, the exploitation of this lower area required
investments by the government and farmer cooperatives to turn it into productive farmland (e.g.
by drainage or irrigation). This often allows farmers to engage in more commercial crops that
add to their cash income (apart from subsistence farming). Since 2007 this cooperative of 764
farmers (499 women and 265 men) has been legally registered under the Rwandan cooperative
agency as a cooperative producing and multiplying seeds of maize, beans and soya in the
Muhanga district. IABM’s primary aim is to establish a sustainable processing and marketing
system for maize, allowing farmers to increase the quantity of maize produced and sold
commercially while fetching higher prices through bulking, processing and organised market
arrangements. IABM has extended its services to more than 1011 farmers (both members and
non-members), who regularly buy seeds and fertilisers and benefit from training in farming
skills and knowledge. The non-members have also engaged in contracts with IABM to collect
their farm produce, which reduces the costs and risk of middlemen in marketing their goods.
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Figure 1.1: Representatives of IABM members and their new maize flour production unit
To finance farming activities, Uniclecam Ejo Heza provides credit to IABM for farmer-members.
The credit is thereafter distributed to farmers depending on farm size and area cultivated for
maize. IABM plays an essential role in mobilising and adding value to maize production in
Muhanga and neighbouring districts. It is equipped with a big storage area for farm products, a
hall for drying maize and a milling unit for maize flour. It sells the selected seeds to the Rwanda
Agriculture Board (RAB) and the rest to local markets and other processors of maize flour. In its
strategy for the future, IABM is planning to become a centre of seeds production in the southern
provinces and a role model for effectively managing and developing cooperatives as part of the
larger cooperative movements in Rwanda.
Figure 1.2: Good governance and community outreach awards in agriculture offered to IABM
Ubumwe bw’Abahinzi ba Tambwe (UATA)
UATA is also a farmers’ cooperative, founded in 2007, that collects the maize, soya and bean
crops from the farmers of the Ruhango district. It has 811 members: 351 men and 460 women.
Apart from bulking farm production, it also engages in elementary processing through its maize
drying system in a specially built drying hall. It also provides guidance and training to farmers
on maize production and proper post-harvest crop treatment. The cooperative does make
records of its operations but does not have a written strategy paper or business plan for its
future operations.
IABM and UATA profile data
Type of organisation
Cooperative
Number of members:
• IABM
• UATA
764
811
Size of land:
• IABM
• UATA
200 hectares
40 hectares
Number of employees:
• IABM
• UATA
13
3
Main crops
Maize
Other crops
Beans and soya
Turnover (in euros):
• IABM
• UATA
RWF 195,500,000 (24,437 euros)
-
Old maize dying system (UATA)
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New maize dying system (IABM)
Figure 1.3: Maize drying techniques
1.2 The financial institution
Background
Uniclecam Ejo Heza is a microfinance institution (MFI) created in 2007 after merging ten (10)
former local Cooperatives of Savings and Mutual Aagricultural Lending (CLECAMs) and a
Women’s SACCO, Ejo Heza, which had been operating in the former administrative districts
of Muhanga, Kamonyi, Kabagari, Ruhango and Ndiza. It is registered as a saving and credit
cooperative aimed at promoting lending and saving among its clients in order to increase
investments and reduce poverty for rural residents, especially farmers. Uniclecam Ejo Heza
is spreading its operations and outreach in the southern province, particularly in the new
administrative districts of Muhanga, Ruhango and Kamonyi. Its main interventions are in the
increased production of maize, beans, soya, vegetables and cassava.
UNICLECAM EJO HEZA profile data
Type of organisation
Total number of active clients
Portfolio value (in Euros)
% of farming clients
% of portfolio in agriculture
Savings and Credit Co-operative
45,952
RWF 1,256,627,883 (€ 1,570,785)
64%
Services rendered to farmers
Uniclecam Ejo Heza works with farmers organised into cooperatives and provides the following
services:
Mobilising funds. As a union, Uniclecam Ejo Heza mobilises financial resources primarily from
its members’ savings but also from donors and local and international banks (e.g. Rabobank) to
increase the financial capacity of CLECAMs to meet the credit requests of its clients.
Voluntary savings of its clients. Through its branches located in different districts, it also
accepts and keeps the deposits and voluntary savings of its clients. In view of the limited access
to banking services in the rural areas, this service is important for farmers and the rural public
in general.
Compulsory savings account. The MFI encourages all clients to open up a savings account,
which is considered as a cash collateral account for the credit received
Short-term loans. Through the farmers’ cooperatives, Uniclecam Ejo Heza offers short-term
loans to farmers to develop and improve agricultural activities in the Muhanga, Kamonyi and
Ruhango districts. Some 95% of the loans provided by Uniclecam Ejo Heza are contracted by
individual farmers selected by their Producer Organisations (POs) or cooperatives for farm
inputs and land preparation. The minimum loan provided to one farmer is Rwandan Franc (RWF)
350,000 (437 euros). However, Uniclecam Ejo Heza also provides 5% of its portfolio as postharvest loans to groups of farmers or cooperatives for harvesting and marketing their produce.
These post-harvest loans help the cooperatives to pay farmers in cash for the goods delivered
(some 50% of the sales value), before the produce is fully sold to local traders, when farmers
can be paid the outstanding balance.
Training farmers. In collaboration with CSC (Service Centre to cooperatives), Syndicat Ingabo,
Ejo Heza organises the training programmes and capacity-building meetings for farmers on
new agricultural techniques to improve the farming systems and farm productivity in the region.
To empower women, the MFI also helps to train women on income-generating activities through
both farming and non-farming activities.
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1.3 Nature of the business, crop and market
Uniclecam Ejo Heza is an MFI that has positioned itself as a specialised lending institution for
farmers. It finances the activities of cooperatives involved in producing maize, beans and soya.
The farmers’ cooperatives selected (IABM and UATA) are a sample of the type of cooperatives
financially supported by Uniclecam Ejo Heza. These cooperatives also help farmers to access
inputs like fertilisers and seeds for food crops such as maize, beans and soya. Furthermore,
the cooperatives link the farmers to markets by collecting the farmers’ produce, storing it
for appropriate bulk selling and creating marketing arrangements on behalf of their farmermembers. The largest buyer is the RAB, which buys the maize to collect seed materials in
response to the seed supply problems in the country. The rest of their produce is directly sold
to local traders and consumers on spot markets. In this business, Uniclecam Ejo Heza helps
these cooperatives finance working capital to cover their production costs and to pay members
who supply their produce to the cooperatives while waiting for higher market prices (a kind of
inventory credit).
Figure 1.4: Head office of UNICLECAM EJO HEZA located in the Muhanga district
1.4 Other stakeholders
• ICCO Terrafina Microfinance: provides technical support to the management systems, MIS,
and product development for its rural clientele, as well as brokering for refinancing to Ejo
Heza;
• Rabobank Foundation: provides loans to Uniclecam Ejo Heza to support its lending capacities;
• UGAMA CSC: provides training, technical advice in agricultural practices to cooperatives;
• Syndicat INGABO: local agricultural federation which offers training and technical support to
farmers;
• Rural Sector Support Project (RSSP): provide agricultural materials to cooperatives to
maintain production;
• International Fertilizer Development Center (IFDC): provides training on the use of fertilisers;
• RWARI: assists cooperatives in increasing production, handling the warehouses and finding
markets for produce; and
• Canadian Co-operative Association (CCA): has built the corn mill plant for IABM.
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1.5 Nature of the financial transactions
The loan is provided to individuals, group of farmers or cooperatives, covering both pre-harvest
and post-harvest stages. The minimum loan provided to one farmer is RWF 350,000 (437
euros), to cover the land preparation on the farm and access to farm inputs (seeds, fertilisers,
pesticides). These loans are repaid monthly and the interest (24% annually) is calculated by
the reducing balance method. Sometimes, depending on the agreements between the MFI and
cooperatives or group of farmers, this loan is also repaid after the harvest (i.e. bullet loan).
However, the MFI may also offer post-harvest credit to cooperatives to help the cooperatives
pay for the production supplied by the members. The cooperative tends to store the produce for
an extended period of time to protect the farmers from selling their production at low prices
following the harvest period. Without post-harvest finance from Ejo Heza, the cooperative would
be unable to pay the farmers in cash upon delivery since sales of the produce may be one or
several months later. Post-harvest finance will hopefully be given more attention in the future,
particularly when the financier can accept the stored crop as security in the form of a warehouse
receipt finance arrangement. Post-harvest finance, which now only constitutes 5% of Ejo Heza’s
credit portfolio, is in high demand by the farmer cooperatives to satisfy the needs of farmers for
cash upon delivery of the crop.
Credit product(s) for agriculture
Name
# of
months
Interest %
Interest mode
Flat or R.B.
Repayment
Bullet / instalment
Security mode
Solidarity group loan
6
24
Reducing
Balance
Instalments
Joint guarantee,
Land/Houses
Post- harvest
3-6
24
Reducing
Balance
Bullet
Land/Houses
2. Risk analysis
2.1 How has risk management been approached?
Loan appraisal by the financial institution - due diligence.
The conditions that had to be met by Ejo Heza, checked before loan approval/disbursement, were:
• Being a permanent resident and client of a Cooperative of Savings and Mutual Agricultural
Lending (CLECAM);
• Being guaranteed by a group of farmers or a cooperative (solidarity guarantee) or having
collateral approved by the expert and signed by the local authorities (buildings, farmlands, etc.);
• Integrity of the client is examined based on the records from local authority and the CRB (Credit
Reference Bureau Africa);
• Having at least a deposit of 20% of the loan requested; and
• The loan to any individual does not exceed 2.5% of the total loan portfolio.
The cooperatives guarantee the loans contracted by their members as follows:
• Each client must sign a contractual agreement, accepting to use the loan and repay it as
indicated in the loan application form;
• The client must accept being legally liable if defaulting on the loan agreement or any other part
of the contract.
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2.2 Risk management by the stakeholders
In the design and development of the programme, the lead actors jointly assessed the risks for
farmers and the Producer Organisations (POs) and identified means to mitigate these risks.
For the purpose of the case study, we made a distinction between the six crucial aspects of
smallholder production, i.e. risks related to:
• The specific crop: maize, soya or beans;
• The farming system and crop production;
• The strength of the farmers’ organisation / farmers’ cooperative;
• The markets for maize, soya or beans;
• The viability of the crop-farming system promoted; and
• The financing of farmers and farmers’ cooperatives.
These risks and the way they were mitigated and managed have been tabulated in a risk
catalogue (see table 2.1 below) and are briefly summarised below.
Product-related risks
The risks related to the specific crops produced relate to persistability, lack of facilities to
control humidity, traditional harvest systems and poor technologies to select seeds. To mitigate
the risks related to maintaining product quality, some storage spaces have been built to help
farmers safely keep their produce until it is ready for transportation. However, risks relating
to appropriate techniques to sort out high quality seeds are still unresolved. The Rwandan
Agriculture Board (RAB) and the cooperatives are still looking for ways to produce high quality
food crops seeds using modern technology.
Production-related risks
The risks related to farm production are primarily the influence of unpredictable and bad
weather, non-germinating seeds, low land productivity due to traditional farming practices, low
use of fertilisers and limited extension services to farmers. The combination of these factors
still seriously hampers the production of food crops. To mitigate the weather conditions and
non-germination problems, especially during the dry seasons, farmers adopted simple watering
techniques and some forms of irrigation. In addition, there is a Tanzanian insurance company
(KILIMA Salaam) that also insures the seeds and fertilisers used by farmers. However, farmers
complain of expensive fertiliser, which explains their low use. The same applies to pesticides.
With a voucher system (Nkunganire), cooperatives assist farmers in buying fertilisers at a 10%
discount. Training programmes and sensitisation meetings are also continuously organised
to encourage farmers to use fertilisers, pesticides and appropriate agronomic practice
applications through temporally hired agronomists.
Farmers’ organisation-related risks
Smallholder farmers are highly dependent upon their cooperatives for the improvement of their
farming methods and their position in the market. Hence their success vitally depends upon
the effectiveness of the PO to facilitate these support functions. The risks here involve limited
leadership skills in cooperative management, limited skills in accounting and lack of direct
contacts with buyers. On the other hand, the limited skills of farmers regarding the cooperative
movements may result in lack of trust and commitment. To mitigate these risks effort are being
undertaken on both sides. Training programmes are given to elected members of management
and cooperative boards. Farmers are trained and educated in cooperatives principles and better
farm management to increase agricultural production. To reduce the risks of farmers’ selling
on the side, farmers are encouraged to bring their production to the cooperative store to sell in
bulk to buyers at a relatively higher price.
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Marketing-related risks
As farmers and cooperatives are still highly dependent upon sales to spot markets, the
marketing risks relate primarily to unfavourable pricing and frequent price fluctuations of
food crops, lack of product specialisation and predictable supply volumes (making it hard
for cooperatives to engage in forward contracting) and delayed payment to farmers, which
undermines the farmers’ loyalty to the cooperative. To mitigate the risks related to low prices or
price fluctuations, cooperatives try to sell their produce to the recognised institutions like the
RAB and the World Food Programme (WFP). Moreover, they try to encourage farmer-groupings
and bulk supplies to strengthen the farmers’ negotiation position in local spot markets. To
reduce the product deviation risks (side selling, unpredictable supplies) resulting from a delay
in payment upon delivery, cooperatives and Uniclecam Ejo Heza agreed to pay at least half of the
expected crop value in cash to farmers. The cooperatives can only do this when working capital
finance can be accessed at harvest time.
Finance-related risks
Delayed disbursement of the loans, the high interest charged to farmers, lack of a credit
guarantee and delayed repayments are the main financial risks found. The microfinance
institutions (MFI) provides between Rwandan Franc (RWF) 200-350 thousand to each farmer,
but this does not cover the total production cost to finance farming activities. To mitigate the
disbursement and delayed repayment problems, the MFI also expects to shorten the loan
procedures to speed up the disbursement and regularly monitor clients and their produce to
recover the loans.
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Table 2.1: Risk assessment and risk mitigations
Risk Aspect
Risk assessment by MFI/Bank
Risk mitigation measures
Product risks
Persistability and lack of facilities
to control humidity
IABM benefited from a grant from the CCA to build a modern
store
Traditional harvest system
• Farmers to follow proper farming methods
• Farmers to use high-quality seeds
IABM regularly supervises the
farmers’ fields to ensure that good
farming practices are respected
Post-harvest risks
• Training farmers in post-harvest techniques
• Educating farmers about handling required quality standard
Regular supervision of the storage of
food crops
Production risks
Partner/client
Market risk
Finance and
viability risks
Risk monitoring
Manual techniques to select seeds Training farmers in new sorting techniques to select best
seed material
The RAB is still studying how farmers
can produce good seeds
Weather changes (specifically
drought in southern province)
• Watering the crops during the dry seasons
• Insuring crops (2014A KILIMA Salaam has paid seeds and
fertilisers damaged during dry season-95ha)
• Good planning of agricultural period
• Good mechanism to reserve water
for agricultural activities
• Ongoing negotiation between
cooperatives and other local
insurance companies to insure crops
Risk of non-germinating seeds
Use selected seeds from the RAB
Low use of fertilisers and
pesticides on food crops (maize
and beans)
• Training and sensitisation of farmers to use enough
fertilisers
• Voucher system (Nkunganire) to help farmers buy fertilisers
and pesticides
Agronomist makes a follow-up of the
proper use of fertilisers
Traditional farming practices
Farmers continuously trained in modern agricultural
practices
Agronomist to assist farmers in using
modern farming techniques
Limited extension services to
farmers
Hire more agronomists to assist farmers in using modern
farming techniques
Limited resources to pay staff
Farmers not sufficiently skilled in
cooperatives movements
Training farmers in the role of grouping into cooperatives and
in cooperatives principles
Limited skills in accounting
records
Training farmers: capacity-building to keep records
Lack of direct contacts with
buyers
Encouraging farmers to store production with cooperative
Limited leadership skills in the
cooperative management
Education and training of management board members of
cooperatives
Training is still needed
Low price for food crops
• Selling to recognised institutions like the RAB and the WFP
• Negotiations with schools to buy the maize production
• Sensitising farmers for group selling of the production to
attract other big buyers
The RAB buys seeds of maize and
beans and WFP buys untreated maize
Frequent price fluctuations
• Strengthening farmers’ groups
• Enabling farmers to have selling powers through
cooperative movements
Deviation of products by members
Continuous sensitisation of farmers to sell their produce to
cooperatives
Buyers and cooperatives do not
pay on time
Short-term loan from Uniclecam Ejo Heza to pay farmer
Late disbursement of the loans
required
Shortening loan procedures
Limited loan
Sensitising farmers to increase savings to increase amount
of loan
Uniclecam Ejo Heza expects to
increase this amount
Delayed repayment of the loan
Regular monitoring of the clients and their produce
Repayment rate has increased
Lack of credit guarantee
Joint or solidarity guarantee (cooperatives)
This works properly
Ongoing
High interest rate paid
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2.3 What is the finance strategy?
Financial appraisal
The MFI – Ejo Heza - checks whether the borrower or the cooperative has collateral certified by
the local authorities. The credit officer and the PO manager visit the borrower to check whether
the value of the collateral covers the total amount of the loan. The loan approval does not rely
solely on guarantees (whether peer guarantees, co-signers or collateral). The loan approval
process also requires an evaluation of the borrower’s repayment capacity and loan affordability.
The borrower’s creditworthiness is checked through a new system called CRB. In addition,
following the Central Bank regulations, a borrower cannot be given a loan that exceeds 2.5% of
the total credit portfolio of the MFI. Before approving the loans, the manager of Uniclecam Ejo
Heza evaluates the finance assessment according to the total amount available for credits and
also checks whether agricultural projects prepared by farmers are implemented in the working
areas (Muhanga, Kamonyi and Ruhango districts).
Acceptable and unacceptable loans are clearly communicated to borrowers via a written letter
or a telephone text message (SMS).
2.4 What capacity for agri-finance has the MFI installed to perform these tasks?
The following indicates that Uniclecam Ejo Heza is able to finance the farming activities:
I. The rating for Uniclecam Ejo Heza by Microscore is 4.14 out of 9 (2013), which is good for
this type of institution and shows its lending capabilities.
II. The Uniclecam Ejo Heza borrows money from the Rabobank at 8% per year with transfer
charges of 3% to finance farming activities. The MFI later lends money to other local
CLECAMs at 12%, which provide loans to farmers at 24%.
III. Recently Ejo Heza has started introducing agri-analysis sheets with the assistance of ICCO
Terrafina Microfinance.
IV. The spread between the lending rate and borrowing rate of 12% covers the transaction costs
and the provision for the margin for default risks expenses associated with agri-finance.
V. The Uniclecam has 6 branches located near the main roads and is hence accessible
to farmers. All branches provide small and medium-sized loans to its customers. The
Uniclecam currently employs 48 staff.
2.5 What connections were entertained by the MFI with other stakeholders in
the sector? Who was the lead actor in orchestrating the chain?
Uniclecam Ejo Heza collaborates effectively with its partners ICCO Terrafina Microfinance,
Rabobank and AQUADEV.
3. What makes it tick?
3.1 What are the success factors in this case? What risk mitigation measures
proved effective?
Farmers are happy with the services of Uniclecam Ejo Heza, especially its procedures for quickly
making loan decisions. It is efficient and fast compared to other microfinance institutions (MFIs).
As farmers have a tight agricultural calendar that also requires flexibility for weather conditions
and forecasts, quick decision-making greatly supports the credibility of MFI among farming
clients. The MFI is supported by the Rabobank Foundation and ICCO Terrafina Microfinance,
both with financial and non-financial instruments. The later focuses on capacity building and
product development for Ejo Heza to increase its ability to provide adequate credit services
to its rural and agricultural clients. Financing the several parts of the farming chain, from
the production, processing and marketing of maize products, has effectively increased farm
production and income for the farmers.
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3.2 What are the (remaining) weaknesses/threats/risks?
Although the MFI has contributed to better living standards for its clients, it still has more
projects in the pipeline to fully satisfy its clients in the farming sector:
I. Uniclecam Ejo Heza is developing a project for a leasing system, with the assistance of ICCO
Terrafina Microfinance and the Rabobank Foundation, to provide farmers with agricultural
materials and equipment for irrigation, processing, drying and shelling to increase their
production and reduce the crop deterioration risks.
II. The MFI is willing to work jointly with farmers’ cooperatives to identify markets for maize
products (corn and flour).
III. Farm finance is much challenged by the low credit ceiling offered to farmers, the relatively
high interest rate and the fixed fees charged on each loan. However the MFI is looking for
possibilities to increase the amount lent to individual farmers to adequately cover the real
farm finance needs.
3.3 Do stakeholders have a view on how to better deal with these remaining
risks in the future?
The MFI gives priority for better service delivery and continuously training farmers in its
microfinance products, procedures, credit requirements and eligibility criteria. This should
increase the attractiveness of financial services both for the MFI and for its clients. Farmers’
cooperatives stress that more post-harvest financing is required to be able to pay all farmers
in cash upon delivery for at least 50% of the sales value; this is vital for farmer loyalty and the
expansion of future activities.
3.4 How can linkage between financier (MFI) and PO be strengthened?
I. Uniclecam Ejo Heza continues to think about new products and increased lending limits for
its clients.
II. It should also continue to organise training programmes for leaders of cooperatives on
credit management, how microfinance operates and keeping records for farming.
III. More attention will be given to rural farmers without a guarantee and the strengthening of
new solidarity loan lending techniques (currently promoted by ICCO Terrafina Microfinance).
IV. Uniclecam Ejo Heza may also help farmers link with insurance companies to reduce the
risks related to a lack of a guarantee.
Sources
Interviews:
•
•
•
•
•
•
•
Merchias Dusabumuremyi, coordinator of Uniclecam Ejo Heza 0728531995.
Viateur Nsengumuremyi, manager of IABM 0783190228.
Alphonsine Mukankusi, president of IABM 0788485983.
Jean Bosco, agronomist with IABM 0783009472.
Members of IABM (group meeting).
Aloys Ndahimana, president of UATA, 0788756168.
Members of UATA (group meeting).
Documents:
• UNICLECAM EJO HEZA factsheet 20014.
• Rating microfinance institutions, MicroFinanza Rating, 2013.
Websites:
•
•
www.mixmarket.org/mfi/ejoheza#ixzz3OomCV010
http://issuu.com/amir-rwanda/docs/rwanda_microfinance_magazine
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Case Study R3
Amasezerano Community Banking Ltd
Abstract
Amasezerano Community Banking, S.A. (ACB) is a for-profit microfinance institution (MFI)
founded in 2005 by the Rwandan NGO African Evangelist Enterprises (AEE), with 83% of the
total shares. Operations officially began on 21 August 2006 from ACB’s first branch in Kicukiro,
a neighbourhood in Kigali, the capital of Rwanda. Currently, ACB operates 5 more branch
offices in Nyarugenge, Nyabugogo, Bugesera and Rubavu. ACB has a mission of improving
poor people’s lives through access to quality financial services, specifically for those living in
remote rural areas. ACB currently has 34,237 clients with savings accounts, and 26,796 active
borrowers. Most of these strongly depend on agriculture and livestock for their daily activities.
Various rural products have been developed for this purpose, including special products
targeting farmers, with the leading product called Ezukame (literally meaning “Harvest and earn
money”). ACB has been receiving technical and some financial support on overall organisational
strengthening, MIS development and special product development.
Acronyms
ACB
AEE
APR
CRB MFI
PO
RWF
Amasezerano Community Banking
African Evangelist Enterprises
Annual Percentage Rate
Credit Reference Bureau Africa
Microfinance Institution
Producer Organisation
Rwandan Franc
1. Main characteristics of the case
1.1 Farmers and their organisation
For the purpose of the study two groups of farmers were selected: Jyamberemugore and
Terimeremunyar-wandakazi, located in the Gora and Cyanzarwe areas. They produce onions
and sell their produce at local village markets. The main objective of these groups is to improve
the welfare of their members through promoting and improving the onion product. They do
not have specific market arrangements for their product and are thus fully dependent on local
traders and spot market conditions. In these two examples, farmers are informally organised.
This limits their potential to exploit the benefits of a formalised organisation, such as concluding
sales contracts.
Jyamberemugore and Terimberemunyarwandakazi profile data
Type of organisation
Number of members
Size of land
Number of employees
Main crops
Turnover (in euros)
Group of farmers
39
Onion
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1.2 The Financial Institution
Amasezerano Community Banking Ltd (ACB) is a for-profit microfinance institution (MFI),
founded in 2005 by the Rwandan NGO African Evangelist Enterprises (AEE), with 83% of the total
shares. The remaining equity is shared among churches and other holistic organisations (11%)
as well as individuals (6%). The mission of ACB is to have a holistic, positive impact on the lives
of poor people by providing quality financial services, specifically for those living in remote rural
areas On 20 June 2006, ACB was granted official approval to collect deposits and offer loans
as an MFI by the National Bank of Rwanda. Operations officially began on 21 August 2006 from
ACB’s first branch in Kicukiro, a neighbourhood in Kigali, the capital of Rwanda. With 49 staff, it
serves its clients spread over six branches, three branches in Kigali city (Kicukiro, Nyarugenge,
Nyabugogo), one in the eastern province (Bugesera) and two others in the western province
(Rubavu and Rusizi). ACB currently has 34,237 clients with savings accounts and 26,796 active
borrowers. Most of these strongly depend on agriculture and livestock for their daily activities.
Various rural products have been developed for this purpose, including special product targeting
farmers, with the leading product called Ezukame (literally meaning “Harvest and earn money”).
ACB profile data
Total number of savings accounts
Credit clients
Portfolio value (in euros)
34,237
26,796
RWF 614,639,462
ACB’s client base is composed primarily of farmers, small business owners, women
entrepreneurs and low-wage, private-sector salaried workers. Savings products are checking
accounts, fixed deposit accounts and savings accounts. Credit products are tailored to
meet clients’ needs and include group solidarity loans, agricultural loans, loans for women
entrepreneurs, small business loans, and loans for salaried workers. ACB also offers a money
transfer via MTN Mobile Money (local transfer) and Money Trans (international transfer),
currency exchange (Forex Bureau) and life insurance services to its borrowers.
All the branches have been computerised and are interconnected. ACB has invested in
technology that allows information to be shared between branches quickly and easily, which
allows clients to deposit savings and withdraw money at the most conveniently located bank
branch, a convenience many MFIs do not offer.
Since it was founded, ACB has grown at a remarkable rate and continues to work toward its
vision of significantly contributing to the advancement of poor Rwandans while maintaining
financial sustainability. In Kinyarwanda, ACB means “promise”. For ACB, living up to this name
means playing an active role in empowering a population scarred by war and the terrible
genocide of 1994, so that poor Rwandans can enjoy prosperity, dignity and peace.
In 2013, ACB experienced substantial loan delinquency in its agricultural portfolio. Currently, the
portfolio at risk (PAR over 30 days) has reportedly been reduced to 8%.
1.3 Nature of the financial transactions
ACB offers savings and loans services to individuals and groups of farmers, small traders and
employees. It is mainly financed with the savings of its customers as well as loans from Kiva and
Oikocredit and it receives technical and financial assistance from ICCO Terrafina Microfinance
and Aquadev.
1.Curuza – Medium- and short-term enterprise credit for businessmen (mainly urban);
2.Hembwa Wage – Medium- and short-term credit for salaried workers (any purpose);
3.Kaze - Solidarity Group Credit mainly for farmers and rural clients; and
4.Tunga Women - – Medium- and short-term credit for women (any purpose).
Some 65% of the loans in the ACB portfolio consist of solidarity group-lending in rural areas
(Kase credit product). The Curuza and Tunga products represent the larger share in portfolio
value; these loans can be as large as RFR 10 million per client.
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ACB Credit product characteristics
Product name
Loan size
Range
Loan
term
Interest
mode
Repayment
Mode
Security mode
Eligibility
Curuza (Business)
RWF 100,000 –
4 - 36
0% - 20%
80% - 100%
Business
Businessmen,
1 - 36
20% - 40%
60% - 80%
Any Purpose
Women & men,
10,000,000
Hembwa Wage
RWF 10,000 –
5,000,000
Kaze (Solidarity Group)
salaried workers
RWF 10,000 –
4 - 12
0% - 20%
0% - 20%
500,000
Tunga Women
RWF 100,000 –
1 - 36
80% - 100%
40% - 60%
Business, Housing,
Men with a
Education
business / farms
Any Purpose
Women with a
10,000,000
business
Source: mftransparency.org
The cost of credit for the borrower can best be expressed as the full Annual Percentage Rate
(APR), which includes the impact of interest, fees, insurance, taxes and compulsory deposits.
The APRs for the four ACB credit products are shown in the overview below. It is interesting
to note that the cost of credit for the salaried workers is the lowest (Hebwa product – 30%45% APR), probably because the risk on these loans is relatively small. Most expensive are the
business loans for men (Coruza product, with the APR between 43% and 97%). The cost of credit
for farmers is in the middle range (Kaze product, with the APR between 57% and 73%).
Price of the ACB loans using full Annual Percentage Rate (APR) calculation
Product name
Annual
nominal
interest
Fees
Insurance
Taxes
Compulsory
deposit
APR
(int+fee)
Full APR
Curuza
15.0%-60.0%
2 Fees
1 Ins
18.0% fees
20.00% upfront
28.4% -
43.3% - 96.6%
(Business)
Flat
Hembwa Wage
15.0% Flat
73.8%
2 Fees
1 Ins
18.0% fees
N/A
28.4% -
29.5% - 45.1%
41.4%
Kaze (Solidarity
15%-30.0%
Group)
Flat
Tunga Women
14.0%-60.0%
2 Fees
0 Ins
18.0% fees
N/A
52% -
56.7% - 73.3%
69.5%
2 Fees
1 Ins
18.0% fees
Flat
10.00% upfront
27.3% -
34.7% - 79%
68.4%
Source: mftransparency.org
The ACB Rubavu branch in the western province was the subject of this fieldwork. The loans
provided by ACB to farmers cover pre-harvest steps such as preparation of the field and access
to inputs (seeds, fertilisers and pesticides). These are short-term loans to rural poor farmers
(individual or group) to produce onions and Irish potatoes. The minimum loan of Rwandan
Franc (RWF) 300,000 was an individual loan calculated at a 15% annual flat interest rate,
payable between 6 to 12 monthly instalments. The minimum loan for a group of farmers was
RWF 1,000,000 to be divided over 10 members (100,000 each member), with a 2.5% monthly
flat interest rate (30% per annum) payable within 6 months in one instalment after harvest.
The loans offered to a group of farmers are deposited in the current accounts of the members
after an analysis of the credit- worthiness of each member (done by the members themselves).
However, all members share equal liability for the total loan taken by group members.
1.4 Other stakeholders
Through international partnerships, ACB has been able to progress, both in terms of portfolio
finance and operational performance:
• Kiva: provided financial loans to support credit basket to poor farmers;
• Oikocredit: provided financial loans to support the group-lending systems;
• ICCO Terrafina Microfinance: provides capacity-building support to improve MFI governance,
management and financial systems as well as product-development support including some
small grants to test new high-risk products; and
• Aquadev: offers technical services to the management and staff (training, advice and
materials to ACB staff).
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2. Risk analysis
2.1 How has risk management been approached?
Loan appraisal by the microfinance institution (MFI)/bank - due diligence
Before providing a loan to group of farmers, the following items are checked:
• A certified document of the existence of the group of farmers offered by local authorities;
• This group of farmers must be from different families (checked by credit officer);
• The group and individual members must have separate current accounts with Amasezerano
Community Banking (ACB);
• A member must not have any other credit with ACB or another MFI;
• Having a 10% deposit of the total loan required in their current account;
• A profitable agricultural project approved by a credit officer of ACB;
• One of the group members must have at least collateral approved and signed by a local
authority (building, lands, etc.);
• Each client must sign a contractual agreement on agreeing to use the loan and make
repayment as indicated in the project proposal; and
• The client must accept liability for defaulting on the contractual agreement.
To guarantee the individual loan, the borrower must present the certified collateral (building or
land titles), whereas a group loan is jointly guaranteed by the solidarity of members.
2.2 Risk management by the stakeholders
In the design and development of the programme, the lead actors have jointly assessed the risks
for farmers and the Producer Organisations (POs) and have identified means to mitigate these
risks. For the purpose of the case study, a distinction has been made between the six crucial
aspects of smallholder production, i.e. risks related to:
• the specific crop: maize, soya or beans;
• the farming system and crop production;
• the strength of the farmers’ organisation / farmers’ cooperative;
• the markets for maize, soya or beans;
• the viability of the crop farming system promoted; and
• the financing of farmers and farmers’ cooperatives.
These risks and the way they were mitigated and managed have been tabulated in a risk
catalogue (see table 2.1 and are briefly summarised below).
Product-related risk
Dry onion can be divided into two categories: fresh onions and storage onions. Fresh onions
are available up to three months after harvesting. These onions have higher amounts of water
and sugar and a lower pyruvate content. Consumers can recognise this onion by its lighter
colour and thinner skin. The storage onion is available in the market just as the fresh onions are
coming to an end. These onions have a darker and much thicker skin than that of fresh onion.
Storage onions are firm, compact and are much less susceptible to bruising and transport
damage. Both of these types are commercially available in three colours: red, yellow and white.
Risks related specifically to the crop of onions refer to the lack of high quality seed onions and
questions of the dosage and viability of the use of farm inputs (fertilisers and pesticides). To
mitigate the risks related to maintaining product quality, farmers are advised to use proper
storage to keep their produce until it is ready for transportation. However, due to the lack
of storage, farmers remain dependent upon instant selling after harvesting at local village
markets. Other risks relate to appropriate techniques to sort out high quality seeds because
poor onion seed material is still a serious problem for farmers.
Production-related risks
The main production risks that farmers are facing relate to the unpredictability of weather
conditions (droughts and flood seasons), a clinging to traditional farming practices and the risks
brought by insects and diseases. To mitigate these risks farmers are continuously encouraged
to water their plots and use pesticides on their crops to prevent pests during cultivation. The
125
MFI and the POs do not possess specialised agricultural experts, and neither are they able to
hire external private agricultural consults. Hence, they depend upon the government extension
services and peer-experience on these matters. The lack of technical assistants skilled in good
farming practices is still a handicap for farmers.
Farmers’ organisation-related risks
In this case, farmers’ organisations are small, informal groups. Their capacity to benefit from
the advantages of POs is very limited. The Illiteracy of the members and limited interaction with
other, more progressive farmers are severely limiting factors in efforts to mitigate the risks to
which farming activities are exposed. Most of the farmers in rural areas are illiterate; they do
often work with other farmers or other institutions involved in agriculture. This also affects the
governance and organisational level of the group.
Marketing-related risks
Onions are widely used in cooking because they add flavour to dishes such as stew, soup and
salads. As such, it is in high demand as a commercial food item in urban areas. However, due
to lack of storage capacity, farmers are tempted to sell immediately after harvest at local
village markets. In the rural areas people are highly self-sufficient with respect to food, so food
items such as onions fetch low prices. The main marketing limitation for smallholder farmers
relates to the poor connectivity of farmers to consumer markets (poor storage, transport and
infrastructure). Farmers face very unattractive low prices during the harvest periods when
they are keen to receive cash to meet their loan repayment obligations and other household
expenses.
Finance-related risks
ACB’s risks related to financing farming activities are diverse. In 2013, ACB experienced a
substantial default on agricultural loans. The risks of agricultural lending are attributed
partly to unfavourable weather conditions, but also to the common practice of loan-diversion
(to other pressing household expenses), combined with the limited strength of collateral and
group guarantees. Farmers grouped into associations or cooperatives are jointly liable for
guaranteeing the loan contracted by each of the members.
Table 2.1: Overview of main risk assessment and risk mitigations
Risk Aspect
Risk assessment by MFI/Bank
Risk mitigation measures
Product risks
Lack of quality seeds
• Seed multiplication by farmers
• Collaboration with private seed multipliers
(individual or cooperatives)
Viability of use of fertilisers and pesticides
• Training farmers to use pesticides and fertilisers
• Subsidies from government on fertilisers and
pesticides
Production
Droughts and floods
Droughts and flood seasons
• Watering the crops
• Strict adherence to agricultural calendar and
weather forecasting advice
Low productivity
Traditional farming practices
• Training the farmers in modern agricultural
practices.
• Farmers are supported by agronomists from cell
and sector levels.
Marketing risk
Payment risk
• Limited market for onion products during Spot market
harvest time
• Low market price compared to production
cost
Partner/client
Cooperation
governance
• Farmers not very skilled in cooperative
organisation
• Limited skills in accounting records
Finance and
financial risks
Limited loan
• The MFI provides between Rwandan
Franc (RWF) 100,000 to 300,000 to each
farmer
• Delayed disbursement (credit availability)
• High interest rate (30% group lending)
Investment risk
• Dissolution of groups after using the
credit
• Risk of over-indebtedness
Training farmers in capacity building
(all members)
• Registration of guarantee provided by one of the
group member
• Regular check by the Credit Reference Bureau
Africa (CRB)
126
Risk
monitoring
Planned
2.3 What is the finance strategy?
Financial appraisal:
To appraise the loan offered to farmers, the credit committee must verify whether:
• All the group members are active members (open a current account, paid the member contribution);
• The group members do not have close family ties (wife, husband and children);
• The group members have prepared their farms (cultivated and ready for planting);
• The value of the collateral presented by one of the members may cover the total amount of the loan; and
• A mandatory deposit 10% of the total loan (deposited by each member) is maintained
in their current account to guarantee the solvability of the member and cover unpaid
parts up to the total payment of the loan.
Financial needs assessment and financial products:
• The manager of the ACB branch, a credit officer and three members of the credit
committee evaluate the demands according to the credit portfolio of the ACB;
• The assessment is also based on the ACB credit products KAZE and EZUKAME:
>> KAZE is the only ACB product appropriate for group lending at a monthly interest
rate of 2.5% (30% per annum) jointly guaranteed by all group members.
>> EZUKAME is another product open for all agricultural projects, but offered to
individual farmers (agriculture or livestock), payable monthly at 15% and subject
to individual physical collateral.
Financial instruments:
A credit contract outlining all conditions of the loan (interest rate, penalty rate, compulsory
saving, loan guarantee and payment schedule) is signed by ACB and borrowers, and each
party keeps a copy of the contract.
2.4 What capacity for agri-finance has the MFI installed?
I. ACB has 6 branches located near the clients and accessible to main roads;
it also has 55 employees, including 13 loan officers.
II. Since 2007 ACB has been using a computerised system (version 3.4 of Adbanking
software) installed at all branches, which gives a vision of real-time portfolios and
integrated portfolio management. The data provided by the system ensures reliability
and an adequate level of protection of customer data.
III. But there are still physical files (documents) simply stored and insufficiently protected
from the risk of fire or manipulation.
IV. ACB lacks the professional staff to give technical advice to the farmers.
2.5 What connections were entertained by the MFI with other stakeholders in the sector?
Who was the lead actor in orchestrating the chain?
I. ACB is in collaboration with ICCO Terrafina Microfinance, Kiva, Oikocredit and
AQUADEV for financial and technical support.
II. AMIR and Central Bank (BNR) for national regulation requirements.
Sources
Organisations:
• AMASEZERANO COMMUNITY BANKING Ltd.
P.O. Box 4691, Kigali-Rwanda, Tel: (+250) 02555102249/55100954/55100980.
• Microfinance Transparency.
• KIVA.
• APF-Rwanda.
Websites:
• www.mftransparency.org/microfinance-pricing/rwanda/001-ACBSA/#
• www.kiva.org/partners/170
• http://apf-rwanda.ning.com/group/amasezerano-community-banking
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Case Study R4
Union des CLECAM Wisigara
“Increasing the capacity of rural farmers through access to
microcredits”
Abstract
Uniclecam Wisigara is a microfinance institution (MFI) with a focus on agricultural and animal
husbandry. It started in 2004 with the mission to promote agriculture value chains and agri-business
by increasing the capacity of rural farmers through microcredits and other financial services offered
to farmers. Uniclecam Wisigara is a union of primary savings and credit organisations, called
Cooperatives for Saving and Mutual Agricultural Credit (CLECAMs). Uniclecam Wisigara is one of
the main private MFIs that promote value chains and agri-business through microcredit in Rwanda
(western and northern provinces) in terms of the number of active clients involved in the agricultural
sector. In 2013, Uniclecam Wisigara began the new product of beekeeping in the northern and
western provinces to increase the welfare of its clients. It operates entirely with informal farmer
groups and is financed through the CLECAM active in their area of operation (as part of the Wisigara
network of CLECAMs). Uniclecam Wisigara has been supported by ICCO Terrafina Microfinance since
2008. It has received technical and financial assistance through small investment grants and loans
from the Rabobank Foundation.
Acronyms
CLECAM
GAP MFI
PO
RWF
Cooperative for Saving and Mutual Agricultural Lending
Good Agricultural Practices
Microfinance Institution
Producer Organisation
Rwandan Franc
1. Main characteristics of the case
1.1. Farmers and their organisation
Three groups of farmers were selected for field research: two group members of the
Cooperative of Savings and Mutual Agricultural Lending (CLECAM) Zamuka/Cyanzarwe and one
group from the CLECAM Bukamba.
Producer Organisation (PO) /cooperative profile data
Type of organisation
Number of members:
• Duhuzimbaraga
• Dukundakurima
• Duhingeneza Ibirayi
Number of employees
Main crops
Other crops:
Turnover (in euros):
• Duhuzimbaraga
• Dukundakurima
• Duhingeneza Ibirayi
Operating margin:
• Duhuzimbaraga
• Dukundakurima
• Duhingeneza Ibirayi
Group of farmers
7
10
7
0
Irish potatoes
Maize, beans and onions
RWF 700, 000 (€ 875)
RWF 4,800,000 (€6000)
RWF 3,760,000 (€4700) (estimated)
RWF 700,000 (€-875)
RWF 2,000,000 (€2500)
RWF 437,334 (€547)
128
DUHUZIMBARAGA/Zone NTANGO.
This farmers’ organisation is financed by CLECAM Zamuka. It is a group of 7 farmers involved
in the production of Irish potatoes, maize and beans. It received a loan of Rwandan Franc (RWF)
1,400,000 (1750 euros) to access up to 2.4 tons of seeds and 500 kg of inorganic fertilisers (NPK
17-17-17) and pesticides. This organisation harvested RWF 700,000 (875 euros) over 4 months
(March –July 2014) and it incurred a loss of RWF 700,000 (-875 euros) on its operations. It
demonstrated the difficulty in properly assessing the viability of the high-input approach to local
farming. As a consequence, the farmers were not able to pay back the loans. This was attributed
to a combination of factors such as low land productivity rate, unpredictable weather changes
and loan diversion.
DUKUNDAKURIMA/Zone Gisangani. This farmers’ organisation is financed by CLECAM Zamuka.
It is a group of 10 farmers involved in the production of Irish potatoes and maize. It received
a loan of RWF 2,700,000 (3,375 euros) to buy Irish potato inputs (5 tons of seeds, 800 kg of
inorganic fertiliser (NPK 17-17-17) and pesticides. The farmers harvested RWF 4,800,000 (6000
euros) with a profit margin of about RWF 2,000,000 (2500 euros).
DUHINGENEZA IBIRAYI/Zone Nyagahinga. This farmers’ organisation is financed by CLECAM
Bukamba. It is a group of 7 farmers that received a loan of RWF 770,000. The loan was only
used to buy inorganic fertiliser (NPK 17-17-17) and pesticides to produce Irish potatoes on 14
hectares over a four-month period (March-July 2014). The farmers estimate that they harvested
RWF 3,760,000 (4,700 euros) on an investment of RWF 3,322,666 (4,153 euros), including
fertiliser.
1.2 The financial institution involved
Background
Uniclecam Wisigara is a union of 11 autonomous local CLECAMs. The CLECAM in the network
all operate in the western and northern provinces and have offices in Gisenyi, Nyamyumba,
Biruyi, Kayove, Zamuka, Gaseke, Bukonya, Nyamugali, Nyarutovu, Bukamba, Cyabingo.
Uniclecam Wisigara started in 2004 with a vision of improving the socio-economic life of
farmers. In 2008, Uniclecam Wisigara merged with the Ruhengeri Union, with the support
of ICCO Terrafina Microfinance. Its main mission is to increase the capacity of rural farmers
through microcredits and other financial services offered throughout their area of operation.
The Union (Uniclecam Wisigara) supports and finances its affiliated CLECAMs to enable them to
help their farmer-members access financial services.
Producer Organisation (PO) /coop profile data
Total number of active clients
Portfolio value (in euros)
% of farming clients
% of portfolio in agriculture
32,000
RWF 543,009,576 (€678, 762)
80%
58.1%
Currently, Uniclecam Wisigara is one of the main private cooperative unions (measured in
terms of outreach in the agricultural sector), promoting several agricultural value chains and
agri-businesses through microfinance services in Rwanda (western and northern provinces).
Uniclecam Wisigara microfinance institutions (MFI) currently serves more than 32,000 active
clients, 80% of whom are smallholder farmers and 20% have other rural micro-businesses such
as commerce, restaurants, transportation, warehouses and communications.
Services rendered to its clients
The services rendered by Uniclecam Wisigara to its clients are grouped into two categories:
financial services and non-financial services:
Financial services: The MFI raises funds from local and international financial institutions
to enable the member cooperatives (CLECAMs) to access debt finance for portfolio growth,
enabling more farmers to be served and adjusting their loan offers to actual credit needs.
Through its local partners like BDF and international partners like the Rabobank Foundation
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and ICCO Terrafina Microfinance, Uniclecam Wisigara borrows funds for further lending to
CLECAMs. Currently, it borrows at an interest rate of 11% (the normal interest rate is 8%
and transfer fees 3%). ICCO Terrafina Microfinance has provided technical assistance for
management support, MIS development and product development, especially for rural finance.
The CLECAMs are also financed by the clients’ mandatory and voluntary savings, which they
can use to provide small loans to their clients. These loans are normally provided at a 1.5% flat
interest rate per month for agricultural loan projects (i.e. 18% flat p.a.) and a 2% flat interest
rate for other loan projects (i.e. 24% flat p.a.). As transaction costs and risk provisions for
agriculture are not lower than lending in other sectors, these figures show that Uniclecam
Wisigara has been willing to favour agricultural loans even though returns from small-scale
agriculture are normally relatively low. Without this cross-subsidisation, member-farmers
might not be able to afford loans for their farming projects. The case of the DUHUZIMBARAGA
farmer group illustrates this point.
In order to access CLECAM loans, each client must at least fulfil the following requirements:
• Being a good and active CLECAM client; having regular savings and withdrawal transactions
with the one of CLECAMs;
• Member must have saved at least 10% of the loan amount;
• Having collateral such as a homestead, land or valuable equipment;
• Being a member of a group or a cooperative that can act as guarantors (solidarity guarantee);
and
• Signing a loan agreement with the CLECAM to confirm his or her obligations to comply with
loan regulations.
The credit ceiling for agricultural loans ranges between RWF 20,000 (25 euros) and RWF
1,000,000 (1300 euros); for other loans repayable in 6 months, it ranges between RWF 20,000
and RWF 2,000,000 (2600 euros). Uniclecam Wisigara mainly finances farmers involved in
growing Irish potatoes, maize, beans and wheat and in beekeeping.
Non-financial services: The MFI also offers non-financial services to its clients, such as
training, financial education and agricultural technical assistance; this last is done through
farming organisations like BAIR and the Urugaga Imbaraga farming federation. In 2013
Uniclecam Wisigara launched a new product of beekeeping in the northern and western
provinces to increase the welfare of its clients. The programme is called “the progress of
beekeepers” (Wisigara Muvumvu) and provides technical assistance to successful farmers
(Kiramuhinzi) interested in taking up this additional activity.
1.3 Nature of the business, crop and market
Uniclecam Wisigara supports several agricultural value chains with both financial and technical
assistance. In the selected farmer groups, this involved the production of Irish potatoes.
The farmer groups were instructed on how to account for the farm inputs purchased and
the production achieved with them (as shown in table 1.1 below). The CLECAM also provides
working capital loans to farmers, either in the form of inputs (disbursement in kind) or in cash.
Table 1.1: Production table (for Cooperatives or POs)
Farmers’ organisations
Production
Value
(RWF)
Quantity
(kg)
RWF/kg
Unit
1. Duhuzimbaraga /zone Ntango
2. DUKUNDAKURIMA/Zone Gisangani
Irish potatoe
Irish potatoe
10,000
40,000
1221
1743
100 RWF/kg
120 RWF/kg
Inputs
1. Duhuzimbaraga /zone Ntango
2. DUKUNDAKURIMA/Zone Gisangani
NPK 17-17-17
Organic manure
Seeds
NPK 17-17-17
Organic manure
Seeds
130
270,000
150,000
960,000
432,000
240,000
2,000,000
500
1,000
2,400
800
1,600
5,000
540
150
400
540
150
400
1.4 Other stakeholders
Uniclecam Wisigara
• BAIR (Bureau d’Appui aux Initiatives Rurales): provides training and technical support to
farmers undertaking Kiramuhinzi projects;
• Urugaga Imbaraga farming federation, providing agricultural technical assistance to
farmers;
• BDF: Business Development Funds provides financial support to farmers (25% subventions
of one of project item);
• Rabobank (NL) provides financial loans to Uniclecam Wisigara to support its financial
capabilities. 250,000 euros was provided for 5 years at 8% for 5 years (plus 3% transfer fees
on the loan); and
• ICCO Terrafina Microfinance (NL) provides technical assistance in management, MIS and
product development as well as some investment subsidies to support Uniclecam Wisigara
in its operating services.
1.5 Nature of the financial transactions
The agricultural loans are fully tailored to the needs of farmers. The disbursement calendar and
loan maturity coincide with the growing season for the crop concerned, and repayment is done
at once after harvest. For these bullet loans, the flat rate of interest calculation is not different
from a calculation on (reducing) the outstanding balance; the loan is fully outstanding for the
lending period (no repayment instalments before the harvest). For the category of other loans,
some are also provided as bullet loans (repayment at once when the loan expires) and some
are repaid in instalments. While the latter is more common for microfinance in the commerce
sector, the application of a flat rate in these cases makes the loan relatively expensive. As the
average outstanding amount is approximately half the amount disbursed (due to repayments
during the lending period), the interest remains charged over the full amount disbursed. Thus,
the flat rate mode of interest calculation for instalment loans pushes the real annualised
interest expense to almost twice the quoted flat rate. This illustrates that, as a matter of policy,
Uniclecam Wisigara favours their farming clients, with more affordable loans compared to the
loans in the commercial sector.
Table 1.2 Credit product(s) for agriculture
Name
# of months
Interest %
Interest
mode
Flat or R.B.
Repayment
Bullet /
install.
Security mode
Flat or R.B.
Repayment
Bullet / install.
Security
mode
Flat
Bullet
Joint guarantee
Wisigara muvumvu
(beekeeping)
6 months
18
Flat
Bullet
Joint guarantee or
land
Individual loans
6-12 months
18
Flat
Bullet
Land/houses/
other valuable
equipment
Others
(commerce,
transport,
warehouses)
6-12 months
24
Flat
Bullet or
instalment
Land/houses/
other valuable
equipment
Other loans
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2. Risk analysis
2.1 How has risk management been approached?
Loan appraisal by the Microfinance Institution (MFI)/bank - due diligence
The demands for credit are assessed by a credit committee of 5 persons, the loan officer and the
manager of the Cooperative for Saving and Mutual Agricultural Lending (CLECAM) concerned.
Appraisal is based mainly on partitioning the available funding basket of the CLECAM, the
historical records of the individual member applying for the loan and the guarantees/collateral
offered. The risk assessment depends on the loan product (in this case Kiramuhinzi) and the
type of crop financed (in this case Irish potatoes). Much emphasis is now given to the farming
systems used and the expected market for the farming product concerned. The beneficiaries
of the Kiramuhinzi product are jointly liable to repay the loan; no collateral is required from an
individual member.
2.2 Risk management by the stakeholders
In the design and development of the programme, the lead actors have jointly assessed the risks
for farmers and the Producer Organisations (POs) and identified means to mitigate these risks.
For the purpose of the case study, a distinction has been made between the six crucial aspects
of smallholder production, i.e. risks related to:
• the specific crop: i.e. Irish potatoes;
• the farming system and potato production;
• the strength of the farmers’ organisation;
• the markets for Irish potatoes;
• the viability of the farming system for Irish potatoes; and
• the financing of farmers.
These risks and the way they were mitigated and managed have been tabulated in a risk
catalogue (see table 2.1) and are briefly summarised below.
Product-related risks
Risks related specifically to the crop of Irish potatoes involve the lack of certified seeds,
questions of the dosage and the viability of using fertilisers and pesticides for this crop and the
perishability of Irish potatoes. According to research by the Institute of Agriculture and Animal
Husbandry, the limited availability of good quality seeds seriously hampers producers. There
are few seed multipliers, which leads to scarcity and inflated prices (0.50 to 0.60 euros/kg; this
is high compared to the selling price of Irish potato products (0.125 euros/kg). To mitigate this
risk, cooperatives in collaboration with public and private institutions train farmers on how to
multiply the seeds themselves. The government imports and distributes seeds and fertilisers
to groups or cooperatives of farmers through a voucher system called Nkunganire. This is a
system that helps farmers, grouped into associations or cooperatives, to access good quality
seeds and fertilisers at a discount (i.e. at a price subsided by the government). The voucher
system reduces the cost of fertiliser by some 10% (from 37.5 euros to 33.75 euros a bag).
Farmers are also trained in how to build storage facilities to reduce the perishability risks.
Production-related risks
The main production risks that farmers face relate to the unpredictability of weather conditions
(droughts and flood seasons), a clinging to traditional farming practices and the risks brought
by insects and diseases. To mitigate these risks, farmers are continuously encouraged to water
their plots and use pesticides on their crops to prevent pests during cultivation. With the help
of extension workers and agronomists, they are instructed in Good Agricultural Practices
(GAP), such as adherence to the agricultural calendar, proper land preparation and fertilisation
and attention to weather forecasts. The MFI and the CLECAMs do not possess specialised
agricultural experts and neither are they able to hire external private agricultural consults.
Hence, they are dependent upon the government extension services and internal experience
on these matters. Although there are continuous training programmes for farmers and lowlevel technical guidance in agriculture, the lack of technical assistants skilled in good farming
practices is still a handicap for farmers in this value chain.
132
Farmers’ organisation-related risks
Since the farmers’ organisations are very small, informal groups, the capacity to benefit from
the advantages of a PO is very limited. The advantage of these groups, however, is that they
are also members of the CLECAM together with many other farmers in the area. Thus the
distinction between a PO and financier is not so strict, and the CLECAM also partly acts as a
PO. Yet the illiteracy of the members of the farmer groups and limited interaction with other,
more progressive farmers are severely limiting factors in efforts to mitigate the risks to which
farming activities are exposed. Most of the farmers in rural areas are illiterate; they do not often
collaborate with other farmers or other institutions involved in agriculture. To mitigate these
limitations, the board members of farmers’ associations and cooperatives are continuously
educating their members and organising field visits from one region to the other for their
benefit.
Marketing-related risks
The main marketing risks to which smallholder farmers are exposed relate to frequent
fluctuations in the price for Irish potatoes, the weak market-negotiation position of smallholders
and the poor connectivity of farmers to consumer markets (poor infrastructure). Farmers face
very unattractive low prices during the harvest periods when they are keen to receive cash to
meet their loan repayment obligations and other household expenses that were postponed
until the harvest brought long-awaited farm income. The price varies between 100-120 RWF/kg
(0.12-0.15 euros/kg), but the middlemen and other traders sell to final consumers at 150- 200
RWF (0.19-0.25 euros/kg). This is mainly due to the poor infrastructure (roads and warehouse
facilities) and a lack of marketing policies for food products in Rwanda. To overcome these
limitations, farmers’ associations and cooperatives are being trained and strengthened in
bulking produce and strengthening their negotiation power. Most cooperatives are taking steps
to create local collection centres (iseta y’imyaka) to facilitate bulking and the group-selling of
Irish potatoes in their respective provinces.
Finance-related risks
There are financial risks for both the lender and the borrower. For the latter the risks of
finance relate to the uncertainty of credit availability with the CLECAM (depends on the pool of
resources available), the limited size of the loan (often not meeting the real credit needs), and
the impact of interest expenses on the viability of the farming activity. Farmers selected for the
study indicated that the credit provided was invariably insufficient to meet the needs of their
production budget. They feel they are partially financed and charged a high interest rate. While
the rates charged are relatively attractive compared to informal forms of microfinance, their
farming activities are so marginally profitable that the affordability of credit remains an issue.
The risks for the lender (CLECAM) involve financing farming activities related to the common
practice of loan diversion (to other pressing household expenses) and the limited strength of
collateral and group guarantees. The MFI staff pointed out that they themselves are paying
a high borrowing rate (between 8% and 11%) to get funds from banks and other financial
institutions. The MFI has started to expand its negotiations with other banks to increase the
abilities of CLECAMs to meet their clients’ demands. Farmers grouped into associations or
cooperatives are jointly liable for guaranteeing the loan contracted by each of the members.
Loans are also insured through the local insurance company SORAS at 7% paid by farmers
to protect them against the risk of death. However, the current portfolio at risk (PAR) of the
CLECAMs ranges between 7-10%, so the mechanisms for minimising loan diversion must be
tightened to ensure investments in productive farming activities.
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Table 2.1: Risk catalogue: Overview of the risk assessment and risk mitigation measures
Risk aspect
Risk assessment by MFI/Bank
Risk mitigation measures
Risk monitoring
Product risks
Lack of certified seeds
• Many training programmes on seeds multiplication
• Collaboration with private seed multipliers (individual
or cooperatives)
• Voucher system offered to farmers grouped into
associations or cooperative
70% seeds are distributed to
members by one of the members
Viability of use of fertilisers and
pesticides
• Training farmers to use pesticides and fertilisers
• Subsidies from government on fertilisers and pesticides
(voucher system)
Government assistance still needed
Perishability of Irish potato
production
• Direct sale of production to spot market
• Building the production storage space
Support from NGOs and government
needed
Droughts and flood seasons
• Watering the crops
• Strict adherence to the agricultural calendar and
weather forecasting advice
Traditional farming practices
Training the farmers modern agricultural practices
Insects and diseases, risk of
infection
• Use certified seeds
• Use of pest control measures with help from
agronomist of cell and sector levels
• Crop rotation to minimise soil contamination
Little technical guidance in
farming system techniques
• Continuous training and capacity building of/for farmers
• Uniclecam uses BAIR and farming organisations to
guide farmers in their practices
This guidance is still needed
Illiteracy of members of
association or cooperative
Education and literacy training for members
In progress
Poor collaboration with other
farmers
Field visits by farmers to other associations or
cooperatives
Price fluctuations
• Strengthening the associations or cooperative
organisations
• More training in marketing strategies
Lower price to farmer compared
to production cost (100-120 RWF
/kg to farmers versus 150-200
RWF/kg) on consumer market
• Exhaustive control of the local market
• Bulking the production with associations or
cooperatives
Low connectivity with the final
consumers’ market
Opening more Irish potato collection centres in the
provinces
The loan is too low
Uniclecam extended its negotiation on money from other
local banks
Production Risk
PO, informal
farmer group
Marketing Risk
Financial risk
Farmers are supported by
agronomists from cell and sector
levels
Irish potatoes are rarely sold in bulk
High interest rate and short
repayment period
Lack of collateral
• Joint guarantee (solidarity between all members to pay
back the loan)
• Death insurance (SONARWA 7%)
It secures the loan received (farmers
know each other)
Diversion of loans to other
activities
• Strong and regular follow-up by the credit officers
• Auto-supervision among farmers
• It assures quick repayment
• PS: One of the members sold back
the seeds and fertilisers and went to
Uganda (a problem for all members)
2.3 What is the finance strategy?
The finance strategy of the CLECAMs is guided by member needs and constrained by its
financial resources. Compared to professional MFIs, they are also constrained by limited
manpower resources, both in terms of skills and numbers of staff. Hence, lending policies
need to be first and foremost practical, simple and understandable for clients without formal
education. Financial appraisal is limited to some simple checks:
• check whether the project lies within the objective of the product;
• to trace the credit worthiness of members, the MFI consults the CRB (Credit Reference
Bureau Africa); and
• check whether one of the group members owns valuable collateral for the total amount of the
group loan.
There is no assessment of the feasibility of the farming projects, neither at the level of the
individual clients nor at the programme level (in this case farming Irish potatoes). Moreover, it is
a given fact that farmers cannot be fully financed because of a persistent lack of resources. The
MFI needs to apportion limited loanable funds fairly to member-farmers, which may imply credit
eligibility one year and a lack of it in the following year.
134
2.4 What capacity for agri-finance has the MFI installed?
The microscore for Uniclecam Wisigara is 2.65 (2012) (Governance 2.7, Institutional 2.8, services
2.8, financial performance 2.5), indicating it is still in the development stage as an MFI. While it
has no specialised staff for agriculture, it has been operating with a majority of farming clients
and hence it can build upon a considerable base of practical experience. This potential for
reaching the farming community is clearly recognised by financiers: Uniclecam Wisigara is able
to borrow money from banks and from other financial institutions. However, its capacity for
agricultural lending is also defined by the requirement of financial sustainability as a financial
institution. Its profitability is largely defined by the spread between its passive and active finance
structure. Currently the spread is a tiny 1%, as it borrows funds at 11% (Rabobank at 8% a year,
transfer charges 3%), and lends to CLECAMs at 12%. The larger spread is left to the CLECAMs,
which borrow at 12% and lend to farmers at 18%. The spread between the lending rate and the
borrowing rate does not sufficiently cover all the necessary provisions for agri-finance risks. The
Uniclecam currently has 75 staff spread over 11 branches.
3. What makes it tick?
3.1 What are the success factors in this case? What risk mitigation measures
proved effective?
Based upon a decade of experience, Uniclecam Wisigara has been able to sustainably sustain
agricultural lending. Particular points of strength as observed by clients and member
Cooperatives for Saving and Mutual Agricultural Lending (CLECAMs) include:
I. Decisions about loans are made quickly, which increases the credibility of the microfinance
institution (MFI) in the eyes of farmers.
II. The loan approval normally involves a group of farmers, mutually guaranteeing one another.
To minimise the credit diversion the money is directly deposited into the account of a trader
of fertilisers or seeds (i.e. disbursement in-kind). Farmers receive their loan in the form of
the seeds or fertilisers from the trader paid by Uniclecam Wisigara.
III. Uniclecam Wisigara organises regular training events such as workshops to teach farmers
how to prepare small projects, to manage their agricultural activities, to save for the project
and to use the credit exclusively for productive farming projects.
IV. The branches of CLECAMs are located near clients’ locations, which facilities easy access to
credit. And this also helps to reduce Uniclecam Wisigara’s transaction and monitoring costs.
3.2 What are the (remaining) weaknesses/threats/risks?
The MFI contributes positively to improving the livelihood of its clients (farmers). However,
a number of problems threaten Uniclecam Wisigara in fully achieving its objectives. The
main obstacles are the lack of equipment for staff (no vehicles, no motorbikes, computers,
telephones) and the lack of agronomists and agri-business staff to advise farmers, design value
chain finance programmes and monitor the agricultural loans. Currently, the MFI is not able to
supervise the farming system used by farmers. This is recognised as a great omission in terms
of risk mitigation. Uniclecam Wisigara indicated it should have at least agronomists who could
assist in identifying the most promising farming opportunities and advise farmers on Good
Agricultural Practices (GAP).
It is recognised that the opportunities for collective approaches in crop selection, quality
improvement and marketing are still insufficiently exploited. Dependence on local spot markets
leaves farmers with marginal returns on their enterprise. Direct links to more attractive
opportunities in the market require more effective bulking, strict quality controls and scaling-up
production volumes. On the other hand, larger commercial contracts also require the capacity to
deliver on time in the right quality and product specifications.
Uniclecam Wisigara also needs to be concerned with its financial sustainability as a financial
institution. Agricultural lending remains exposed to higher risks, and the need for portfolio
135
diversification should take this into account. With limited equity capital and dependence
on external debt financing, the institution is relatively vulnerable to debtors who fail to pay.
Uniclecam Wisigara may approach more insurance companies to guarantee the loans and
provide assistance to recover some losses.
The visited CLECAMs are still using manual systems or bookkeeping and accounting. The MFI
intends to take steps to use modern ICT software to safeguard its records (back-up) and data
consistency and quality.
3.3 How can linkage between the financier (MFI) and Producer Organisation
(PO) be strengthened?
The informal farmer groups (the POs) are part and parcel of the farming community that
established the CLECAM. Hence the two are linked by the nature of this farming community
and its cooperative traditions. Yet there are factors that affect the sustainability of agricultural
finance within this community;
I. MFIs should continue to serve farmers to access credit but also keep thinking about their
sustainability as a financial institution, which requires new innovations and products to limit
risks of non-repayment.
II. The profits of the CLECAMs are currently reinvested and not distributed to members; to
strengthen the linkage between MFIs and members, some distribution of the profits to
members may be needed to motivate them to continue their commitment.
III. It should increase its financial capacity to meet customer demands.
Sources
Persons:
•
•
•
•
•
•
•
•
•
•
•
Majyambere Florent, Director General of UNICLECAM WISIGARA, 0788452379.
Safari Innocent, manager of CLECAM Bukamba, 0788652122.
Mugiraneza Aloys, credit officer Bukamba, 0783460903.
Ndayambaje André, president of DUHINGENEZA IBIRAYI, 0783461443.
Members of DUHINGENEZA IBIRAYI (group meeting).
Manager of CLECAM Zamuka/Cyanzarwe.
Nsengiyumva Elias, president of BAKUNDAKURIMA, Zone Gisangani, 0783643582.
Members of BAKUNDAKURIMA, Zone Gisangani, ( group meeting).
Semivumbi J Baptiste, président of DUHUZIMBARAGA, Zone Ntango, 0785544159.
Members of DUHUZIMBARAGA, Zone Ntango, ( group meeting).
Majyambere Anatole, vice-coordinator, AgriProfocus-AgriHub Rwanda, 0788561450.
Documents:
•
•
•
Official Gazette nº 34 of 26/08/2013, order NORCA /614/2013 of 28/06/2013 providing legal
statutes of the cooperative «UNION DES COOPERATIVES LOCALES D’EPARGNE ET CREDIT
AGRICOLE MUTUEL (UNICLECAM WISIGARA-GISENYI)».
UNICLECAM Wisigara factsheet, 2013.
Microfinance pricing analysis – Rwanda – September 2013.
www.planetrating.com / www.mftransparency.org
136
137
Case Study U1
Conservation Cotton Initiative Uganda (CCIU)
“Improving income of smallholder cotton farmers and service providers by
facilitating access to finance and institutional building in northern Uganda”
Abstract
With the support of the luxury-clothing brand Edun and the Rabobank Foundation, TechnoServe (TNS)
was engaged to establish a programme with cotton farmers, who had to abandon their farms as a
result of civil conflict in the northern region of Uganda. The Conservation Cotton Initiative Uganda
(CCIU) aims to improve farmers’ cotton incomes by encouraging the adoption of better agronomic and
post-harvest practices and linking farmers to better markets. Additionally, the programme is working
to improve marketing efficiency by building and strengthening smallholder cotton farmers’ business
groups, providing business development services and facilitating access to finance. As a result, an
agreement was made between the Rabobank Foundation and Crane Bank (CB) stipulating that the
bank would finance CCIU’s farmers and service providers. To this end the Rabobank Foundation
has granted CB a three years’ loan facility of USD 500,000 and grant of EUR 50,000. During the
first cotton-cropping season (2013), few loans were disbursed, but intensive field trips were made
and 1,200 farmers enlisted. As of mid-May 2014, CB had approved 465 loans for a total of Ugandan
Shilling (UGX) 431 million (USD 170,000).
Acronyms
CB
CCIU
FAL
LC1
MAAIF
MFI
PBG
PO
TNS
UGX
VSLA
Crane Bank
Conservation Cotton Initiative Uganda
Functional Adult Literacy
Local Council 1
Ministry of Agriculture, Animal Industry and Fisheries
Microfinance Institution
Producers Business Group
Producer Organisation
TechnoServe
Ugandan Shilling
Village Savings and Loan Association
1. Main characteristics of the case
1.1. Farmers and their organisation
CCIU stands for the Conservation Cotton Initiative Uganda. Under the CCIU and with the support
of the luxury-clothing brand Edun and the Rabobank Foundation, TechnoServe (TNS) is working
with 8,537 farmers affected by the civil conflict in the northern part of the country. The CCIU
project was launched in April 2011 to double incomes of smallholder cotton farmers in northern
Uganda over 3 years while providing a supportive range of social initiatives and setting the
farmers on a path to commercial sustainability in years 4 to 5.
Producer Organisation (PO) /coop profile data
Type of organisation
Total number of members @ CCI
Number of PBGs
Members in each group
Number of employees
Main crops
Other crops
Producers Business Group (PBG)
8537
160 PBGs
50 members (average)
7 employees of TechnoServe (TNS)
Cotton
Maize, groundnuts and beans
138
The project focuses on promoting market-driven production, facilitating increased access
to inputs and outputs markets for farmers, promoting access to financial services and
facilitating such social initiatives as Village Savings and Loan Associations (VSLAs),
Functional Adult Literacy (FAL) and drilling boreholes. The CCIU aspires to improve
farmers’ cotton incomes by encouraging the adoption of better agronomic and postharvest practices and linking farmers to better markets. Additionally, the programme is
working to improve marketing efficiency by building and strengthening smallholder cotton
farmers’ business groups, providing business development services and providing access
to finance. The programme also aims to increase and enhance the competitiveness of
the country’s overall cotton sector. In addition to cotton, CCIU also strives to improve the
production of staple crops such as groundnuts, maize and beans. The programme’s social
component focuses on drilling for community boreholes, increasing FAL and establishing
VSLAs, all this implemented in partnership with the organisation Invisible Children.
Starting in April 2011, the CCIU has registered and organised more than 8,500 farmers
into 150 farmers’ business groups and helped them generate more than $1 million in
staple crop sales. It has trained 350 business service providers in business and technical
skills. In addition the programme has assisted more than 465 farmers in accessing loans
and 250 entrepreneurs in generating income by providing agricultural support services.
Producers Business Group (PBG)
CCIU is working with farmers organised into producer organisations (POs) called
Producers Business Groups (PBGs). The collaboration of the PBGs in the CCIU
programme started in 2011. The farmers are grouped into 150 PBGs, and each group is
formed into 50 farmer households. The PBGs are distributed over three districts, namely
the Gulu, Amuru and Nwoya districts. The majority of the farmers, about 75%, under
CCIU are from the Gulu district. The services provided by TNS to the PBG under the CCIU
include five sorts of activity:
I. Linking farmers to input markets
Farmers in these districts need seeds for their cotton and other main food crops such
as beans and maize. TNS links these farmers to cotton development organisations,
such as Equator seeds and Victoria seeds.
II. Linking farmers to business service providers
Business service providers are businesses and trained entrepreneurs equipped
with the necessary materials, skills and knowledge by TNS. These businesses in
turn provide their services to the PBGs. So far there are about 350 business support
service providers working with the PBGs.
These business service providers include:
• Ox ploughing service entrepreneurs;
• Spraying service entrepreneurs. TNS has equipped them with the spraying
equipment and technical training on spraying cotton. As a result they are able to
provide this service to the cotton producers.
III. Capacity building for the PBG Leaders: TNS provides the following capacity-building
training to leaders of PBGs:
• Good governance and management of their groups;
• Leadership and administration of their groups;
• Registration and structuring of the groups; and
• Documentations and keeping records for their groups
IV. Facilitate access to credit
TNS facilitates the access to credit for the PBGs. Currently, about 465 farmers have
been able to access credit from Crane Bank (CB) with the help of TNS (see next
section for details of this facilitation).
V. Experience/ exposure meetings
Weak PBGs were exposed to the experience of strong PBGs, and strong PBGs were
also exposed to different business cases. Some of the PBGs had an opportunity to visit
the Central East African Development Programme to learn from their experience and
replicate some successful business practices.
139
MFI profile data
1.2 The financial institution involved
Total number of CCIU clients
465
Facilitation of financial access to the farmers
Paid-up capital
UGX. 100 billion
and their PBG is one of the several services of
Farming clients
600
TNS. With the financial support of the Rabobank
% of portfolios in agriculture
100%
% of female clients
20%
Foundation, TNS managed a grant fund of EUR
Minimum
loan
amount
300,000
100,000 aimed at facilitating better access
Maximum
loan
amount
400,000
to finance for cotton producers, the financial
education of their PBGs and the sensitisation of
local banks. In order to address the financing needs of farmers, a local financial intermediary
had to be identified to ensure an effective outreach. As a result, financial institutions including
microfinance institutions (MFIs) and banks were surveyed. MFIs turned out to be insufficiently
equipped for the job; consequently, five banks operating in Gulu, including the Bank of Africa,
Centenary Bank, CB, Stanbic Bank and the Development Finance Company of Uganda, were
shortlisted. Finally, after proper screening and negotiations, CB was selected and it received
a grant from the Rabobank Foundation to act as the financial intermediary. CB is the largest
locally owned commercial bank in Uganda. The bank is part of the Ruparelia Group, whose
business interests include insurance, hospitality, education, media, horticulture and property
management. CB is the only Bank in Uganda with a paid- up capital of Ugandan Shilling (UGX)
100 billion - well above the regulatory requirements – and as such one of the strongest banks in
Uganda. The bank is headquartered in Kampala and has 45 branches across Uganda, including
the Gulu branch.
1.3 Nature of the programme - crops and markets
The northern part of Uganda was scarred by a decades-long civil war. The so-called
‘Lord’s Resistance Army’ terrorised the region, forcing thousands of people to flee their homes
and live in government-run camps for internally displaced persons (IDPs), where disease,
hunger and violence were rampant. When the conflict ended, many returned to their land in
hope of rebuilding their livelihoods by farming cotton, the area’s main cash crop.
Cotton can be grown in many parts of Uganda, and the sector has a great potential to lift
Key CCIU results to date
>> Trained 8,535 farmers (30% female) in good agronomic practices, post-harvest handling, farming as
a business
>> Trained 150 PBGs in governance and business planning
>> Trained 350 business service providers in business and technical skills
>> Marketed +1,500 metric tons of seed cotton through the AFRICOT trading company and Gulu
Agricultural Development Company Limited
>> Marketed + 2,000 metric tons of staples on the domestic market.
>> Facilitated loan disbursement through Crane Bank (CB) to 404 farmers (25% female),
>> Established and trained 90 VSLAs
>> Drilled 12 boreholes and trained 108 water-user committees
>> Trained 90 VSLAs in FAL classes
smallholder farmers out of poverty. Yet the country’s cotton productivity remains lower than in
other major cotton-growing countries and generates low revenues in absence of value addition
or processing. Besides, due to cotton price fluctuations, cotton farmers can also be exposed
to huge losses. As a result, it is difficult for cotton to compete with staple crops like maize and
beans as a source of income.
It is believed that by improving agronomic and processing techniques, forming farmers’
business groups and establishing market linkages, smallholder cotton farmers in Uganda can
grow and stabilise their incomes.
In line with this, TNS has been facilitating financial access to cotton-producing smallholders.
As a result an agreement was made between the Rabobank Foundation and CB stipulating that
the bank would finance CCIU’s farmers and service providers (in ox-ploughing, spraying). To this
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effect the Rabobank Foundation granted CB a three- years’ loan of USD 500,000 and grant of
EUR 50,000. During the first cropping season (cotton) few loans were disbursed, but intensive
field trips were made and 1,200 farmers enlisted.
1.4 Other stakeholders
Edun. Edun is a socially conscious clothing company launched in the spring of 2005 by Ali
Hewson and Bono with New York clothing designer Rogan Gregory. The company’s mission is
to create beautiful clothing while fostering sustainable employment in developing areas of the
world, particularly Africa.
Edun Uganda cotton impact chain
Edun Apparels initially bought CCIU cotton through connections with Fine Spinners in Nairobi in
2011 and later through a ginner-AFRICOT trading company, which bought seed cotton from CCIU
farmers and ginned & exported lint to Swift Tunisia. The CCIU Initiative aimed to improve the
livelihoods of communities in Africa by promoting a greater investment in the sustainable and
ethical production of conservation-friendly agricultural products. The CCIU focuses in particular
on cotton grown organically or through methods that are part of a transition from conventional
to organic production. Another focus of the CCIU was to incorporate sustainable conservation
agricultural practices and the protection of wildlife.
The efforts include establishing farmer agreements that promote conservation and improve
livelihoods and developing local farmer outreach programmes to ensure that such practices
are taken up by the community. After looking at the improvements and success of the training
and extension services that CCIU was providing to farmers in northern Uganda in 2011, Edun
announced a $1.6 million commitment to fully fund CCIU. After a few months of consultation,
Edun decided that TNS would implement the CCIU programme.
Invisible Children. The charitable organisation Invisible Children has been working in northern
Uganda since 2003. They played an integral role in the peace and recovery activities of the
region. They were featured on CNN International, Larry King and Oprah and have been the
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recipient of many awards including the 2008 Ugandan North American Associations Service
award for its work in education and economic development. Invisible Children received a portion
of the programme budget to continue facilitating and operating the social component of CCIU.
The social component was extended to the rural community’s growing cotton and selected
staples crops (such as maize and beans) with TNS, which was leading the process of selecting
the beneficiary groups in the Gulu, Amuru and Nwoya districts. This social component focused
on:
• VSLA development;
• FAL; and
• Water sanitation and hygiene.
Rabobank Foundation. The Rabobank Foundation supported the project to improve access to
finance and it focused on the financial education of POs, encouraging local banks, facilitating
access to finance for CCIU farmers and backstopping the financial service manager of TNS. The
financial support of the Rabobank Foundation consisted of four components;
• Funding to the CCIU I programme for ‘access to finance’ for farmers, PBGs and BSPs, mainly
involving capacity building (including the financial services manager);
• Direct Technical Assistance (TA) to the programme for linking farmers, etc. to financial
institutions;
• A loan of USD 500,000 to CB for on-lending to participating farmers; and
• A grant for start-up costs and capacity building of agricultural loan officers
Equator Seeds. Equator Seeds Limited is a specialised seed company licensed by the Ministry
of Agriculture, Animal Industry and Fisheries (MAAIF) of the Republic of Uganda to produce,
process and market quality seeds of improved crop varieties. Based in Minakulu, in the Oyam
district, the company has built up a vast marketing and distribution network covering the greater
north, west Nile, Teso, Karamoja, Bunyoro, and Kampala and beyond the country’s bounders. Its
product range includes the commonly improved open pollinated varieties and hybrids released
by the National Variety Release Committee of the MAAIF. Equator seed undertakes the contract
production of open pollinated varieties of maize, beans, soya beans, rice, sorghum, groundnuts
and sesame. They work with cooperatives and PBGs under contract farming. In collaboration
with CB and TNS, Equator Seeds is also able to provide a door-to-door seed distribution to the
CCIU farmers and PBGs.
Victoria Seeds. Victoria Seeds Limited is a seed company that became operational in 2004
for the purpose of delivering quality seed to smallholder farmers in Uganda. It is a leading
seed house, marketing over 90 seed varieties of cereals, legumes, horticultural products,
oil and forage crops in the domestic and regional markets. Since 2008 Victoria Seeds has
been operating a seed-processing and research facility in Gulu to make seeds available to
communities resettling in northern Uganda; they also and started engaging mostly women in
the regional seed industry supply chain. Vitoria Seeds is one of the seed suppliers for CCIU
farmers and the northern region as a whole.
1.5 Nature of the financial transactions
CB offers a simple, standardised loan product to the CCIU farmers for input financing UGX
400,000 per acre of cotton, and UGX 300,000 per acre for maize, groundnuts, and beans). The
amounts are derived from TNS calculations of input costs for the crops. Prospective borrowers
are recommended by the PBG chairmen, often in consultation with the Local Council 1 (LC1)
chairpersons.
The loan term is six months with bullet repayment and an interest rate of 18% per annum (flat
charge). For documentation and insurance, a flat amount of UGX 50,000 is charged to cover land
measurement, legal charges for contracts/agreements and insurance. These fees are normally
charged up-front but, in view of the agricultural application of the loan, in this programme they
are charged at recovery. If the farmers do not yet have the legally required ‘financial card’, it will
be produced at CB and the costs (UGX 20,000) are then included in the loan amount.
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Table 1.1: Credit product(s) for agriculture
Name
Amount
UGX
# of
months
Interest
%
Interest
mode
Flat or R.B.
Repayment
bullet /
Instalment
Security
mode
Cotton loan
400,000
6 months
18
Flat
Bullet
Farmland
Maize loan
300,000
6 months
18
Flat
Bullet
Farmland
Groundnuts
300,000
6 months
18
Flat
Bullet
Farmland
Beans
300,000
6 months
18
Flat
Bullet
Farmland
Farmers in the north do not have legal title deeds. Loans are secured by land certificates that
are based on land mapping carried out by CB staff. These certificates are also registered with
local authorities. Other security requirements are two guarantors (from the PBG; no relatives),
as well as pledging the crop. Farmers are required to form a group of three so that one borrower
has two personal guarantors. The group formation may not be based on blood relationship, so
the guarantors cannot be relatives. Disbursements are made in cash to the borrower, except for
improved grain seeds that are supplied by a seed distributor (Equator Seeds). The loan has two
cash disbursements: one for opening the land and fertilisation, and the other for hiring labour
for harvesting, threshing and transport. At the start of the scheme, the loan had three cash
disbursements but this was cumbersome for the farmers and was amended.
2. Risk management
2.1 How was risk management approached by the stakeholders?
In the design and development of the Conservation Cotton Initiative Uganda (CCIU) programme,
the lead actors jointly assessed the risks for farmers and the producer organisations (POs) and
identified the means to mitigate these risks.
For this purpose a distinction has been made between the six crucial aspects of smallholder
production, i.e. risks related to:
• the specific crop: i.e. cotton and food crops;
• the farming system and farm production;
• the strength of the farmers’ organisation / PO;
• the market for cotton and food crops;
• the viability of the farming system promoted; and
• The financing of farmers.
These risks and the way they were mitigated and managed have been tabulated in a risk
catalogue (see table 2.1) and are briefly summarised below.
Product-related risks
Lacking sufficient knowledge, farmers are less willing to use quality seeds and they prefer local
seeds, which are poorer in quality. Crane Bank (CB) and TechnoServe (TNS) tried to sensitise
farmers and trained them in the advantages of improved inputs and good agronomic practices.
Despite the efforts made by CB and TNS, farmers were slow to change. Farmers complained
about the delayed loan disbursement. CB disbursed loans after the farmers’ proper agronomic
practices had been assessed. In addition, three disbursements were also a burden to the
farmers. Hence, the bank reviewed its policies and reduced the number of disbursements
to two. In order to get disbursements on time, farmers should apply for a loan and fulfil the
requirements well in advance.
1
In addition there are two personal guaranties and other legal documentation to be eligible for this loan
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Production-related risks
Unpredictable weather conditions delayed planting some crops like cotton and beans because
of a prolonged dry spell. A delay in planting means a delay in completing repayment within the
required period of six months. There was a very low use of fertiliser and quality seeds, which
will hamper the total production and the farmers’ capacity to repay their loans. Furthermore,
farmers are not aware of the right agronomic practices at the right time. In order to mitigate
these risks, TNS and CB offered training in correct agronomic practices. Despite these
efforts, the farmers’ behaviour hardly changed; more extension services and encouragement
by the concerned stakeholders are needed. Even though loans have been granted to these
smallholders, the amount is insufficient to do all the necessary work from opening fields up
through harvesting. This is a complaint by farmers, but is still subject to investigation by CCIU.
The loan amounts are based on medium-level modern agricultural practices. When farmers
use little or no fertiliser, the loan amount should be adequate since it even covers the labour
components in weeding, harvesting and threshing. Proper storage and handling / transportation
of the harvest remains a problem despite the post-harvest training for the farmers by TNS and a
follow-up by CB agricultural field experts.
Client / PO-related risks
As described in section 1.1, the Producers Business Groups (PBGs) have a role in linking
farmers to markets and to finance, but they do not buy nor sell and neither are they loan
recipients. Hence the success of the chain is not directly dependent upon their functioning,
but they have a role in mitigating risks for the farmers and for the financier. It is especially
important to link farmers to those who need to endorse their loan application. Signatures are
required from the Local Council authorities, i.e. Local Council 1 (LC1) & LC2 and the group
chairmen to certify the farmer’s application for the loan.
A delay in obtaining these signatures causes a delay in processing and disbursing loans to
farmers who need more than two signatures on their loan application form. The need to have a
financial card has also prolonged the delay in loan disbursements since more than 90% of the
farmers lack such a card.
Marketing-related risks
Farmers have little access to or links with the market/ buyers. Farmers and their groups are
yet to fully benefit from collective marketing. They have neither good storage facilities nor
easy transportation to the market. As a result they are also confronted with a drop in prices
at harvest time when there is an excess supply of produce. TNS tried to teach farmers about
storage and collective marketing for better bargaining power. A number of PBGs are still weak,
and it will take a bit of time for them to become strong entities to enjoy the much-needed
benefits. Here you have to distinguish between cotton and grains. Cotton has no ‘price fall’
because bottom prices are set by the government and in relation to world market prices. There
is no ‘excess supply of produce’ for grains, but the market is not structured or stable: northern
Uganda traditionally supplies staples to southern Sudan, where civil war has disrupted trading
and communications.
Finance-related risks
With respect to the guarantors, the bank’s lending model heavily depends on mutual
guarantorship. Applicants/borrowers insist on using their family members as guarantors,
which is not acceptable. Challenges in obtaining consent by the spouse and children impede
progress in documentation, which is a legal issue. It is therefore necessary that farmers start
the loan application process very early so that these problems will be minimised. Farmers in the
north do not have legal title deeds. Loans are collateralised by land certificates based on land
mapping done by CB staff. In order to address the lack of hard collateral, CB has developed a
simple title deed based on land measurement organised and conducted under its guidance. The
local authorities accept these deeds. Farmers receive a cartographic presentation of their land
holding with a calculation of the land size.
Since most of the loans were given in cash, it was very difficult to control diverting the loan for
unintended purposes. Different mechanisms were done to avoid diversion. Among these is the
requirement of having two personal guarantees meant to follow each other against diversion,
family consent about the loan and the certified land and staggered loan disbursement based on
the post-sanction report of the loan officers.
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Table 2.1: Risk catalogue: Overview of the risk assessment and risk mitigation measures
Aspect
Risk assessment
Risk mitigation measures
Risk monitoring (post-loan)
Product risks
Poor awareness towards quality seed and
less willingness for uptake
Awareness creation through training and
education
Yes, but it remains a problem
Loan disbursement is not timely
Two disbursements found to be better
Follow-up by agronomists
Pest and deceases
Advising farmers to buy approved inputs
Pesticide application
Fake and resistant pesticide (Karate & Rogan)
Training in integrated pest management
Agronomists following up on farmers
Post-harvest handling risks
Post-harvesting education and training
Follow-up on records at warehouses where the
farmers bulk their produce
Lack of storage in some of the PBGs
Some PBGs have stores for bulking
Regular post-harvest handling & training
Transporting from garden to home to market
Post-harvest handling & training
Volatile weather changes (Too much rain)
Advice from agronomists
Low willingness and uptake of fertiliser
Encouraging farmers to use good agronomic
practices
Poor agronomic practices
Sensitising farmers on better agronomic
practices
Continuous sensitisation
Shortage of funds for land opening, weeding
and Labour expense
Prepare business plans
Need some periodic review by the bank
Farmers lacking financial card
Crane Bank produces them for farmers
Production Risk
Partner/client Risk
Market Risk
Financial risks
Bringing family members as guarantor
Proper screening by PBGs
Challenges of obtaining signatures for the LC
and PBG’s chairman
Farmers to belong to PBGs
Challenges in having consent by spouse &
children
Education and sensitisation
Absence of land titles
Land certification by the bank
Yes, needs more sensitisation
Lack of leadership quality
TNS provides training for leads
Needs to continue
Cotton market price volatility / fluctuation
• TNS to link them to better markets
• PBG’s marketing agent appointed
• Collective marketing through bulking in central
stores
Project shifted (partly) to other crops like oil seed,
cassava, beans, etc.
Lack of easy access to the market
Exploit local markets
Fake weighing scale
Collective marketing
Client educated to avoid using middle men
Loan diversion
• Staggered loan disbursement
• Close follow-up by agricultural officers
• Inter-guarantor follow-up
• Land entitlement and used as a security
• Disbursement in kind (seeds)
• Post-sanction report on each of the borrowers
• Two personal guarantors for loan
• Cartography and land certification
Delay in repayment
Recovery follow-up by agricultural officers
• 67% repayment
• Need to reschedule the loan?
2.2 What is the finance strategy?
As one of the banks operating in the Gulu district, saw an opportunity to engage in smallholder
finance created by the collaboration with TNS and the financial and technical support of the
Rabobank Foundation. Like other financial institutions in the region, CB has no experience in
providing agricultural credit. As a result there is a conservative due diligence process before
loan disbursement.
• Loans are secured by land certificates that are based on land mapping done by CB staff;
• Another required security is two guarantors as well as pledging the crop;
• Farmers are required to form a group of three so that one of the borrowers will have two
personal guarantors; and
• Prospective borrowers are recommended by the PBG chairman but also by the LC1
chairperson.
Using this conservative due diligence process, CB offers a simple, standardised loan product
to the farmers for input financing (see details in the above section). The amount of loan is
calculated based on Ugandan Shilling (UGX) 400,000 per acre of cotton and UGX 300,000 per acre
for maize, groundnuts and beans. The target farmers are smallholders with 2-4 acre of land
ownership. The loan is given at a 18% annual interest for six months with a bullet repayment.
After the due diligence, loan are sanctioned and disbursed in two disbursements. Disbursement
is largely made in cash to the borrower, except for improved grain seeds that are supplied
directly by Equator Seeds, which is contracted with the bank to do so. The first disbursement
is to open and fertilise the land; the second is for hiring labour for harvesting, threshing and
transport. The second disbursement is given only if the post- sanction officer’s report gives
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sufficient data to do so.
The following conditions and terms must be verified during the due diligence process:
1.Permanent residence and membership in the PBG;
2.A smallholder’s farm with 2 – 5 acres of cultivated land, Loan sizes are small and in line
with the agreement between the Rabobank Foundation, CB and TNS. This is proof that
smallholders (with 2 – 4 acres of cultivated land) are reached;
3.Financial card. The Bank of Uganda requires that all borrowers produce their financial cards/
numbers before they are given any loan by any banking institution. About 90% of the farmers
have no financial card. If the farmers do not yet have the legally required financial card, it will
be produced at CB’s office and the costs (UGX 20,000) will be included in the loan amount;
4.Savings account at CB. Together with CB has organised farmers’ meetings to inform farmers
about the new loan product and encourage them to open accounts. In addition, CB facilitates
account opening by travelling to the field and meeting new clients at the PBG and/or LC1
level;
5.Farmland. Loans are collateralised by land certificates that are based on land mapping done
by CB staff;
a. The farmers sign a statement that the land is his/her own and name his/her boundaries/
neighbours on the north, south, west and east.
b. Neighbours confirm the land ownership of the borrower and sign on it.
c. The PBG’s and LC1 chairman also confirm the land ownership of the prospect borrower
and give a recommendation to the bank.
d. Consent of family. The farmer’s family confirms that the land is pledged to the bank
against the loan.
e. The prospective borrower and his/her family declare that the land is pledged against the
loan.
f. Then a specialised independent cartographer to map this land. This is used as collateral
for the loan.
6.6. Two personal loan guarantors. Two other forms of required security are two guarantors
(from the PBG; no relatives), as well as pledging the crop. Within the same PBG, each farmer
is required to form a group of three persons so that each one of the borrowers has two
personal guarantors. The group formation may not be based on blood relationship, so the
guarantors cannot be relatives. Finally, individual loan applications are filled and submitted by
each of the prospect borrowers. Each guarantor is expected to play the role of watchdog role
and monitor the others;
7.Business plan. The prospect borrower/farmer has a business plan concerning his plan of
harvest, farmland and related agronomic practices. In addition, a description of the need
for finance at different agronomic stages such as opening the farmland, seeding, planting,
weeding and harvesting is presented in the proposal. Then the amount of production is
estimated, and an insurance amounting to 1.25% of the loan is deducted. Based on the
proposal, the required credit is calculated. The borrower’s family and the two personal
guarantors confirm the amount of the requested loan sign for it; and
8.Staggered loan disbursements. In line with the borrower’s business plan, CB disburses a
loan in two phases. Given that there are four months to harvesting the crops, the bank will
first sanction the loan for seeds, opening the land, planting and fertilisation. Then the bank’s
agronomic field officers will follow up the borrowers and prepare a monthly sanction report.
They also provide a post-sanction reflection for the bank to make decision on the second
disbursement meant for weeding and harvesting.
As of mid-May 2014, CB had approved 465 loans for a total of UGX 431Million (USD 170,000).
Actual disbursements on these loans were UGX 275.4 million. The average loan is UGX 927,500
or USD 265. About 20% of the loans go to female borrowers, representing 18% of the funds.
No loans have yet been issued to a BSP. The barrier so far is that cattle insurance, which was
required by the bank, involves very high premiums. The loan repayment rate of the crop loans
is low: the total due for repayment was UGX 209.1 million, while recovery stood at UGX 140.5
million or 67%. Only 108 out of 277 loans due had been fully repaid at the time of this report.
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2.3 What capacity for agri-finance has the Financial Institution installed?
CB has been able to provide a flexible, standardised and innovative input financing scheme
thanks to the following factors:
• There are four agricultural field officers who have been following up the farmers, looking at
the progress, providing monthly reports upon which the bank bases decisions about a second
disbursement. In addition, these officers are also responsible for sensitising the farmers on
loan recovery.
• The bank collaborates well with the providers of non-financial services, in particular with
TNS. The latter has more experience with, and knowledge about the PBGs and BSP as well as
individual farmers. Working with TNS therefore minimises the task for CB.
• The bank as a robust system to track all loans for the farmers.
2.4 What connections were entertained by the Financial Institution with other
stakeholders in the sector? Who was the lead actor in orchestrating the chain?
CB customers under CCIU need seed for their cotton and other main food crops such as
beans and maize. In collaboration with TNS, CB links these farmers up to cotton development
organisations, seed suppliers (Equator Seeds and Victoria Seed) and off-takers (ginners, grain
traders).
In order to legalise land certification and prepare land cartography the bank works closely with
a local cartographer and the borrower’s immediate neighbours, chairmen of PBGs and LCs
and family members for the confirmation of land ownership and the authorisation of the loan.
Generally, TNS leads the orchestration of this value chain finance by facilitating grants from the
Rabobank Foundation and enabling farmers and their PBGs to have financial access through CB.
CB has proven to be competent in agricultural lending. Through time, they have gained
knowledge of the local environment and the agricultural needs of the farmers. They have also
shown a high degree of flexibility in their approach to crop-lending, e.g. waiving strict loan
security financing for older farmers (up to 75 years old), charging fees at loan recovery (instead
of up-front). CB’s loan products to the farmers seem to be at a reasonable interest rate (in
relation to market rates for small loans). The loan products are simple and standardised. Loan
documentation has been reduced to the most necessary issues. They also did an admirable job
in land certification and using the land as a legal security against the loan. All these factors
demonstrate that CB offers a wonderfully innovative service in line with TNS’ efforts on behalf of
the CCIU farmers.
3. What makes it tick?
3.1. What are the success factors in this case? What risk mitigation measures
proved effective?
Three years ago the current farmland was just brushland, unable to sustain the farming families
without outside help. It is obvious that under those circumstances commercial finance for these
farmers would have been inconceivable. The fact that this was achieved in a reasonably short
period shows that an effective approach was found to create access to finance. A number of
factors appear to be crucial for this result:
• The formation of farmer groups and effective linkage to input suppliers and buyers;
• The availability of subsidised non-financial services by TechnoServe (TNS) to improve
agricultural practices;
• Effective facilitation of financial services, both in terms of identifying potential providers
and the availability of incentives and technical assistance. The Rabobank Foundation was
important in this regard;
• Special efforts on the part of the financier (Crane Bank - CB) to develop a suitable financial
product and facilitate collateralisation; the latter was necessary because farmers in the north
do not have legal title deeds. Mapping and cartography were done by CB in collaboration with
the farmers, Producers Business Groups (PBGs) and local authorities. Thus, loans could be
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collateralised by land certificates that were based on land mapping done by CB staff; and
• The fact that the financier (CB) avoided a short-term perspective in assessing their
investments in this programme. Otherwise disbursements might have come to a standstill
when deficiencies in loan repayments became evident. CB has not attempted to repossess
any collateral pledged, despite loan delinquency.
As a result of this combination of financial and non-financial services in the Conservation Cotton
Initiative Uganda (CCIU) programme, new farmland was opened and yields improved, thus
providing a good source of income to farming families. Three years from now the bank and TNS
believe that the farmers will be self-sufficient. Farmers who had been used to handouts, as
most people in post-conflict areas, have now changed their mind-sets to generate their incomes
and be self-reliant. With the introduction of Village Savings and Loan Associations (VSLAs),
more and more people are beginning to understand that they can use their own resources to
improve their livelihood.
3.2. What are the (remaining) weaknesses/threats/risks?
It is not surprising that in a post-conflict area, a transition as envisioned in the CCIU programme
meets challenges on the way. In the interviews with stakeholders the following observations
were made on remaining weaknesses and risks:
• In view of the small loan sizes, farmers consider the fixed charges for external services (land
measurement, title deed registration, financial card, etc.) relatively expensive. It is difficult to
solve this issue because the interest charged is already fairly low;
• The main challenge for the bank is that farmers do not respect the repayment schedule.
Scheduled bullet repayments at the end of the loan periods are rarely done at once and on
time. Farmers tend to come to the branch to make small payments;
• Farmers have a low level of financial education. Farmers are insufficiently aware of the
bank’s basic products, procedures and requirements. This results in undue complaints like
‘account opened, but no loan granted’, ‘no card received’ ‘the bank should come and collect
my loan repayments’, etc. It is noted that the scheme is ‘credit-driven’. Farmers and their
organisations were not yet clients in any financial institution. Hence the need to have them
‘banked’ as well as taught to use a (bank) loan;
• Another major constraint is the distance between the CB branch and its borrowers. Although
CB tries to minimise the frequency of the borrowers’ visits to the bank, travel expenses for a
trip to the bank (by public transport) still remain high;
• It appears that women borrowers are under-served. However, property titles are often made
in the name of the husband, in which case the husband will become the formal borrower.
There is still more to do in this area so that more women will control financial resources; and
• Building strong PBGs has only partially succeeded and work must still be done. It will take a
few more years to have strong PBGs with the benefits that farmers desire.
3.3. Stakeholder views on scope for improvement
In view of the fact that loan repayments are not yet satisfactory, the stakeholders are
considering what additional measures might be taken to rectify this problem. The following
suggestions emerged in discussions on this issue:
• Better communication and training for farmer clients. As farmers are apparently still
insufficiently aware of the bank’s basic products, procedures and requirements, CB might
develop a simple booklet (preferably in a local language) that outlines product characteristics,
eligibility criteria, bank procedures, etc.;
• Finance intermediaries: CB might select and train leaders in the local communities (e.g.
PBG chairpersons, LC chairpersons) to become ‘resource persons’ for the bank. Resource
persons can act as the link pin between the borrowers and the bank, represent the farmers at
the bank and be the intermediary for account opening, loan application, loan documentation
and perhaps even loan repayments. This may also improve communication between the
borrowers and the bank;
• Distances between the CB branch and its borrowers are one of the prevailing problems.
Although CB tries to minimise the frequency that borrowers have to come to the branch,
travel expenses for trips to the bank (by public transport) remain high. In order to reduce
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travel time and costs, CB could explore the option of mobile money transfers for loan
repayments. All Ugandan telecom companies offer ‘mobile money’ on their mobile
communication systems. Mobile money coverage in northern Uganda is big in urban areas
and expanding in rural areas. It is the one of the most widely used means of cash transfer and
has a huge potential for future loan repayments. It can certainly be exploited by CB and other
financial institutions; and
• Continuous sensitisation of farmers on how the loan scheme operates, especially the
eligibility criteria like minimum land holding of at least 1 acre, experience and their previous
track record in growing the crop, etc. In addition, farmers must be continuously reminded to
come early to register for financial cards before we can start processing their loans.
Sources
Documents:
• Note, CCIU / Crane Bank case (Rabobank Foundation – Frank Bakx).
• Improving access to finance for smallholder cotton farmers in northern Uganda, monthly
report to TechnoServe Inc. Uganda, by Crane Bank, July 2013.
• TechnoServe strategic plan, 2013-2017. TechnoServe.
• Report on visit to review programme implementation by Frank Bakx, Rabobank Foundation,
18-21 May 2014.
• Report on Frank Bakx’s visit CCI-U, Ugandan banks to select financial institutions interested
in providing credit facilities to smallholder (cotton and food crop) and other CCI-U clients,
15-19 November 2012.
• Improving income of smallholder cotton farmers and service providers through facilitation
in access to finance and institutional building for primary co-operative societies in northern
Uganda, project progress report no 3, TechnoServe Uganda, 2013.
Interviewees:
•
•
•
•
•
G. Sudhaka Rao, branch manager, Gulu Crane Bank, [email protected]
Samuel Arop, TechnoServe Uganda, Gulu branch, CCIU.
Gorege Olak business advisor, CCIU, TechnoServe Uganda, [email protected]
CCI-U Gem farmers’ business group.
CCI-U Per Ber farmers’ business group.
Websites:
www.tecnoserve.org
149
Case Study U2
Enterprise Support and Community Development Trust
“Making agricultural microfinance work”
Abstract
Enterprise Support and Community Development Trust (ENCOT) was founded in 2006 as a
developmental microfinance institution (MFI), with a strong agricultural orientation. It aspires to
position itself as a preferred lender to the local farmer, and to this end it has developed products
and delivery channels that best respond to the needs of the farmers for production, processing,
trade/marketing and farm-asset acquisition. ENCOT uses both the individual and traditional peerguarantee methodologies, combined with other new innovations and practices. The financial product
was tested and yielded outcomes that encouraged venturing full force in agricultural lending. ENCOT
currently serves over 5,000 farmers with a portfolio of 2.1 million euros (averaging 420 euros per
farmer), growing various crops such as maize, rice and beans.
Acronyms
aBi Trust
AMFIU
ENCOT
FC
HFHU
KRC
MSC
MFI
NARO
PAR
PFA
PO
RFS
SEMA
UGX
Agricultural Business Initiative Trust
Association of Microfinance Institutions of Uganda
Enterprise Support and Community Development Trust
Friends Consult
Habitat for Humanity Uganda
Kabarole Research and Resource Center
Microfinance Support Centre Limited
Microfinance Institution
National Agricultural Research Organisation
Portfolio At Risk
Prosperity for All
Producer Organisation
Rural Financial Services
Sustainable Energy Market Acceleration
Ugandan Shilling
1. Main characteristics of the case
1.1. Farmers and their organisation
Farmers are organised by the Enterprise Support and Community Development Trust (ENCOT)
into groups of 5 people, and 5-10 groups then form a centre. ENCOT operates in 24 centres with
its agri-finance scheme. Each centre is led by a committee composed of a chairman, secretary
and treasurer. These centres have not yet been legally registered with the local authorities, but
efforts are ongoing.
Producer Organisation (PO) /coop profile data
Type of organisation
A group have
A centre
Number of centres with ENCOT
Number of employees
Main crops
Farmers’ group/centres
1-5 members
5 - 10 groups
24 centres
4 committee members
Rice, maize and beans
150
There are no other well-organised farmers’ groups in the region where ENCOT is engaged
with its agri-financing schemes. Some of the groups are older and stronger in their
formation and thus are in a better position to bulk production and undertake collective
marketing. Others are very young and less organised to do this. The main problem
with this type of producer organisation (PO) is that they can neither be registered as
a cooperative nor certified as a farming organisation. ENCOT is trying to facilitate the
proper legalisation and formalisation of the groups in order to strengthen them and give
them better collective bargaining power and bulking capacity.
1.2 ENCOT Microfinance Institution (MFI)
MFI profile data
# of active clients
# of employees
Portfolio value
Portfolio in agriculture
% of farming clients
% of portfolio in agriculture
% of women clients
OSS
FSS
Portfolio yield
Liquidity ratio
Operating expense ratio
Loan to asset ratio
Portfolio At Risk (PAR)
Minimum loan amount
Maximum loan amount
ENCOT is an indigenous rural community
development NGO in micro-credit and ruralenterprise development. It was founded in
2006 by a group of indigenous community
development practitioners in the Masindi
district in Uganda. ENCOT is a young company
that works with vulnerable, rural farming
communities in the region, especially women.
By providing microfinance services to micro
and small-size enterprises, it hopes to help
overcome poverty. ENCOT has three branches:
Masindi, Kiryandongo, and Hoima. It is
headquartered in Masindi and its operations
encompass over 6 districts in the region.
5285
42
UGX 2,192,839,000
UGX 21,9871,600
92%
13..4%
68%
151 %
136%
71%
15%
52%
78%
6.2%
UGX 50,000
UGX 10,000,000
There are no other well-organised farmers’ groups in the region where ENCOT is engaged with
its agri-financing schemes. Some of the groups are older and stronger in their formation and
thus are in a better position to bulk production and undertake collective marketing. Others
are very young and less organised to do this. The main problem with this type of producer
organisation (PO) is that they can neither be registered as a cooperative nor certified as a
farming organisation. ENCOT is trying to facilitate the proper legalisation and formalisation of
the groups in order to strengthen them and give them better collective bargaining power and
bulking capacity.
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1.3 Nature of the business, crop and market
ENCOT aimed to position itself as an agricultural lender. Despite this intention, it hesitated
to fully embark on this agricultural lending process because of the risks and challenges of
agricultural finance. In 2011, with technical assistance from its partner: Agricultural Business
Initiative (aBi) Trust, ENCOT conducted a comprehensive market survey. The survey was
aimed to better understand the needs of the farmers in the mid-western region and to see
which agricultural products and value chains are the most interesting for doing business. This
comprehensive market survey was the basis for agricultural financial product development. The
market survey highlighted the following facts about the region’s farming practices, agricultural
extension support, agricultural financial demand and the current access to finance for farmers:
1.Farming still remains the major means of livelihoods for over 85% the active labour force;
2.Most farmers (over 95%) still operate alone;
3.Farming remains predominantly subsistence;
4.Only 6.2% of farmers have access to finance for their agricultural projects; and
5.Extension service is mainly provided by the government and is relatively inadequate.
Based on the observations of the market study, an agricultural loan product was developed in
2012 in collaboration with the aBi Trust and HIVOS. The product was developed along the valuechain principles, where each project is appraised & managed according to its unique croprelated features. This determined the key issues with respect to the terms and conditions of the
financial product to be rolled out:
• Grace period: the production life cycle and the respective timings for loan applications,
number and timing of loan disbursements and the repayment periods along with the unique
production/project cycles;
• Loan securities – Tailored in accordance with market guarantees;
• Delivery channel; and
• Loan period – Set in accordance with value-chain principles.
After this study an, with support from the aBi Trust, the Microfinance Support Centre Limited
(MSC) and HIVOS, a pilot was successfully conducted in 2012 on a total of 80 loans. In the pilot
phase the loan was issued for two products, namely for the maize and beans value chains. The
pilot was successful with all farmers clearing their loans as was agreed, placing the Portfolio At
Risk (PAR) in this category just at less than 2% with an on-time repayment rate of over 97%. The
product was finally rolled out in 2013, and agricultural projects accounted for over 21% of the
total loans outstanding.
1.4 Other Stakeholders
The various stakeholders actively involved in this project include:
• HIVOS;
• Friends Consult (FC);
• aBi Trust;
• Microfinance Support Centre Limited (MSC);
• Association of Microfinance Institutions of Uganda (AMFIU);
• National Agricultural Research Organisation (NARO);
• Kabarole Research and Resource Center (KRC);
• Habitat for Humanity Uganda (HFHU); and
• Sustainable Energy Market Acceleration (SEMA) Project.
The active partnership of ENCOT with these diverse organisations shows ENCOT’s ambition to
go beyond “standard” microfinance and to gain as much as possible from external expertise,
especially in the agricultural sector. Each of ENCOT’s partners is briefly described:
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HIVOS
HIVOS is a Dutch NGO committed to the poor and marginalised people in Africa, Asia and
Latin America. It strives for the long-term improvement of their circumstances and for the
empowerment of women in particular. Hivos is one of the major supporters of ENCOT. ENCOT
and HIVOS have been partners since 2009, working on an array of projects intended to improve
the capacity of ENCOT to increase its depth and breadth in lending to the un-banked, especially
rural smallholder farmers and with a special focus on women entrepreneurs. In 2012 HIVOS
supported the augmentation of the business plan 2012-2016 and also provided seed capital
to build ENCOT’s capacity to reach out to the rural communities in Masindi, Kiryandongo,
Nakasongola and Bulisa with specially tailored agricultural loan products. Hivos also helped
ENCOT in management information systems and capacity building by training employees and
farmers in production and marketing.
Friends Consult (FC)
FC is the firm retained by HIVOS to provide technical assistance to ENCOT and monitor the
seed capital grant given by HIVOS. FC is home to some of the more experienced microfinance
consultants in Uganda, and ENCOT has greatly benefitted from this expertise. In 2013 Friends
Consult provided technical assistance to ENCOT in developing the Renewable Energy Loan
product. The product was tested among the rural families, and the feedback showed a great
need for renewable energy products such as solar PV panels, cooking stoves and biogas units
for home use. The product was rolled out in 2014 and received positive commitment from
various stakeholders.
aBi Trust
The Agricultural Business Initiative (aBi) Trust is a multi-donor entity jointly founded by the
governments of Denmark and Uganda and other development partners. This Trust supports
agribusiness development in the private sector in Uganda. ENCOT has been in partnership with
the aBi Trust since 2012. In 2013, the aBi Trust helped ENCOT expand to the Hoima District in
the period October – Dec 2013. The branch was officially opened in March 2014. This branch is
strategic in expanding ENCOT’s presence in the oil-rich region serving the districts of Bulisa,
Kyankwanzi, Kibale and Hoima itself.
MSC
MSC is one of the leading, government-owned agencies implementing the government
programme “Prosperity for All” (PFA) in Uganda. PFA wants to transform the rural economy
through creating jobs and increasing household incomes. One of the pillars of PFA is Rural
Financial Services (RFS). The overall objective of RFS is to develop a financial infrastructure at
the sub-country level. ENCOT has been a partner with MSC in RFS since 2009, enabling over
1,200 poor households in the districts of Masindi, Kiryandongo, Nakasongola and Bulisa to
access the microfinance services needed to support self-employment in those communities.
Association of Microfinance Institutions of Uganda (AMFIU)
The AMFIU is an umbrella organisation of MFIs in Uganda. The AMFIU provides capacitybuilding support to its members on key themes. The main reason for its establishment was
the need for MFIs to have a common voice, to lobby government for favourable policies, to
share information and experience and to link up and network with both local and international
actors. ENCOT has been a registered, full member of the AMFIU since 2009. In 2013, the
AMFIU provided technical support through PESS Limited to enable ENCOT to streamline and
mainstream its social performance objectives and perfect its reporting to the MIX market.
NARO
The NARO is the apex body for the guidance and coordination of all agricultural research
activities in the national agricultural research system of Uganda. ENCOT is an approved private
research service provider for the NARO and has participated in a number of seed trials and
other agro-research activities working through the organisation’s women’s groups and services
centres.
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KRC
The KRC is a well-established NGO operating in the Rwenzori region of western Uganda.
Founded in 1996 with a research mission and a long-term commitment to understanding
the measures and drivers of poverty and its solutions, the KRC has accumulated substantial
experience in research and created numerous development programmes based on community
analyses of the activities that would be most helpful in achieving sustainable and equitable
socio-economic development. In a bilateral arrangement (2013 – 2016) facilitated by HIVOS,
the KRC and ENCOT have a embarked on a project to improve the household incomes of
smallholder farmers in the Bunyoro region involved in the rice, beans and maize value chains
through developing and strengthening inter-linkages between sustainable production, collective
marketing and access to financial services in ENCOT’s areas of operation.
Habitat for Humanity Uganda (HFHU)
HFHU is an affiliate of Habitat for Humanity international. In 2010-2011, HFHU supported
ENCOT with the Financial Literacy project in the districts of Masindi and Kiryandongo. This was
followed up by the Housing Microloan Product development process. In December 2013, HFHU
provided ENCOT UGX 150,000,000 for on-lending under the micro-housing credit product. To
further bolster this product as an ENCOT product offered to the regional poor, HFHU has further
committed UGX 150,000,000, to be release in 2014.
SEMA Project
SEMA is a project jointly funded by the European Union and Hivos. The objective of the project
is to contribute to increased access to renewable energy through partnerships between
renewable energy entrepreneurs and rural-based financial institutions. The SEMA project
has supported ENCOT’s development of the energy product, linked ENCOT with a reputable
energy entrepreneur, equipped ENCOT staff with renewable energy lending skills and
provided marketing support to promote awareness of these energy solutions to increase their
acceptance. Through this support ENCOT is now able to successfully lend to its clients, who
previously could not acquire these energy solutions with their high upfront costs. Clients are
now replacing their kerosene lamps with brighter solar lights, charging their phones from the
comfort of their homes, listening to the radio, etc.
1.5 Nature of the financial transactions
While ENCOT has five main financial products, the agricultural enterprise loans are the
ones studied and described in this case study. ENCOT MFI designed a financial product for
agricultural borrowers after having completed a preliminary study. The product was designed
for specifically selected crops: those that are supposed to be in a better position to enable loan
repayment. In doing this, ENCOT considered the viability of the microenterprise of its clients and
promoted those considered most attractive. Both considerations are rarely seen in the regular
microfinance industry.
Product features. The loans are provided for one year, based on the cyclic nature of production
in the region. A 36 % annual interest rate was imposed for the borrowers and a flat interest rate
with a bullet repayment was designed. In order to mitigate the risk a group loan mechanism
was devised. Despite this group guarantee system to mitigate risks, the loan contract was made
individually for each borrower.
Table 1.1 Credit product(s) for agriculture
Name
Months
Interest
Interest mode
Repayment
Security
Agricultural enterprise loans
1 year
36%1
Flat
Bullet
Group2
1
In addition, there is a 1% insurance coverage + a commission fee of 3%.
2
Beyond the group arrangement there are many more conditions and terms in the product to assure loan security.
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ENCOT focused on reaching farming communities, especially smallholder farmers, with
appropriate loan products targeting production, processing, trade/marketing and farm-asset
acquisition. After the marketing survey, the product was developed, piloted and rolled out in
2012 and 2013, respectively. The products have the following features;
1.A loan is given with a minimum and maximum limit of UGX 100,000 to UGX 1 million,
respectively;
2.Group arrangement for security; and
3.Targeted to the poor having land ownership or legal entitlement of 1-5 acres of farm land.
Repayment is based on the balloon repayment strategy (bullet loan), in which the borrowers
keep paying back the interest and finally pay back the principal at the end of the loan period.
Other features and conditions are described below under loan appraisal.
2. Risk Analysis
2.1 How was risk management approached by the stakeholders?
Loan appraisal by the Microfinance Institution (MFI) - due diligence
The requirements of Enterprise Support and Community Development Trust (ENCOT) in its due
diligence process include:
I. Permanent residence of the peasant association for at least 2 years;
II. Having owned or rented farmland (with proper evidence for a good period);
III. One personal guarantee to stand in for the loan if borrower fails to pay back;
IV. In a group of not less than 5 members;
V. Willing to save 1% of the loan every week with ENCOT, this to also encourage the saving
habits of the clients;
VI. Each applicant is required to have 5% of the amount of the loan demanded as mandatory
savings at ENCOT;
VII. ENCOT offers a 3% interest monthly, which is 36% per year;
VIII. Insurance coverage against the loan amount is taken with a premium of 1% of the loan
disbursed;
IX. A commission fee of 3% of the amount disbursed;
X. Willing to accept all the terms and conditions of the ENCOT loan and sign a contractual
agreement with ENCOT; and
XI. Phased disbursements according to the crop needs, e.g. land preparation, weeding and
harvesting.
Generally, ENCOT recognises that proper management of microenterprises by its clients is
paramount in two ways. First, it helps to generate income among the poor through efficiency
and good practice. Second, it improves the client’s ability to manage credit and other business
obligations. With regard to this, ENCOT has been using its group and services delivery points
(centres) as training and advisory points to offer the following trainings.
A. Pre-disbursement training programmes that emphasise understanding the loan terms,
group formation and dynamics, leadership skills, financial discipline, loan tracking and basic
business planning skills. For a new group of applicants there will be a training one day a week
for one month.
B. Post-disbursement training programmes are follow-up business skills trainings that further
support the poor to articulate business issues and further exploit the business potentials
around them. The common themes of interest include:
• Business planning;
• Marketing;
• Customer care;
• Record keeping;
• Resource mapping and mobilisation;
• Networking; and
• Basic accounting, budgeting.
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2.2 Risk management by the stakeholders
In the design and development of the programme, the lead actors have jointly assessed the risks
for farmers and the producer organisations (POs), and identified means to mitigate these risks.
For the purpose of the case study, a distinction has been made between the six crucial aspects
of smallholder production, i.e. risks related to;
• the specific crops: i.e. rice, maize and beans;
• the farming system and production risks;
• the strength of farmers’ organisation;
• the markets for the selected crops;
• the viability of the crop farming system promoted; and
• the financing of farmers.
These risks and the way they were mitigated and managed have been tabulated in a risk
catalogue (see table 2.1) and are briefly summarised below.
Product-related risks
Maize and beans are crops that can be stored for some time, and hence the shelf life is not as
limited as other ‘garden crops’ such as vegetables. Crop specifics risks are associated more
with poor quality, low yields due to fake farm inputs, and the risk of buying wrong seed variety.
Mitigation measures focussed on educating and sensitising farmers to follow proper farming
methods, and letting farmers use good seed materials from certified suppliers. As a monitoring
mechanism ENCOT staffs perform regular inspection of the farmers’ gardens to insure proper
farming practice. To mitigate the risk of fake variety seeds and farm imputes farmers are
sensitised to buy seeds and other inputs from recognised distributors.
Production-related risks
The production risks for the three crop financed by ENCOT are varied. They include the full
range of both pre-harvest and post-harvest issues:
• farmers’ reluctance and failure to do the right agronomic practice at the right time;
• impact of bad weather conditions on crop yields;
• pests and diseases;
• non-germination of seeds;
• lack of awareness of the nature of the soil and the appropriate crop to cultivate on these soils;
• harvesting and re-harvesting on time; and
• risk connected to bulking (post-harvest treatment, quality selection and grading) and
transporting (transport damage, poor packaging, poor handling).
As indicated above, crop cultivation risks (pre-harvest) are dealt with by sensitisation, training
and regular monitoring visits by ENCOT staff. To increase farmers’ awareness of the appropriate
agronomic practices ENCOT outsources support from the Kabarole Research and Resource
Center (KRC) and facilitates government extension supporters in addition to ENCOT’s own field
officer, who offers the same service to the farmers. ENCOT invests only a portion of its loan
portfolio in the agricultural sector to mitigate the risk of bad weather on crop yields. To mitigate
the post-harvesting and re-harvesting problem, ENCOT devised a farmer’s warehouse bulk
receipt, organising the delivery, acceptance, grading and storing of the crops produced. It also
serves as collateral for the loans provided (asset-based lending).
Farmers’-and-PO-related risks
As described under 1.1, no formal PO exists for the farmers because ENCOT organises them
in client-groups and centres. The difference with the conventional client grouping applied in
solidarity group lending is that ENCOT’s groups are led by a committee (similar to Savings and
Credit Cooperatives – SACCOs, or Village Savings and Loan Associations - VSLAs) and they
consist of one type of client only (smallholder farmers). As they are organised by ENCOT, the
financier has considerable influence on these groups and can act if the group fails to function
properly. This in itself is a risk-mitigating feature of the ENCOT model. Nevertheless, there
are still ample challenges in respect to organising farmers, such as the lack of a common
stand among farmers in pooling products (this is important to have bargaining power on the
price) and the observed vulnerability to unreliable traders (e.g. traders’ efforts to disorganise
farmers or dealings with unreliable farm-input suppliers). Training and educating farmers
156
about production, marketing and value addition through pooling was used to mitigate the risk of
common pooling and bulking problems. To reduce the risk of unreliable buyers of the produce,
farmers were encouraged to bulk their produce.
Encouraging farmers to buy only from approved input suppliers was a means of coping with the
unreliability of farm inputs and supplies to the farmers. Side selling to the middleman rather
than pooling with the farmers’ group to strengthen the negotiation position, continues to form
a risk for participating farmers and their centres. Thus farmers needed to be educated and
supported to do bulking and collective marking.
Marketing-related risks
The risk related to the seasonal fluctuation of prices was identified as the main risk. After
harvesting, prices for maize and beans typically drop as a result of excess supply. The three
mitigation strategies are storing (until prices are back to normal), processing (posho mills
producing maize flour) or forward contracting at pre-agreed prices. This requires strengthening
farmers’ groups and enabling them to have collective power through pooling and storage.
Farmers were also encouraged to diversify their income by growing a number of crops. To
mitigate price risks, ENCOT tried to devise a forward-contracting proposal and look for better
buyers, but this has been unsuccessful so far.
Finance-related risks
Unlike most MFIs, ENCOT first studied the viability of different crops to ensure that farmers
would be capable of debt servicing. This in itself is a risk-mitigating feature of the ENCOT model.
Other financial risks can be attributed to:
• loan diversion;
• adverse selection of borrowers;
• moral hazard, wilful default, delay in repayment;
• risk of catastrophic crop failure; and
• warehouse receipt lending undermined by side selling.
In order to mitigate these risks, ENCOT devised a group-guarantee system with a staggered loan
disbursement. In addition, both pre- and post-loan sanction-training programmes were given,
due credit appraisals and due diligence processes were done and clients and their produce were
regularly monitored. As a result the MFI has a 98% repayment rate.
ENCOT invests only a portion of its total portfolio (15%) in the agricultural sector to mitigate the
risk of bad weather on crop yields. To educate farmers about the financial product provided and
appropriate agronomic practice applications, ENCOT receives support from the KRC, facilitates
government extension supporters and has its own field officer who provides farmers with the
same service.
Risk management
The detailed risk appraisal, assessment and mitigation measures taken are presented in the
following table.
157
Table 2.1: Risk catalogue: Overview of risk assessment and risk mitigation measures
Aspect
Risk assessment
The risk owner
Risk mitigation measures
Risk monitoring
Product risks
Poor quality of harvest
• Farmers to follow proper farming methods
• Sorting out the harvest for best produce
• Farmers to use high quality seeds
• Agronomists / ENCOT staff regularly inspect
farmers’ gardens to ensure proper farming
practices are embraced
• Group committee inspects produce for bulking
Risk of fake farm inputs
To buy seeds and other inputs from recognised
distributors
Side selling to middlemen rather than pooling
with farmers’ group
Educating them to pool for better prices xxxxx
Pooling harvest and warehouse store receipt
used as a way for the next loan
• More education collective marketing
• Diversification of crops to grow
Risk of buying a wrong variety of seeds
• To buy seeds and other inputs from recognised
distributors
• To sensitise farmers to appreciate the benefits
of using improved seeds
Farmer training by ENCOT staff at centre meetings
Risk of tight harvesting and re-harvesting
time
Ware-house bulk receipt and going to the next
loan cycle
Extension staff keeps farmers informed of the
seasons
Bad weather conditions/harvesting season/
drought/ weather failure
• Crop Insurance (but this one is almost not
possible)
• ECOT investment in agriculture 15% of the total
portfolio – manageable portion
• ENCOT provide for a diversified product value
chain. Rise, maize and beans
• Explore other farming methods like Drip
Irrigation
• Insurance was sought but very expensive for the
farmers at this time
• Only last year there was a bad harvest
• ENCOT still had a great repayment rate of 98%
Pests and diseases
• Diversification.
• Follow-up of agricultural experts of the KRC
provide training and extension service
• Observe good agronomical practices
• Growing of pest/disease-resistant varieties
• ENCOT provides a limited extension service in
collaboration with the KRC
Lack of extension services
• Outsourcing support from the KRC
• Facilitating government. Extension Workers
(e.g. transport) to support ENCOT farmers
Very limited
Lack of knowledge of the type of soils in the
area and the kind of crops they support
Collaboration with local research institutes
Production risks
Production Risk
Risk of non-germination of seeds
Risk at bulking and transporting
Farmers’ organisations
Farmers’ failure to implement the right
agronomic practice
Education in good agronomic practices
Inspection of farms by ENCOT staff. Agricultural
extension and sensitisation programmes
Lack of common stand in pooling products to
have bargaining power about price
Training and educating farmers about production,
marketing and value addition through pooling
• Yes, but much should be done to make farmers
well aware of it
• Next cycle loan based on bulking
Lack of common stand in pooling products to
have bargaining power about price
Training and educating farmers about production,
marketing and value addition through pooling
• Yes, but much should be done to make farmers
well aware of it
• Next cycle loan based on bulking
Unreliable trader
Keep encouraging farmers to bulk their produce
• Keep encouraging farmers to bulk their produce
• Yes, but still much should be done
Unreliable farm-input suppliers
Encouraging farmers to buy only from approved
input suppliers
Traders’ efforts to disorganise farmers
Market risk
Financial risks
Uncertified farmers’ group
Registration with the sub-county or district
authorities.
In progress
Negative attitude towards loan because of
religion
More education on the benefits of loans to a
farmer.
Centre group meetings/trainings
Past bad loan experience from other financial
institutions
ENCOT to take advantage of the shortcomings of
the other financial institutions to do better
Do competition analysis to highlight ENCOT’s
position in the market on different parameters e.g.
customer service, client education, etc
Price fluctuation 1. Seasonal price
fluctuations
• Strengthen farmers’ groups in collective
• power through pooling and selling in bulk
• Diversification of income generated by growing
a number of crops
Extension service or loan officer’s inspection of
farmers
2. Product price risk
Proposed for forward contracting. ENCOT tried to
look for a better buyer
• Not yet possible
• Buyer did not agree on forward contract; opted for
spot price
Loan default
• Staggered loan disbursement
• Group guarantee (Personal guarantee)
Portfolio performance e.g. Portfolio At Risk (PAR)
Risk of catastrophic crop failure
• Diversification: Only 15% agricultural
• Staggered conditioned loan disbursement
• Used gradual principle. Start small, grow big loan
• Based on farmers’ agronomic progress
Risk of adverse selection
Good credit appraisal and due diligence process
Based on graduation principle they will provide for
the next loan cycle
Repayment delay
Regular monitoring of the clients and their
produce
94% repayment rate after delay
Risk of loan diversion
Proper due diligence
Regular loan monitoring & proper due diligence
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2.3 What is the finance strategy?
ENCOT’s agri-financial strategy is characterised by the following:
Financial needs assessment and product development. With technical assistance from
the Agricultural Business Initiative (aBi) Trust, a comprehensive market survey was conducted in
2011 to better understand the needs of the farmers in the mid-western region and to see which
agricultural products and value chain were interesting. Based on the key observations from the
market study, ENCOT developed an agricultural loan product in 2012 in collaboration with the
aBi Trust and HIVOS. The product was developed along the value chain principles in which each
project is appraised and managed according to its unique features.
Farmers’ group formation. The credit was given to the farmers in a group arrangement with
cells of five that together form a centre. A conservative list of conditions and terms was also
used to support the group security arrangement of this loan (refer to the due diligence process
above for details).
Financial products/instruments. An agricultural enterprise group loan was given with a
minimum and maximum limit of Ugandan Shillings (UGX) 100,000 to UGX 1 million, respectively.
A group guarantee arrangement was followed in order to secure the loan. The loan was targeted
to the poor having either land ownership or a legal entitlement of 1-5 acres of farmland. The
loan was provided for one year with an annual flat interest rate of 36%. Repayment was based
on a balloon repayment strategy in which the borrowers keep paying back the interest and finally
pay back the principal at the end of the loan period.
2.4 What capacity for agri-finance has the MFI installed?
ENCOT has highly trained staff to do the credit appraisal and proper screening of the farmer
applicants and their groups as well as to follow-up the request and disburse the loan to each
based on the staggered conditional disbursement scheme of the loan. In addition, in the regions
that ENCOT has been operating in, there is little competition in the agricultural finance sector
and a very high demand for credit. This gives ENCOT a high bargaining power with farmers to
force them to behave with respect to the conservative terms and conditions with a staggered
disbursement of the loan product. This also enables them to select only the most creditworthy
farmers from a very large number of applicants.
With the help of the KRC, better agronomical education and training has been given and will
continue to be given to support farmers to be more efficient and productive and to have a better
repayment rate for ENCOT. Furthermore, ENCOT is working with the KRC to develop and empower farmers’ groups in order to make them able to pool production, store, add value and sell
at a better price at an appropriate time. Buyers from Kenya and Rwanda are interested in the
product and looking forward to bulking and selling it at a better price in bulk.
ENCOT has been building excellent partnership experience and relationship with international
and national development partners, funding agencies and research institutions. They are still
looking for a good system that can synchronise credit operations and farmer activities.
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3. What made it tick?
3.1 What are the success factors in this case? What risk mitigation measures
proved effective?
Financier-led orchestration. The lead actions were done by the financer: Enterprise Support
and Community Development Trust (ENCOT). Most activities and initiatives were supported by
development partners such as the aBi Trust, HIVOS, the Microfinance Support Centre Limited
(MSC) and the Kabarole Research and Resource Center (KRC). For details see the other
stakeholders (section 1.4 above). The financial product development was based on an extensive
marketing survey of the region. The region’s farming practices, the financial demand and the
current accesses were investigated. The survey also provided information about how to develop
the product and the terms and conditions of the loan. Moreover, a pilot study was conducted
preceding the market survey. The loan was then given with a group loan security system with
a number of specific conditions and terms. In addition, the loan was also disbursed based on a
staggered conditional loan disbursement. This finally enabled ENCOT to minimise the risk and
be able to have a real-time repayment rate of over 98%.
ENCOT allocated only 15% of its loan portfolio to agriculture. If a worst-case scenario of
crop failure happens in the region, the risk will not have a substantial effect on the business
operations of ENCOT. Furthermore, ENCOT based its value chain finance on the selected
agricultural production; crops that already had proven marketable at a better price. As a result,
the loan was diversified with maize, beans and rice producers.
As a young institution ENCOT, was able to cover all the expenses of its operations. Furthermore,
ENCOT was also able to convince and create partnerships with a number of development
partners. Recently, ENCOT was able to receive money from the Grameen credit fund. Oikocredit
and Hivos are also the other development partners who are interested in having equity and/or
shareholdings. Further, ENCOT recently recruited qualified, skilled and experienced employees
in the key positions of the organisation. Agricultural value chain finance has already been piloted
and is operational. ENCOT now wishes to upscale these financial products to the other regions
that ENCOT can feasibly address and to apply the experience gained to other product value
chains in addition to the existing three main value chains financed. Next year ENCOT plans to
change the organisations legal entity to a company limited by shares.
3.2 What are the (remaining) weaknesses/threats/risks?
ENCOT has a system to track the farmers and clients but they would also like to have one that
records the harvest, forecasts their produce in bulk and looks for a better market linkage, such
as a forward contracting. They still do not have the best human resources with the experience,
skills and qualifications for every position in the organisation. Funding specifically designed
to suit agro-lending at the wholesale level is still a challenge. ENCOT provides its financial
products only to the extent that its resources allow.
The grassroots farmers’ organisations are still weak and/or non-existent in many parts of the
country, hence the need for ENCOT to be active in this field. The market survey also highlighted
that the majority of the farmers are operating alone with little commercialisation.
Credit, cash management and financial management in this region are still serious problems.
Credit is often perceived as handouts. Sensitisation was done through training programmes and
pre- and post-loan disbursement education. Despite this, the problem still persists. When loan
delay and default happen, the regulatory environment regarding non-performing assets/loans is
still skewed against financial institutions. Because most of the existing farmers’ groups are not
well organised and legalised as cooperatives, they lack the trust of the farmer members; as a
result, there is little collective bargaining power through bulking produce at harvest time to add
value through storage. Marketing farmers’ produce is still not well organised and leaves farmers
at the mercy of middlemen, thus greatly affecting the net farm income. Furthermore, insurance
in agriculture as a mitigating mechanism for the risks exposed is still not well developed or
involves a very expensive insurance premium so that farmers are less interested.
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3.3 Do stakeholders have a view on how to better deal with these remaining
risks in the future?
• Production and marketing are unorganised and need improvements: The extension service
provided by both the government agricultural extension agents and ENCOT for the farmers
is very minimal. ENCOT believes that lending to farmers can only be successful if closely
coordinated with extension services (in-house or external) and market linkages. This needs
much more attention.
• Empower farmers’ groups and so they have collective bargaining power with buyers. This
will enable the farmers to minimise their main risk of price fluctuations at harvest as a
result excess supply. If the groups are strong enough they can collaborate to create a better
marketing strategy in bulking and forward contracting.
Sources
Documents:
Making Agricultural Microfinance Work; The ENCOT Journey and Lessons Learnt, Hoima
Branch. Launch Symposium, Kolping Hotel, Hoima – 14 March 2014.
Interviews:
• Paschal Mandhawnu, ENCOT managing director, Masindi,
[email protected]
• Robert, ENCOT agricultural loan officer, Masindi.
• Kikubie centre’s members and administrators.
Websites:
www.encot.org
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Case Study U3
National Union of Coffee Agribusinesses and
Farm Enterprises (NUCAFE)
“Facilitation of access to finance”
Abstract
The National Union of Coffee Agribusinesses and Farming Enterprises (NUCAFE) is a national
union of 160 coffee growers’ primary societies with a total membership of 150,000 coffee farmers.
It has established 8 so-called business hubs, which are strategically located in the coffee-growing
area of the country. The hubs, usually located on the premises of a hulling factory, consist of
a small building with an office and storage space. As a development partner, Agriterra played
a major role in facilitating the financial access of NUCAFE farmers in the Kabonera Coffee
Farmers’ Association (KCFA) in the Masaka hub. It trained NUCAFE staff in financial management
and guided staff on how to develop a bankable business plan. With this, the KCFA staff were
able to present a bankable business proposal to Centenary Bank. This led to a fruitful financial
relationship in which the bank built up experience in coffee-farm financing and gained confidence
in its clients. Thus over the past three years, Centenary Bank allowed bank loans to increase from
Ugandan Shilling (UGX) 40 million to 100 million at gradually decreasing interest rates.
Acronyms
aBi Trust
FAQ
FOM
KCFCS
MFI
NAADS
NUCAFE
PO
TMEA
UCDA
UCFA
UGX
UIA
Agricultural Business Initiative Trust
Fair Average Quality
Farmer Ownership Model
Kibigne Coffee Farmers’ Co-operative Society
Microfinance Institution
National Agricultural Advisory Services
National Union of Coffee Agribusinesses and Farming Enterprises
Producer Organisation
TradeMark East Africa
Uganda Coffee Development Authority
Uganda Coffee Farmers Association
Ugandan Shilling
Uganda Investment Authority
1. Main characteristics of the case
1.1 Farmers and their organisation
NUCAFE stands for the National Union of Coffee Agribusinesses and Farming Enterprises and
was founded in 1995 as the Uganda Coffee Farmers Association (UCFA). In 2003, the UCFA
changed its name to NUCAFE in response to an assessment of members’ needs and strategic
planning carried out that year. NUCAFE is mainly involved in procuring and marketing coffee.
It consists of 160 Ugandan primary societies spread over 5 main coffee- growing regions in
Uganda and representing more than 150,000 coffee-farming households. NUCAFE’s system
of operation is based on the Farmer Ownership Model (FOM), which is designed to help smallscale coffee farmers to adopt a business view of farming and organise themselves to assume as
many roles in the value chain as possible.
NUCAFE profile data
Type of organisation
Number of group members
Number of group members
Number of employees
Main crops
Coffee Agribusiness & Farm Enterprises
8 hubs & 160 primary societies
150,000 HH
15
Coffee
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NUCAFE’s aim was to establish a sustainable market-driven system of coffee farmer societies
through which farmers participate fully in determining the economic future of their households
and the rural economy. In order to procure and mobilise the coffee of its members, NUCAFE
established 8 so-called Hubs, which are strategically and logistically located in the towns of
Masaka, Bushenyi, Kasese, Nkokonjeru, Mityana, Wakiso, Kapchorwa and Phaida. Every hub
consists of a small building with an office and storage space. The hubs are usually located on
the premises of a hulling factory where farmers can process their kiboko (dried berries) into
Fair Average Quality (FAQ) for a small hulling fee. After hulling they can sell their FAQ coffee at
the hub (NUCAFE only buys FAQ).
NUCAFE still plays an essential role in mobilising, bulking and transporting coffee from farmers
and member associations to Kampala. This is mainly because most associations and hubs are
not developed enough to manage activities related to bulking and transportation. In the future,
however, it is expected that hubs and member associations will acquire the expertise, skills, assets and working capital themselves to individually transport their coffee to the NUCAFE export
facility in Kampala. The field research for this case study concentrated on the Masaka District.
Under NUCAFE membership in the Masaka district there are two main producer organisatios:
Masaka Coffee Hub and the Kibigne Coffee Farmers’ Co-operative Society (KCFCS). Figure 1.1
below shows the relationships between the main stakeholders in the chain and these two producer organisations (POs).
National Union of Coffee
Agribusiness and Farm
Enterprise (NUCAFE)
Centenery
bank
Kibinge coffee farmers
cooprative society
Masaka Coffee Hub
Kabonera coffee
Farmers Assocation
Uganda Developmet
Bank
Cooprative
activity unit
Coffee farmers
Credit &
Savings Unit
Farm Input
Shop
Drug Shop
Coffee farmers
Figure 1.1: Organisational structure of NUCAFE with respect to the selected case studies
In the above figure, four major players contribute to the aim of coffee farmers’ organisation: the
Masaka Coffee Hub, the Kabonera Coffee Farmers’ Association, the KCFCS and its Savings and
Credit Unit. Each of these is briefly described:
163
Masaka Coffee Hub
Masaka Coffee Hub is one of the eight coffee hubs under National Union of Coffee Agribusiness
and Farm Enterprise. The hub consists of 2,220 farmers organised in 9 coffee farmers’
associations with 74 groups engaged in bulk marketing of their own coffee. The system of
operation at NUCAFE in general and at the Makasa coffee hub in particular is based on the
NUCAFE Farmer Ownership Model (FOM), which is designed to help small-scale coffee farmers
to adopt a business view of farming and organise themselves to assume as many roles in the
value chain as possible. Coffee business hub practice is taken from a Tanzanian business case
introduced by the development partner Agriterra. This business hub practiced for the last two
years. Like the other hubs, Masaka is not yet registered (neither as a cooperative nor for fair
trade certification). In line with this, NUCAFE also aimed to strengthen the coffee hubs so they
could start operating more independently. With the new export processing facility in place
(July 2014), NUCAFE believes that the hubs will become more independent in mobilising and
exporting coffee by using the market linkage services and export facilities of NUCAFE. The hubs
are currently in the process of becoming
Fair Trade and Organic certified. These
PO /coop profile data
certifications, in combination with the focus
MASAKKA COFFEE HUB
on specialty coffee, will result in higher
prices and premiums on the world market.
Type of organisation
Coffee Hub
Number of members
2220 farmers
NUCAFE has already devoted much effort to
Number
of
employees
3
educate farmers on quality improvement.
Main crops
Kabonera Coffee Farmers’ Association
Coffee
Kabonera Coffee Farmers’ Association Limited started operation in June 2002 as a company
limited by guarantee with 15 registered paid-up groups as shareholders, each group having
25-35 coffee farming households. The association is a leading coffee PO for the Masaka Coffee
Hub and the location of the pilot study. The vision of this association is to improve coffee
farmers’ livelihoods through producing and marketing special, organic Robusta coffee. The
individual coffee farmers have been engaged in bulking and supplying dry (Kiboko) coffee to
NUCAFE since 2006. The Kabonera Coffee Farmers’ Association was the leading party for the
pilot finance scheme of Centenary Bank in 2011. Subsequently, it was provided with loans by
Centenary Bank for the past three harvesting years. This year the business proposal included a
credit line amounting to Ugandan Shilling (UGX) 100 million.
Masaka coffee hub and its membership
Name of farmers’
association
Number of
groups
Member-ship
Kabonera
1
450
Kyanamukaka
13
150
Kkingo
11
240
Lwengo
9
200
Butengo
11
80
Kisekka
9
119
Buwunga
11
66
Mukungwe
3
25
Bukulula
3
350
71
1680
Total
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Achievements Masaka hub
Since 2011, the Masaka Coffee Hub has achieved the following:
• Acquiring a business plan and diagnostics report through ITC;
• Improving the quality of the warehouse and grading plant at Namanve by
NUCAFE;
• Improving professionalism of hub staffs by acquiring a number of
trainings from NUCAFE and development partners like Agriterra, the
Agricultural Business Initiative (aBi) Trust, the National Agricultural
Advisory Services (NAADS) and the Uganda Coffee Development Authority
(UCDA);
• Acquisition of 4C certificate with support from ITC;
• Increased tonnage of coffee from 50MT in 2011, 60MT in 2012 to 98MT in
2013;
• Through Agriterra and the aBi Trust, the hub got fixed assets, including a
computer set, printer, moisture metre and motorcycle; and
• Quality-enhancing tools (such as a moisture metre, weighing machine
and sample screening - see the pictures below) were acquired from the
aBi Trust for Kingo, Kabonera and Kyanamukaaka.
Kibigne Coffee Farmers’ Co-operative Society (KCFCS)
• Established in 1995;
• Registered as a private company limited by guarantee in 2001;
• Converted in 2009 to cooperative society with the aim of benefiting the members by engaging
in income-generating projects; and
• Currently the cooperative society is doubly certified: UTZ and Fair Trade certificates.
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Services offered by the Cooperative Include:
1.Training farmers in general agronomical practices, collective marketing, financial accounting
bookkeeping, cash management and ender studies;
2.Consultancy in agribusiness;
3.Delivering technical support in certification standards;
4.Savings and credit facilitation;
5.Buying and processing coffee; and
6.Assisting farmers by providing easy access to farm inputs, certification, crop advances,
collective marketing and research.
The Cooperative Society is able to improve the
coffee quality by adding value and enjoying a
premium price in the market. Moreover, it is
able to create better working conditions and
to contribute to development services and
support for the local communities in terms of
repairing roads in its area of operation. For these
achievements, the KCFCS has been awarded some
certificates (see photos below).
PO /coop profile data
Type of organisation
# of members
# of farmers’ groups
# of employees
# casual workers
Cooperative society
1456 members
48 farmers’ groups
15
6
KCFCS Savings and Credit Unit
Microfinance Institution (MFI) profile data
In 2013, the KCFCS opened up a savings
KCFCS Savings And Credit Unit
and credit unit. The aim of this unit is to
Total number of active clients 331 Loans So Far
provide credit service to its members in
Portfolio value (in euros)
UGX 483.97 M
response to their working capital needs
Portfolio value outstanding
UGX 191 M
before their coffee is ready for sale.
%
of
farming
clients
100%
This initiative also raised the culture of
% of portfolio in agriculture
70% estimated 100%
savings among the farmers.
Savings portfolio
UGX 59,353,170
The KCFCS savings and credit unit
Share capital
UGX 29,145,000
provides credit to participating coffee
Loan Outstanding
UGX 176,052,650
farmers for inputs (farm chemicals).
The loan size depends on the
creditworthiness of each farmer and the needs of their coffee farm. The KCFS charges a 2.5%
interest monthly. It also provides staff loans at a 1% interest per month.
Eligibility criteria: Access to this loan for the members is based on the following
requirements and steps:
>> Member with shareholding status with a 10% share of the loan is mandatory (1 share= UGX
10,000);
>> Good relationship with the cooperative and a savings culture;
>> Good farm shop activity in the cooperative’s farm shopping unit;
>> Physical collateral such as a house, motorbike, etc;
>> Two personal guarantors who have a paid-up share holding position in the cooperative;
>> Field officer’s field visit and appraisal;
>> Then credit committee approve or reject based on the field officer’s report and the applicant’s
application;
>> Application fee of UGX 5,000; and
>> A signed contractual agreement with the credit and savings unit.
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1.2 Financial service providers
There were three external sources of finance for the coffee farmers: Agriterra (Netherlands)
as facilitator, Centenary Bank in Masaka and the Uganda Development Bank. Each of these is
briefly described below.
Agriterra
As a development partner, Agriterra played a crucial role in facilitating the financial access of
NUCAFE in general and the Kabonera Coffee Farmers’ Association in the Masaka business hub
in particular. From the very beginning Agriterra trained NUCAFE staff on financial management
aspects and bookkeeping and instructed staff on how to develop a bankable business plan.
Subsequently, also with the support of Agriterra, NUCAFE and the Kabonera Coffee Farmers’
Association employees were able to develop a bankable business proposal. Based on this
business proposal and other additional conditions and terms (see below), credit was granted
through Centenary Bank. As a result of their bankable business proposal, Kabonera was able to
access UGX 40,000,000, 45,000,000 and 75,000,000 from Centenary Bank at a 28%, 27% and 26%
interest respectively in the past three years.
This year they have also developed a business plan and proposed a credit line of UGX 100 million
loans at a 21% interest. Moreover, Agriterra also provided training support at the hub and
farmer’s levels on gender balance and equitable household decision-making, bookkeeping and
cash management at both the household and hub levels. Moreover, through Agriterra the coffee
hub also acquired fixed assets including a computer, printer, moisture metre and a motorbike.
Centenary Bank, Masaka branch
Centenary Rural Development Bank Ltd started as an initiative of the Uganda National Lay
Apostolate in 1983 as a credit trust. It began operations in 1985 with the main objective of
serving the rural poor and contributing to the overall economic development of the country.
In 1993, Centenary Rural Development Bank Ltd was registered as a full-service commercial
Bank. Currently, Centenary Bank is a leading microfinance commercial bank in Uganda, serving
over 1,300,000 customers. The services are accessed across their 62 full-service branches and
146 ATMs networked countrywide. Centenary Bank has been supporting NUCAFE in general and
the coffee agribusiness sector in particular.
Due diligence process
According to NUCAFE’s information, it was difficult in the beginning for Centenary Bank, to
decide on the creditworthiness of the Kabonera Coffee Farmers’ Association because the bank
had no experience in coffee-credit provisions in the Kabonera region. As a result, an interest
rate of 28% was set. Over time, the bank was able to see and experience the business of
the association and its repayment capacity and, as a result, the interest rate was reduced to
26% on the second loan and now to 21%. The amount of loan granted to the association also
increased from 40,000,000, to 45,000,000 and then to UGX 75,000,000 in the past 3 years. It is
this experience that has helped the bank agree to a credit line of UGX 100,000,000 at an interest
of 21% pa.
Ugandan Development Bank
The Ugandan Development Bank is the financer for the KCFCS and specifically for the Credit
Unit. The loan had the following terms:
• Loan amount of UGX 300 million
• Interest rate of 15%;
• Loan period of one year; and
• Repayment in two equal instalments (every 6 months).
The due diligence process was based on the following criteria:
• Financial statement of the business operation of the cooperative society;
• Membership in the cooperative society and experience in the business;
• Business activities and cash inflow and outflow of the cooperative society; and
• Guarantee by three board members of the cooperative society.
Other financiers
NUCAFE received a variety of grants from the Agribusiness Initiative Trust amounting
2,151,091.845 USX. From TradeMark East Africa (TMEA) USD 340,851 and from Agriterra
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62,705,885 USX. All these grants were to improve coffee bulking and marketing and increase
the access to finance for smallholder farmers. Generally, financial aid is given independently
for NUCAFE and for member organisations such as Kabonera CFA and the Kibigne Coffee
Cooperative. This funding also benefited farmers because it helped to stimulate the market
linkage services and equipment lease service portfolio. The interest rates of Centenary Bank,
Ugandan Development Bank and the pre-harvest finance was set at 21%, 15% and 9% per
annum, respectively. These loans run for a maximum of one year and are subject to renewal.
This is the second year of managing these loans.
1.3 Nature of the business, crop and market
Coffee delivery by regional smallholders to NUCAFE has increased from 50 to 138 metric tonnes
in four years, implying a growth rate of some 40% annually. The input finance for farmers has
grown at almost the same rate (i.e. 36% annually), as shown in the table below.
Production table
Coffee output/production
Input/loan
Year
Production Metric Tonne
2011
2012
2013
2014 estimated
50
60
98
138
Year
Loan from Centenary Bank
2011
2012
2013
2014 proposed
UGX
UGX
UGX
UGX
Metric tonnes
Metric tonnes
Metric tonnes
Metric tonnes
40 million
45 million
75 million
100 million
While the smallholder farmers sell their coffee to the hub, NUCAFE markets the coffee both
on national and international markets. NUCAFE makes immediate cash payments to the
smallholders upon delivery at the hub despite the fact that payment by ultimate clients takes
some time. This is possible through the post-harvest credit provided by Centenary Bank to the
hubs.
1.4 Other support activities by stakeholders
A. By NUCAFE
Training the employees of the hub and the coffee farmers about:
• Gender issues and equal participation in income generation;
• Cash management; and
• Better bookkeeping skills.
B. By Agriterra
Training and support on:
• Business plan development;
• Participatory business plan development;
• Participatory action plans;
• Record keeping and financial management; and
• Research on the knowledge of the available lending possibilities.
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C. By the aBi-trust
The Agricultural Business Initiative (aBi) Trust is a multi-donor entity jointly founded by the
governments of Denmark and Uganda and other development partners. The Trust supports
agribusiness development in the private sector in Uganda. The aBi Trust has been giving the
following support to NUCAFE and the hub.Training employees and farmers on gender equality;
• Training employees and farmers on gender equality;
• Support for lobbying the government on agricultural policies; and
• Support for Kabonera with tools such as sample screening machine, moisture metre, sample
weighing scale, platform weighing scale and motorcycle.
D. Uganda Coffee Development Authority (UCDA)
The UCDA was established as a public authority and its mandate is to promote and oversee
the coffee industry by supporting research, promoting production, controlling the quality and
improving the marketing of coffee in order to optimise foreign exchange earnings for the country
and payments to the farmers. The UCDA mainly engages in:
1.Provision of coffee seedlings to smallholder farmers at the hub level;
2.Support NUCAFE to conduct trainings; and
3.Financial support of UGX 30 million to NUCAFE to facilitate trainings at the hub and farmers’
levels.
E. Uganda Investment Authority (UIA)
The UIA is a semi-autonomous government agency operating in partnership with the private
sector and the government of Uganda to drive national economic growth and development. The
Authority was setup by an Act of Parliament with the aim of promoting and facilitating private
sector investment in Uganda.
1.5 Nature of the financial transactions
An annually modified loan product has been given for the Kabonera Coffee Farmers’
Associations at Masakahub by Centenary Bank, as shown in the table below.
Credit product(s) for agriculture
Name
# of
months
Interest %
For d/t years
Interest mode
Flat or R.B.
Repayment
Bullet / instalment
Security
mode
Kabonera Coffee loan
8 months
>>
>>
>>
28%
27%
26%
21%
Flat
2 instalments
>>
>>
>>
See above
>>
>>
>>
2011
2012
2013
2014 1
>>
>>
>>
The loan is given for working capital for the hub to enable them to buy coffee produce from the
farmers at harvest time and pay them in cash upon delivery. The loan matures within 8 months.
The loan first offered a 28% interest in 2011. Every year, there was an improvement in the
interest rate offer from the financier, Centenary Bank. As a result, in 2012 and 2013 the interest
rate offered was 27% and 26%, respectively. This year’s bankable business proposal of the
Kabonera Coffee Farmers’ Associations proposed a 21% interest rate, which is in the process
of loan approval. The repayment is in two instalments, in which the interest and principal are
added up and divided by two. The repayment time is based on the mutual negotiations of the
hub and Centenary Bank. The loan is secured by a number of requirements besides the physical
collateral and personal guarantee requested.
1
Note: This is the interest rate proposed by the coffee association. Not yet approved by the bank.
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2. Risk analysis
2.1 How was risk management approached by the stakeholders?
Loan appraisal by the bank - due diligence.
The financer, Centenary Bank, applies a thorough due diligence process. The following
requirements and conditions are taken into consideration:
• The management of the farmers’ group. The bank carefully scrutinises the nature, quality and
number of management staff who are responsible for running the farmers’ group;
• Experience in the business. The experience of the farmers’ group in the particular
agricultural business was also considered while screening the credit application of the
producers’ group;
• Audited account books;
• The farmers’ groups owned physical collateral;
• Capacity of the farmers’ group and the member farmers’ interim’s land ownership and crop
cultivation;
• Credit history of the farmers’ group. The better the history, the higher the credit processing;
• Input and output cash flows of the farmers’ group;
• The business proposal of the farmers’ group and the feasibility and profitability of the
business plan;
• Third-party security: a personal guarantor of the three board members of the Masaka Coffee
Hub was also used;
• Contractual agreement with a buyer: a tripartite contact and its memorandum of
understanding of the coffee hub, the National Union of Coffee Agribusinesses and Farming
Enterprises (NUCAFE) and the International buyer called Cafe River Spa; and
• With respect to the Kabonera Coffee Farmers’ Association the recommendation from
NUCAFE was also used to assess the loan application.
2.2 Risk management by the stakeholders
In the design and development of the programme, the lead actors have jointly assessed the risks
for farmers and the producer organisations (POs) and identified means to mitigate these risks.
For the purpose of the case study, a distinction has been made between the six crucial aspects
of smallholder production, i.e. risks related to:
1.The specific crop: i.e. coffee;
2.The farming system and coffee production;
3.The strength of the farmers’ organisation;
4.The markets for coffee;
5.The viability of the coffee-farming system promoted; and
6.The financing of farmers and hubs.
These risks and the way they were mitigated and managed have been tabulated in a risk
catalogue (see table 2.1) and are briefly summarised below.
Product-related risks
Quality is a determining factor in the price of coffee beans. The quality of a batch of coffee
beans establishes whether it can be exported or must be sold locally. Moreover, quality defines
whether the lot will be bought at a standard commodity price or may acquire a “specialty” price,
which is much higher. The factors that determine quality are numerous, yet in a coffee bean’s
entire journey through the chain, quality is primarily made (or lost) at the farm level – notably
during the initial post-harvest treatment of the coffee cherries by the farmers. There are also
losses that are incurred at the drying stage. It is recommended that the handpicked coffee be
dried on trays or mats. When farmers dry their coffee on the ground, the beans can easily be
polluted or damaged, thus lowering the quality of the entire batch. Problems observed relate
particularly to issues such as mixing coffee with coffee from other regions (which is believed to
be of lower quality than coffee from the Mekasa region) or pollution with non-coffee materials.
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In order to mitigate this, the Mekasa Hub has been trying to assess the quality of coffee through
quality-standard control tools such as moisture metre, weighing machine and quality grading.
At the farm level, farmers are exposed to risk of theft of coffee in the garden. In order to mitigate
this they fenced off the coffee garden.
Production-related risks
Coffee production problems relate to poor seed choice, limited or no use of complimentary
inputs, declining soil fertility and ageing trees. These are some of the reasons why seed
deliveries may fail to grow. Very crucial to the production is the process of harvesting. The
standard of picking controls the final product because the inclusion of other than red ripe
berries increases the percentage of shrivelled, black, discoloured and defective beans. The
unripe berries produce beans that break easily, are of inferior quality, are small in size and are
usually eliminated during processing, resulting in qualitative and quantitative post- harvest
losses. Furthermore, the immature beans give a bitter taste. This highlights the importance of
picking in time. The hub facilitates extension services for farmers to address these issues.
Farmers are also exposed to bad weather conditions, coffee pests and diseases (such as the
coffee stem borer and coffee wilt diseases). As mitigation measure farmers used traditional
treatments against the diseases and diversified crops. In the context of the programme followup was provided by the agricultural experts of the cooperatives, the hub and Centenary Bank.
Storage and transportations problems were also the other risks for the farmers. While it is
recommended that farmers construct special rooms to store their produce, most farmers
store their coffee in the houses in which they live; in addition, the coffee is stored with other
crops (and at times with animals). The implications of this are twofold. On one hand, such
coffee is prone to attack from vermin (such as rats) in the house, resulting in quantitative postharvest loses; on the other hand, this coffee may acquire unfavourable odours from such an
environment, thus lowering its quality. NUCAFE purchases insurance against the transportation
risk for coffee while being transported from the hub to Kampala.
Farmers’ organisation-related risks
The main risk related to a (weak) farmers’ organisation is side selling, observed both among the
coffee hub members and at the coop members’ level. Since there is limited financial assistance
from the hub, the farmers are sometimes tempted to side sell their raw coffee against advances
in order to satisfy urgent financial needs. In those cases cherries are handpicked prematurely
to generate some cash. In order to mitigate this risk, cooperatives, hubs and farmers’ societies
have been training and educating farmers on the disadvantages of side selling. Despite the
effort made by all the concerned stakeholders side selling has not yet been completely resolved.
This is mainly because of financial needs of farmers in the off- seasons for food, schooling and
farm labour employment.
Other risks related to farmers’ organisations:
1. Limited understanding on the part of the bank with respect to the way the hubs work and
manage their risks;
2.The presence of unreliable traders and farm inputs suppliers, undercutting the standards
promoted within the value chain;
3.Unclear price setting at the hub level in the perception of farmers, undermining confidence in
the system; and
4.Low trust of farmers in the hub as a result of the absence of certification and legalisation of
the hub are the main risks of this value chain.
Through time Centenary Bank gained experience in the operations and businesses of the
Mekasa Hub in general and the Kabonera Coffee Farmers’ Association in particular. As a result
they gradually granted larger loans to the hub and at a gradually reduced interest rate.
To mitigate the unreliability and price fluctuations of farm inputs, Kibegn established a coffee
farm input shop to supply the necessary farm inputs and reduce price fluctuations. This is a
good example to be followed at the hub level for all coffee farmers’ societies in the Mekasa
region. Kibegn has a double certification, (Utz and Friar Trade), which reduces price volatility
and solidifies marketing linkages.
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Marketing-related risks
Price fluctuations and the lack of reliable buyers are recognised as the main marketingrelated risks in this value chain. Price volatility is experienced both at the hub level and at the
international export market level. In order to mitigate this, Mekasa Hub has been trying to
determine prices based on the quality of coffee supplied by each farmer. To determine quality,
standard compliance tools such as moisture metres, weighing scales and sample screening
tools are used. NUCAFE has made ample efforts to link farmers and hubs to better markets
through forward contracting and related contractual arrangements with international buyers.
Kibegn Coop has also been training staff to control price fluctuations and the reliability of the
marketing, which has been made considerably easier thanks to its double certification from both
Fair Trade and Utz.
Finance-related risks
If farmers or coffee hubs do not make ends meet or face temporary cash flow deficits, the
proper functioning of the supply chain is at stake. In the Mekasa Hub, the Kibegn Coop and the
farmers in this value chain, financial performance risks arise from a number of factors;
• Poor personal and manual financial record keeping at the coffee farmers’ association and the
Mekasa Hub;
• Exchange rate fluctuations; and
• Employee’s fraud and moral hazard.
Delay and default by the farmer borrowers are assessed as the main financial risks of the
scheme. To mitigate these risks, employees at different levels in the chain were trained and
efforts were made to link through forward contracting, have employee rotate jobs at least at the
Coop level, do regular audits and ensure close follow-ups by the cooperative, hub and Centenary
Bank’s field officers.
Based on the approaches to risk management in the finance of the whole coffee value chain,
the following risk-management matrix was created. Evaluations range from 0 to 5; 0 means
that risk management was not taken into consideration aspect by the owner/s of the risk, and
5 represents an excellent effort/action taken by the risk owner/s. The detailed risk appraisal,
assessment, mitigation measures taken are presented in the following table.
Elements risk management (score 0 – 5)
Aspect
Appraisal by MFI/bank
Risk assessment
by PO
Risk-mitigation
measures
Risk monitoring
Product
4
4
3
3
Production
3
4
3
3
Partner/client
4
4
4
3
Market
4
4
4
4
Financial
4
4
4
4
(Note: 0 = opportunity not used; 5 = opportunity optimally used)
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Table 2.1: Risk catalogue - Overview of the risk assessment and risk mitigation measures
Aspect
Risk assessment
The risk owner
Risk mitigation measures
Risk monitoring
Product risks
• Quality-related risk such as mixing
• Mixing Masaka coffee with other regions’
coffee
• Using standard quality-enhancing tools
• Careful assessment of compliance with quality
standards
• Up to the farmer to comply with the quality
standard
• Rejection for non-compliance to quality standards
Production risks
Theft at farm level
Fencing off the coffee garden
Side selling: cooperative members
(borrowers who pledge their coffee as a
collateral)
• Tight follow-up of farmers who take credit at a
cooperative level
• Better price at the cooperative level
• Incentive payments based on the amount sold
to the cooperative society
• Percentage of product sold to the cooperative
society
• NUCAFE lobbying at the government to have some
regulation at national level. A rule was enforced
recently by the government
Side selling: coffee hub members
• Farmer education on the benefits of
bulking and collective marketing as well as
understanding losses incurred from side- selling
• Better price at the hub level
• immediate cash payments on delivery at hub
level
• It works but there is still side-selling as early
harvest source of cash needed for HH consumption,
school fees and labour payment
• Regular field visits by lead farmers and extension
staff
• Tracking farmer records at the hub to enforce
delivery of the quantities pledged by farmers
Bad weather conditions/ harvesting season
N/A
Historical experience with the climatic patterns in
the area
Coffee pests and disease such as:
1. Coffee stem borer disease
2. Coffee wilt disease (stayed for three years
and the coffee plant must be burnt to avoid
spread)
• Traditional way of treatment using ash
• Follow-up of agricultural experts of the
cooperative, hub and bank
• Diversification
• Reporting any strange disease or pests to the hub
• Farmers sharing notes with their peers
Shortage of drying sheets at farm level
N/A
Risk of fire at the hub store
Risk during transport to Kampala
NUCAFE insurance
Renewal of the insurance
Financer (centenary) have little knowledge of
hub’s business
Training and briefing about the business
Regular communication with the bank to enhance
understanding
Unreliable traders Unreliable sources of farm
inputs
• Keep encouraging farmers to stick to the hub
• Farmers to follow advice from the field staff
Yes, but still much should be done
Unclear price setting at the hub level
Price based on quality-enhancement tools
Price fluctuation of farm inputs
Stick to approved input suppliers
Trust: farmers have less trust of unregistered
hub
Certification on progress
Theft at the store level
Partner/client risk
Market risk
Financial risks
Enlisting approved input suppliers in the area
Price fluctuation at coffee hub level
Based on the quality-enhancers tools
Based on better quality better price
Price fluctuation at export level for hubs
• NUCAFE tried to link the exporters with the
farmers under a Memorandum of Understanding
(MoU)
• Hub is in the process of fair-trade certification
29 and 7 containers sold to international and local
market last year, respectively
Price fluctuation for cooperatives
Double certification and better link to the export
market (Fair Trade and UTZ)
Best Fair Trade awarded in 2014
Poor personal and manual financial record
keeping at the association
Training the employee in financial management,
record keeping
Yes, but much more needs to be done
Exchange rate risk for exporting
• Forward contracting
• Monitor work coffee prices
• Done, but for only some contracts
• Monitor world prices
Possibility of employee’s fraud at the KCFCS
savings unit level
• Job rotation and incentive for employees
• Instituting regular internal audit
• Staff performance
• Staff job appraisal
Moral hazard, intentional default of
borrowers at the KCFCS savings and credit
unit level
• Coffee harvest is used as a collateral for loan
• Credit field officers close follow-up with the
farmers
• Personal guarantees
• 85% recovery on time
• Supervisory committee to follow up
• Close loan portfolio analysis
Absence of cash safe at the hub and the
association level
• Use of a link bank
• Avoid a lot of cash transactions
Bank statements with the link bank
Repayment delay
Rescheduling the loan
94% repayment rate after delay
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2.3 What is the finance strategy?
I. Financial appraisal
A. Centenary Bank for Kabonera Coffee Farmers’ Association
Generally Centenary Bank advances agricultural loans after considering the following in a
due diligence process and with the listed requirements and conditions:
1. The management of the farmers’ group. The bank carefully scrutinises the nature,
quality and number of management staff responsible for running the farmers’ group;
2. Experience in the business. The experience of the farmers’ group in the particular
agricultural business was also considered while screening the credit application of the
producers’ group;
3. Audited accounts books;
4. The farmers’ groups’ owned physical collateral;
5. Capacity of the farmers’ group and the member farmers’ interim land ownership and
crop cultivation;
6. Credit history of the farmers’ group;
7. Input and output cash flow of the farmers’ group;
8. The business proposal of the farmers’ group and the feasibility and profitability of the
business plan;
9. Third party security: Personal guarantee of the board members;
10. Contractual agreement with a buyer: a tripartite agreement; and
11. With respect to the Kabonera Coffee Farmers’ Association, NUCAFE’s
recommendation was also used to assess the credit request and then approve.
II. Financial need assessment
The need for finance was studied through the bankable business proposal. This was done with
the initial support of Agriterra to NUCAFE and its huge staff training. As a result the coffee
farmers’ association was able to assess their financial needs and come up with a bankable
business proposal in close collaboration and support from Agriterra, NUCAFE and the Mekasa
hub staffs.
iii. Financial product
As a result of the support from the hub, NUCAFE and Agriterra as well as the resulting bankable
business proposal submitted to Centenary Bank, the bank provided a coffee development loan
product for Kabonera coffee farmers’ societies for three years in a row. The loan totalled 40, 45
and 70 million USX at an interest rate of 28%, 27% and 26%, respectively.
B. Uganda Development Bank for Kibinge Coffee Farmers’ Cooperative Society (see
above)
The following are requirements for the Uganda Development Bank’s loan to the Kibigne
Coffee Farmers’ Co-operative Society (KCFCS):
• Financial statement of the business operation;
• Membership and experience in the business;
• Business activities and cash inflow and outflows;
• Guarantee by three board members; and
• Collateral owned by the cooperative.
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2.4 What capacity for agri-finance has the Microfinance Institution (MFI)
installed to perform these tasks?
• NUCAFE has agricultural financial officers responsible for coordinating and facilitation
training and support at the headquarter level for each coffee hub;
• Each hub has also its own manpower for conducting the daily managerial, accounting and
operational activities;
• Each coffee farmers’ association also has also its own manager and accountant to facilitate
the overall activities of the association;
• Kibinge Coffee Farmers’ Cooperative has a total of 21 staff responsible for conducting its
multiple operations; and
• But, the quality of the human resource needs to be improved continually through training the
existing employees and by recruiting new qualified employees at the various levels of this
coffee value chain.
2.5 What connections were entertained by the MFI with other stakeholders in
the sector? Who was the lead actor in orchestrating the chain?
The main role is played by NUCAFE. For both the Makasa Coffee Hub and the KCFCS, most of
the initiatives and sensitisation was done by NUCAFE, especially at the Maksaka Coffee Hub,
which is neither well established nor legally registered and lacks Fair Trade certification.
NUCAFE still plays an essential role in mobilising, bulking and transporting coffee from
farmers to Kampala as most of them are not well developed enough to manage the bulking
and transportation activities themselves. In the future, however, it is expected that hubs
and member associations will have the knowledge, skills, assets and working capital
themselves to individually transport their coffee to the NUCAFE export facility in Kampala.
The NUCAFE secretariat also wants to ensure that, in the future, the hubs are able to run
their own operations and marketing to the export level themselves. The KCFCS is already a
matured cooperative society, which has diversified its producers and services and collaborates
more independently with different development partners, government agencies and other
stakeholders.
3. What makes it tick?
3.1 What are the success factors in this case? What risk mitigation measures
proved effective?
I. At the farmers’ level
• Financial literacy education and change in the women’s empowerment through the gender
training sessions;
• Trainings provided for the coffee farmers by the direct and indirect support of different
stakeholders and development partners enables them to get the right seedlings, have better
harvests, produce a better quality of coffee and to enjoy better prices based on a fair quality
standard measurement at the hub. The training in gender and empowerment also enhances
gender balance, shared responsibility and trust in the households.
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II. At the hub level
• The hub is able to continue mobilising the farmers and able to capitalise on the experience in
the business in doing its operations;
• The hub is also able to lobby and link the smallholder farmers to exporters who have
recognised the quality of coffee provided by the farmers’ associations;
• Increased supply of coffee from 23 to 51 containers for export within a short time period;
• Able to increase tonnage of coffee from 50MT in 2011, 60MT in 2012 to 98MT in 2013; and
• Able to have the financial grant for the last three successful years.
iii. At Kibinge Coffee Farmers’ Cooperative Society
• Kibinge Coffee Farmers’ Cooperative Society received double certification from UTZ and Fair
Trade. Kibinge was also able to win the first-ever international Fair Trade awards in June 2014;
• Kibinge Coffee Farmers’ Cooperative Society has set up a savings and credit scheme to
provide credit to members at an affordable rate (a 2.5% interest rate); and
• They have also set up a farm supply shop giving members access to farm inputs closer to
their communities and also offering technical information and good advice on the safe use of
chemicals and fertilisers. This also minimised the risk of unreliable farm input distribution to
the farmers from unreliable suppliers.
3.2 What are the (remaining) weaknesses/threats/risks?
I. At farmers’ level
• Coffee diseases (see picture below);
• Need of finance in the off-season for farming purposes, to buy farm inputs, to finance
manpower used for coffee harvesting and to finance schooling of children.
II. At coffee hub level
• Kabonera Coffee Farmers’ Association faces a big challenge of collateral security to access a
•
•
•
•
•
large number of loans from the bank. The hub cannot easily reach the members because of
financial constraints;
Fluctuation of coffee price;
High cost of borrowing funds, a 28%, 27% and 26% interest for the last three years, respectively;
Inadequate human resource back-up and few employees to do all the work both at office and in
the field;
Low quality of coffee from some farmers; and
No publications and publicity at the hub level to attract other development partners and
stakeholders.
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III. At the cooperative society level
• Membership differences. Most of the members are not certified with Fair Trade certification.
•
•
•
•
There is a need to have much more training to make the members certified and avoid the
differences among the member farmers. Training members will enable the farmers to equip
themselves in preparation for the certification;
Need for an integrated system for coffee supply by the coffee farmers and an immediate
payment from the savings and credit association;
Need of continuous support from the National Union of Coffee Agribusinesses and Farming
Enterprises (NUCAFE);
Need to have assistance with capacity building of employees with respect to value chain in
general and coffee value chain in particular; and
Need to have support of development partners like Agriterra in accessing financial loans.
3.3 Do stakeholders have a view on how to better deal with these remaining
risks in the future?
• The hub is very interested in being legally registered as a cooperative and intends to get a Fair
•
•
•
•
•
•
•
Trade certification. This certification is believed to reduce price fluctuations and create more
confidence of ownership among the member farmers’ associations and the hub at large.
Diversification of the crops targeted to increase cash flow from other sources of finance;
Provision of quality enhancement tools at the individual farmer’s level and farmers’
associations as well;
Intensifying and carrying on good experience in training the farmers on financial literacy, loan
development, bankable business planning, cash management, etc.;
The hub is encouraging individual associations to get crop finance loans from Centenary Bank;
The associations have a long loan process; this should be shortened and/or should be done in
advance to reduce the workload at the bank;
Stakeholder believe that there is still a need for constant training and the continuous
engagement and support that was already started by development organisations such as
Agriterra, the Agricultural Business Initiative (aBi) Trust and NUCAFE; and
The hub should quickly register as a cooperative or look for certifications to ensure both
farmers’ confidence and a premium price for the farmers.
3.4 How can linkage between financier and Producer Organisation (PO) be
strengthened?
Linkage between the producer and producer groups
• If the bank is able to give an adequate loan to the association/hubs the smallholder farmers
•
•
can be easily reached by the associations. This would avoid (or at least reduce to some extent)
the risk of side selling;
It should be clear to the farmers at the hub and association level that price determination
should be based on the quality of the produce with the help of quality-enhancement tools.
It would also be very helpful if each farmer had these quality- enhancing tools so that they
could measure the quality of their produce, the moisture level and the grade at home. This
would enhance the knowhow of the farmer, reduce the burden at the hub level and create
more mutual diagnoses of the quality of coffee at different stages in this coffee value chain; and
Better to have a farm supply shop at the Masaka Coffee Hub level if not at each farm
association level. A farm supply shop is able to give coffee farmers easy access to farm
inputs with technical information and good advice on the safe use of chemicals and fertilisers.
This also minimises the risk of unreliable farm input distribution to the farmers from
unreliable suppliers.
Linkage between producer groups and the financer
• The producer group, Kabonera Coffee Farmers’ Association, should do the annual business
plans on in time. In addition, it would be very good for Centenary Bank if the loan process
was shorter.
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3.5 What are the lessons learned for the industry?
In order to realise more added values for the farmers of its member societies, the PO should set
up a sustainable marketing organisation and develop innovative bankable business proposals
for banks and MFIs; this will generate funds to internally meet its basic business development
services and marketing linkage services.
Development partners can play a crucial role in facilitating and supporting producer groups
through training programmes, supporting the bankable business plans and its developments,
and linking banks to finance them. In the process of making a bankable business plan, granting
loans and follow-up services, financers may also help the cooperative to better understand their
business and investment plans and allow the PO to have a larger grant at a lower interest rate.
When buying coffee from the farmers of their member societies, POs like the NUCAFE hubs
need to compete with private buyers active on the market, the so-called middlemen. The biggest
disadvantage for POs with regard to the middlemen is their lack of working capital to buy the
coffee from the farmers. Due to various reasons, the majority of coffee farmers need to sell
their coffee for an immediate payment. In order to tackle this problem, a credit line facility at
banks and MFIs greatly strengthens the producers’ organisations and helps farmers to benefit
from their produce.
Sources
Documents:
• Maganda Samuel Hilton, finance and administration manager, Kampala – Uganda, sam.
•
•
•
•
•
•
•
[email protected]
Mr. Muluya Philip, chairman, Masaka Hub.
kibegen manager, accountant and savings unit employees.
Mr Taco Hoekstra, agribusiness advisor, Agriterra Uganda, [email protected]
Kabonera farmers’ association smallholder farmers (one male and one female).
Mr. Joseph Nkandu, executive director, Kampala [email protected]
Kiwanka Joseph, Centenery Rural Development Bank Ltd, commercial loan officer, Mekasa
branch, [email protected]
An overview of coffee in Uganda, Roni Babigumira, IFPRI.
Websites:
• www.nucafe.org
• www.agricord.org/farmersorganisations/organisation/15423/national-union-of-coffee-agribusinesses-and-farm-enterprises.
• www.centenarybank.co.ug/search/node/coffee
• http://kibingecoffee.com/about-us/
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179
Case Study Finance Fairs:
Ethiopia, Uganda, Rwanda, Mali
AgriProFocus
Abstract
In line with its mandate of “improving farmers’ access to finance”, AgriProFocus (APF) promoted
and initiated finance fairs in several countries. Financial service providers exhibited at the fair
to showcase their products and services to smallholder farmers. Smallholder farmers or their
organisations are able to meet and explore opportunities to improve access to finance. This report
evaluates the intended outcomes and the actual results of the finance fairs.
Acronyms
APF
FI
MFI
RWF
SACCO
UGX
VSLA
AgriProFocus
Financial Institution
Microfinance Institution
Rwandan Franc
Savings and Credit Cooperative
Ugandan Shilling
Village Savings and Loan Association
1. Purpose and set up of the finance fair
The goal of finance fairs is to support the development of smallholder agri-business by
facilitating access to financial services and credit. The key aims of the AgriProFocus (APF)
agri-finance market places are:
• Promote business linkages: Do business and promote deal-making among chain actors in the
agricultural value chain;
• Increase the access of farmers to information on the financial products and services available
in the market;
• Promote farming as a viable investment for financial institutions (FIs) and other service
providers by providing space for dialogue and business deal-making;
• Encourage the development of appropriate financial products and services for farmers; and
• Encourage learning from good practices, in which financial services match with the needs of
farmers, processors and traders.
The events normally last 2 days, with the exception of the finance fairs in the Mbale region
of Uganda, which lasted one day and the first event in Mali, which took 3 days. In general
the programme consists of plenary presentations and discussions, workshops and a market
place. Sometimes field visits are organised, or a game. The exhibition provides an opportunity
for exhibitors and visitors to meet, speed-date, negotiate, make deals, discuss and exchange
information. Sometimes the fair has a specific theme such as ‘promoting farmer finance deals’
or ‘linking farmers to wider agri-business opportunities’.
180
2. Who are involved?
The finance fairs are organised by AgriProFocus (APF) network members; the local Agri-Hubs
and diverse regional, national and international partners. Microfinance Institutions (MFIs),
banks, government officials and public authorities are largely involved. The exhibitors are
parties that are involved in the agricultural value chain, mostly financial institutions (FIs), farmer
groups and cooperatives, unions, input providers, suppliers and capacity builders, but also
individual farmers. Visitors of the finance fairs are individual farmers and representatives of
farmer groups, cooperatives, associations, community-based organisations, savings and credit
schemes, banks, government officials, NGOs and research institutions.
• The number of exhibitors ranges from 12 to 60 (see Table 3.1);
• The number of visitors per fair varies from 270 to 1.400 (see Table 3.1).
Information on how many of these visitors are individual farmers, or members of farmer groups
/ cooperatives is not provided.
3. Scope of implementation
In the period November 2011 – August 2014, a total number of 13 finance fairs have been
organised in 4 countries and in 11 different regions (see Table 3.1). Depending upon the specific
country or regional context, the actual setup, the main theme and / or the goals can be slightly
different.
Uganda
The first finance fair was organised in Uganda in 2011 to “support the development of
smallholder agri-business by supporting access to financial services and credit”. The fair
programme included a competition on the most popular financial service provider with
farmers in the categories farmer groups and individual farmers, and a financial literacy game.
Certificates of good performance and attendance were issued to all the participating financial
institutions (FIs) and farmer groups. The theme of the 2nd finance fair in Mbale in 2012 was
“promoting farmer finance deals” whereas the 3rd finance fair in Lira was preceded by a oneday workshop on “innovations in agricultural finance in Uganda”. The theme of the 2013 finance
fairs was “linking farmers to wider agri-business opportunities”. At the finance fair in the
Rwenzori region in 2013, farmer speed-dating was organised between farmers and service
providers, alongside the exhibition.
Rwanda
The first finance fair in Rwanda shared the same theme as Uganda’s first fair: “support the
development of smallholder agri-business by supporting access to financial services and
credit”. Both the 1st and 2nd organised a competition and rewarded the, by farmers elected,
most innovative and most popular bank, the best financial product and the best exhibitor.
The theme of the finance fairs in the Kayonza and Nyanza region was “agri-business market
linkages”.
Ethiopia
In Ethiopia a total of 5 finance fairs were organised in this period. Information on the first two
fairs in 2012 in Jimma and Hawassa was not available, although they all had the same intention.
Besides the general aims of the finance fairs, in Ethiopia the aim was also to influence bankers
to consider seed as a profitable business and to promote seed production, processing and
marketing as a viable investment. The fairs in 2013 were respectively organised in collaboration
181
with the Integrated Seed Sector Development (ISSD) project of Mekelle University and with
the ISSD II programme of Bahir Dar University. The setup of the finance fairs in Ethiopia is
somewhat different from the fairs in the other countries because of the 2nd day field visits of FIs
to seed producer cooperatives.
Mali
The first finance fair in Mali was organised in March 2014. This fair lasted 3 days with a thematic
conference every day. The first was on the experiences of financing agriculture in Mali, the
second on innovative financial products in agriculture and the third on the risks related to
agricultural finance and risk management mechanisms. Besides the exhibition, business-tobusiness sessions were organised between farmers and FIs. The farmers had to send in their
project plan in advance so the FIs could prepare and evaluate them beforehand.
Table 3.1: AgriProFocus (APF) finance fairs overview
Country
Region
Date
Visitors
Exhibitors
Uganda
Rwenzori
Mbale
Lira
Rwenzori
Mbale
November 24-25, 2011
May 23, 2012
October 31 November 1, 2012
August 15-16, 2013
August 29, 2013
350
600
700
1000
750
n.a.
n.a.
n.a.
60
n.a.
Rwanda
Musanze
Rusizi
Kayonza
Nyanza
February 21-22, 2012
December 4-5, 2012
October 16-17, 2013
August 28-29, 2014
800
500
1200
1400
15
n.a.
25
19
Ethiopia
Bahir Dar
Mekelle
Hawassa
April 6-7, 2013
August 24-25, 2013
March 1-2, 2014
270
300
300
13
12
17
Mali
Sikasso
March 6-8, 2014
1000
40
4. Evaluation of Results
Evaluation studies were carried out for the finance fairs in Lira (2012), Mbale (2013), Rwenzori
(2013) and Bahir Dar (2013). The finance fairs were evaluated by means of interviews with
exhibitors and visitors, and by questionnaires, based on convenient sampling. This was
usually done during the course of the fair. Only in the case of Bahir Dar (2013), interviews
were held afterwards. Otherwise, information on the fairs is provided in evaluation documents
summarising the objectives, setup and course of the event, sometimes including concrete
results and / or recommendations. It has been difficult to evaluate the outcome of the fairs
from a quantitative perspective, i.e. how many actual financial deals were made at what value.
Specific numbers and figures are used in the evaluations, such as the percentages of exhibitors
and visitors that made business deals and the nature of these deals. However, information on
the actual value of these deals is seldom provided. It is therefore difficult to calculate actual
financial successes. When evaluating the outcome of the surveys, we also need to take into
account the percentage of exhibitors and visitors that participated. They do not necessarily
provide a statistical representation. The results are evaluated on the basis of available
information only, without pretending to offer valid statistical conclusions. All documents used
for this report are listed in paragraph 6.
182
Profile of interviewed visitors and exhibitors
The evaluation documents of the finance fairs provide information on the profile of both visitors
and exhibitors. The main observations are discussed below.
Profile of Exhibitor - Nyanza 2014
4
CBO / producergroup / farmer organisation
17%
41%
17%
Financial service provider
Business development service / consultancy
Trader / processor
21%
Development agency / NGO
Diagram 4.1: Profile of exhibitors – Nyanza 2014
The majority of exhibitors interviewed (41%) at the Nyanza fair (2014) represented some sort of
farmer cooperation, followed by financial service providers (21%).
Interviewed visitors at the Mbale fair (2012) belonged for almost three-quarters to some kind of
farmer group. Only a quarter of the interviewed visitors were individual(s) (farmers).
Interviewed visitors by category - Mbale 2012
Farmer Groups
28%
Cooperatives
42%
11%
Focus Groups
Individuals
19%
Diagram 4.2: Interviewed visitors by category - 2012
At the Bahir Dar finance fair (2013), this pattern looks similar. Because this fair focused on the
seed sector, almost half of the participants represented a seed producer and / or marketing
cooperative.
183
Representation of participant organisations
- Bahir Dar 2013
Seed producer & marketing cooperatives
22%
Private seed growers
46%
8%
Cooperative office
8%
Union
16%
Other
Diagram 4.3: Representation of participant organisations - 2013
If at all a conclusion on the profile of the participants can be drawn, it would be that the majority
belongs to some kind of organised group. The number of individual farmers attracted to the
finance fairs seems rather small. More concrete information on the degree of participation of
financial service providers is not provided.
Business deals, networks, partnerships and brokerage opportunities
The following section provides information on the categories of business deals, the type of
partners and on whether or not partnerships are established. Only in the case of the Nyanza fair
in 2014, concrete results are mentioned in relation to the number of deals, the average size of
the deals and the split-up by product of financial deals.
Business deals of interviewed visitors by category
70%
60%
50%
40%
30%
20%
10%
0,0%
Farming
Financial
services
Lira 2012
Market
Rwenzori 2013
Agro
processing /
Value addition
Agro input
Agro
machinery /
Implements
Mbale 2013
Diagram 4.4: Business deals of interviewed visitors by category
* Including opening of new bank accounts by farmers and appointments to acquire bank loans to finance agriculture
** Including biogas / cooking fuel
184
Other
Mbale 2012
Diagram 4.4 compares the results related
to the business deals mentioned by the
interviewed visitors at the finance fairs in
Lira (2012), Rwenzori (2013) and Mbale
(2013). The diagram reflects how many of
the interviewed visitors mentioned that they
made business deals and in which category
they were made. Since it is possible that
visitors made more than one business deal,
the total can add up to more than 100%.
A Seed Company in Mbale was able
to get a loan worth UGX 300 (Ugandan
Shilling) million to buy sunflower and
maize seeds. The company applied for
the loan after talking to the bank at the
finance fair in 2012, who told them that
collateral demand for agricultural loans
had been revised and relaxed. Stringent
collateral demand had been the reason
why the company was not successful in
securing this same loan a year before.
It is therefore not so much the percentage
itself that is important, but the difference
between the categories. Only in the
categories; financial services and agro
input, business deals were made at all three
finance fairs. The categories; farming and
agro processing / value addition scored the
highest number of deals, followed by agro
input’. One of the key aims of the finance
fairs, therefore, seems to be met: promoting
farmer access to finance, do business and
promote deal-making among chain actors in
the agricultural value chain.
In a period of 5 months after the fair, 10
farmer groups and cooperatives opened
an account with the Bank of Africa and
2 cooperatives were processing tractor
finance as a result of the fair.
Musanze 2012: 10 organisations reported 200 deals with farmers with an average deal
size of RFW 40 million.
Mbale 2012: A significant amount of deals are mentioned, ranging from 50 to 1.000 with
an estimatedloan size of UGX 500.000 - 2.000.000.
Lira 2012: Banks estimated that the event wouyld result into 100 - 300 loans with a loan
amount ranging from UGX 500.000 - 70.000.000.
Comparison business deals - Mbale 2013
Other
Biogas / coocing fuel
Agro processing / Value addition
Agro input
Farming
Market
Financial services
0%
Lira 2012
10%
Rwenzori 2013
Diagram 4.5: Comparison of business deals
185
20%
30%
40%
50%
Mbale 2012
The reported business deals of exhibitors
and visitors at the Mbale fair (2013) in
diagram 4.5, show that for exhibitors the two
main areas of business deals were financial
services and market related. For the visitors,
financial services were the second most
important area, after farming, although it
is only half the size of the reported farming
deals.
• The Centenary bank completed 10
deals, had 5 pending ones, and >50
negotiated but not yet accomplished
deals;
• Housing finance completed 37 cash
account openings, 10 pending ones
and >50 awaiting opening balance only;
• Pride microfinance received 5
complete applications for account
opening; and
• Post bank received and processed 10
complete deals for follow-up.
Business deals by partner - Lira 2012
Fellow farmers / exhibitors*
Agro machinery / Implements
Agro input dealers
Traders, buyers, agro processors
Financial service providers
Farmer groups
Individual farmers
0%
Exhibitors
10%
20%
30%
40%
50%
Visitors
Diagram 4.6: Business deals by partner category
*Business deals between farmers or between exhibitors, e.g. trader-trader, bank-funder
** Including opening of new bank accounts by farmers and appointments, to acquire bank loans to finance agriculture
The partners of the business deals were spread across the different categories of participants at
the Lira finance fair in 2012. Deals with financial service providers are only mentioned by visitors,
and only exhibitors made business deals with both farmer groups and individual farmers.
186
Musanze 2012
However, visitors also reported business
deals with each other, indicating that
farmers made business deals with other
visiting farmers, although it is unclear
whether this has been done with farmer
groups or with individual farmers. Exhibitors
did also business with each other, yet less
than farmers.
• 38 farmers registered at the Rwanda
Grains and Cereals Corporation.
Memoranda of understanding on
the corporation, buying the farmers
produce, were expected to be signed in
due course;
• 10 organisations reported 200 deals
with farmers, with an average deal size
of RWF 40 million.
Besides making business deals, exhibitors and visitors also reported establishing partnerships,
business networks or brokerage deals at the fairs in Mbale (2013) and Rwenzori (2013). The
areas in which the business networks were built, are largely similar to those of the above
mentioned business deals.
Other business opportunities
Exhibitors Rwenzori 2013
Exhibitors Mbale 2013
Visitors Rwenzori 2013
Visitors Mbale 2013
0%
Brokerage deals
Networks
10%
20%
30%
40%
50% 60% 70% 80%
Partnerships
Diagram 4.7: Other business opportuntities
In terms of partnerships, 47,1% of the interviewed visitors at the Mbale fair (2013) managed to
make business partnerships and almost 65% reported establishing business networks, against
48% at the fair in Rwenzori (2013). Brokering opportunities were much less reported; 27,9% in
Mbale and only 8% in Rwenzori. Interviewed exhibitors mainly established business networks;
76% in Mbale and 59% in Rwenzori.
187
Mbale 2012
Up to 12% of farmers (producer groups,
associations) started or speeded
up registrations at cooperatives or
producer groups, at district level to
increase their access to financial
services. Of the farmer groups, 6%
formed Village Savings and Loan
Associations (VSLAs) and revived
Savings and Credit Cooperatives
(SACCOs) to prepare them to embrace a
saving culture and improve internal and
financial credibility, so that farmers can
apply for commercial loans.
As mentioned before, the evaluation of the
Nyanza fair in 2014 provides more specific
insight in the quantity of deals and their
value. It also gives information on the nature
of the financial service deals.
Diagram 4.8 and 4.9 show that the majority
of the exhibitors made between 1 and 5
business deals and that the value of these
deals was most of the time below RWF
(Rwandan Franc) 70.000 or unknown.
Diagram 4.10 gives an overview of the main
product categories of financial service deals.
It shows that 61% is related to loans / credit
and 28% to opening a (savings) account,
which is probably no surprise.
Matibu yellow group, counting 25
members, started a VSLA two months
after the fair, leading to a $1.000 savings
portfolio in order to become eligible for
an agri-finance loan.
Number of deals by exhibitors - Nyanza 2014
Number of deals
20
15
10
5
0
1-5
5-10
10-50
50-100
>100
Number category
Diagram 4.8: Number of deals by exibitors - 2014
Value of deals by exhibitors - Nyanza 2014
12
Number of deals
10
8
6
4
2
0
<70.000 RWF
70.000 - 350.000 RWF
700.000 1.500.000 RWF
Value category
Diagram 4.9: Value of deals by exibitors - 2014
188
No value available
Financial service deals by product - Nyanza 2014
5
6
Loan / credit
Opening a (saving) account
28%
Insurance
61%
Not applicable
Diagram 4.10: Financial service deals by product - 2014
The feedback on closed deals, business networks and partnerships, provided by exhibitors
and visitors of the different finance fairs, shed some light on whether or not the finance fairs
were successful. For several categories concrete deals have been reported, including financial
services but also between different actors in the agricultural value chain. Some of the examples
even report the value of deals, but most of the time deal sizes are lacking. This makes it almost
impossible to determine the success of the finance fairs from a quantitative perspective. What
it does tell is in what areas most of the deals are made, who deals with whom and what the
differences are between exhibitors and visitors, at least at the finance fairs that provided this
information. It also shows that, at the evaluated finance fairs, the establishment of partnerships
and networks plays an important role.
Information and knowledge sharing
The finance fairs also aim to improve farmers’ financial literacy and encourage dialogue
between financial service providers and farmers. Improving the knowledge of farmers on
what products and services are offered and identifying what is needed to qualify for them, will
improve actual access and use of financial services by farmers. Meanwhile, financial service
providers will be able to increase their knowledge of what farmers need and of the barriers that
farmers are facing. This could lead to a better alignment of supply and demand and, in the end,
improve access to finance for farmers.
Knowledge acquired by visitors - Mbale 2013
Other
Where to buy agro inputs
New financial products
Subjects
New irrigation methods
Where to get loans
Soil conservation techniques
Market agricultural products
Value of team work
Energy saving cooking fuels
Value addition techniques
New farming techniques
0
2
4
6
8
10
12
14
Number of respondents
Diagram 4.11: Knowledge acquired by visitors - 2013
189
16
18
20
The feedback from the interviewed visitors of the Mbale fair (2013), presented in diagram 4.11,
shows that only a few of them improved their knowledge of new financial products and on where
to get loans. The knowledge acquired by visitors is much more related to their core business
of farming, i.e. on new farming techniques, value addition and soil conservation, and on the
market(ing) of agricultural products.
The responding visitors of the fair in Lira (2012), however, stated that of all information on new
products they received, they learned the most about new financial services.
Information on visitors on new products - Lira 2012
48
Visitor responses
46
financial services
44
Market information / prices
42
Agro processing
40
Agro input
38
Agro machinery / implements
36
Subject of information
Diagram 4.12: Information visitors on new products 2012
Comparing the feedback from the exhibitors and visitors that took part in the survey of the
finance fair in Rwenzori (2013), reveils that information on agro input and agro value addition
was in particular obtained by visitors, whereas exhibitors mainly received information on the
market of agricultural products. A large part of the interviewed exhibitors also mentioned
that they obtained information on financial services. This could be explained by the fact that
exhibitors were often farmer organisations that were not only offering their products and
services to the market place, but that were also in need of financial services.
Information obtained by category - Rwenzori 2013
Forming a SACCO / network
Market agricultural products
Farming
Financial services
Agro value addition
Agro input
0%
Exhibitors
10%
Visitors
Diagram 4.13: Information obtained by category
190
20%
30%
40%
Clearly the finance fairs contributed to the exchange of knowledge and information. It is not
completely clear, however, whether this increased knowledge also reduced the information gap
between suppliers and farmers, with regard to financial services. Yet, some of the examples in
this paragraph indicate that such an effect did occur, at least in some instances.
Other results
An evaluation of the success of the finance fairs also needs to take into account the participants’
experiences and perceptions of the fairs, and whether the participants thought it was successful
from a more qualitative perspective. This section presents some of the comments that arose
from the different surveys and evaluation reports.
Mbale 2012 finance fair
The fair increased farmers’ awareness about what size of loan suits personal business and
personal capabilities. It resulted in a better understanding of collateral requirements by farmers
and a better understanding of farmers’ perception of collateral demands by banks. The Bank
of Africa, for example, revised the collateral demands of farmers, giving more priority to the
capability of the applicant. Housing Finance Bank started a pilot of warehouse receipt financing
after the fair.
The general feeling was that the fair helped mobilising farmers’ voices.
Rwenzori 2013 finance fair
The participants highlighted the minimal participation of rural smallholder farmers, although
the fair was intended for them. The conclusion was that the mobilisation of farmers had steered
the tendency of having farmers being represented by their leaders. As a result of this, there was
a concern about whether information would be transferred and trickled down to the farmers.
Bahir Dar 2013 and Mekelle 2013 finance fairs
At the finance fair in Bahir Dar visitors stressed the fact that, as a result of the fair, they
understood better what the conditions are to get a loan and they commented that they received
valuable information concerning the financing of farmers. This was also the case at the fair in
Mekelle in 2013 where 80% of the respondents received valuable information and 20% better
understood the conditions required to get loans.
Feedback visitors - Bahir Dar 2013
12%
9%
Got to know a helpful person to arrange a loan
Understand better conditions to get loan
16%
27%
Obtained information on financing
Met interesting people
21%
Liked the event
Diagram 4.14: Feed back visitors - 2013
A third of the service providers interviewed at both fairs mentioned that they learned more
about the financial needs of farmers. The others all succeeded in providing information on their
institutions and on their products and services on offer.
191
A particular case is the finance fair in Sikasso in Mali in 2014
Farmers could submit a business or project plan to the financial institutions (FIs) before
the fair. The FIs then prepared themselves for giving feedback on the plans; most
importantly on whether or not the plan would qualify for funding. The projects were
evaluated according to pre-determined criteria; mainly looking at the amount, nature
and lifetime of the project, the experience of the farmer and the area concerned.
At the fair itself, a total of 113 projects have been discussed between FIs and farmers.
This resulted in the following:
• None of the project files were rejected categorically;
• A total of 12 projects were in principle agreed to receive funding; and
• At least 30 concrete business links were established between the farmers with a
project, and FIs.
5. Conclusion
Based upon the evaluation of the finance fairs it is possible to compare the outcomes with the
main goals as set out in paragraph 1, extract some conclusions on how successful the finance
fairs were, and in particular whether they contributed to improving access to finance for farmers.
The finance fairs have definitely contributed to creating an environment in which the different
actors in the agricultural value chain, including financial service providers, could meet, interact,
share knowledge and experiences, and do business.
The finance fairs contributed to more awareness among farmers on what agricultural financial
products and services are offered by the different financial institutions (FIs) and what the
requirements and conditions are to become eligible for them. By sharing information and
knowledge, farmers also gained a better understanding of what is needed to comply with the
requirements and conditions to acquire agricultural financial products and services. They also
became more aware of the importance of combining forces and working together, in farmer
groups or cooperatives, to improve access to finance. Although hard figures are lacking almost
everywhere, farmers did seem to have made valuable business deals, including deals with
financial service providers. They also established partnerships and they built networks to improve
their access to finance.
From the perspective of financial service providers, the finance fairs did contribute to a better
understanding of the barriers to farmers to comply with the conditions and requirements
of financial services. This, for example, resulted in some cases in easing the collateral
requirements. The finance fairs also resulted in actual business deals for financial service
providers.
One of the key aims of the finance fairs, therefore, seems to be met: promoting farmer access
to finance, do business and promote deal-making among chain actors in the agricultural value
chain.
Although the primary target group of smallholder farmers was not always reached or included,
the finance fairs did seem to bridge the information gap between farmers and FIs, and improve
access to finance.
Finance fairs do not actually lower the barriers for farmers to access finance, but they can play
an important role in creating awareness on what farmers themselves can do to improve their
eligibility for financial services. Moreover, they help identify how financial service providers
can alter their products and services in such a way that they meet the needs of farmers. When
organising these finance fairs with the intention to reach smallholder farmers, it is important to
make sure smallholder farmers are invited and facilitated to join the event.1
1 See also Noor Ali Amir Ali; Msc. Thesis Final Report: Unraveling multi-stakeholder platforms and their impact on the growth of
agri-food entrepreneurs in Africa, May 2014.
192
Sources
Documents:
• APF agri-finance market place event and workshops for Northern region Uganda at Mayor’s
Garden, Lira-final report dated December 16, 2012.
• Mbale agri-finance market place result assessment-final report prepared by CARD Uganda
dated November 29, 2012.
• APF agri-finance market place event for Eastern region Uganda at Maluku Public Grounds,
Mbale-final report dated May 23, 2012.
• Event exhibition report for market event in Lira-Mayor’s Garden (2013).
• Report on AgriProFocus agribusiness Rwenzori region marketplace event 2013 dated
September 2013.
• Report: Evaluation of the Rwenzori agribusiness market event dated August 2013.
• Evaluation report of the AgriProFocus Eastern region agribusiness market event-29th August
Malukhu Grounds Mbale district.
• The agribusiness market place event at Malukhu Public Grounds, Mbale, August 2013.
• Report APF Uganda agri-finance market place, 24 – 25 November 2011, Fort Portal-executive
summary.
• Report Uganda agri-finance market place Fort Portal, 24 – 25 November 2011.
• AgriProFocus Rwanda report: Agribusiness market linkages- Southern province- Nyanza,
August 28-29, 2014.
• Agri-business finance fair Rwanda Report, February 21-22 2012, Musanze.
• Agri-business finance fair: Bahir Dar, 2013 – post event evaluation report, April 2013.
• Agri-business finance fair: Mekelle, 2013 – post event evaluation report, September 2013.
• Agri-business finance fair: Hawassa, 2014.
• Event report AgriProFocus: Agri-business market linkages event in the Eastern province
Rwanda, October 2013.
• FINAGRI salon du financement de l’agriculture 1ère édition : Sikasso 2014 - draft rapport
final, Avril 2014.
• Rapport sur l’agri-finance fair Rusizi, 4 au 5 Décembre 2012.
• Noor Ali Amir Ali; Msc. Thesis Final Report: Unraveling multi-stakeholder platforms and their
impact on the growth of agri-food entrepreneurs in Africa, May 2014.
Websites:
www.agriprofocus.com
193