Feeding the Growing World Population Sustainably
Demand for food will increase by 70% by 2050; at least $80 billion annual investments will be needed to meet this demand. Agricultural finance empowers poor farmers to increase their wealth and food production to be able to feed the potrntial future 9 billion people (World Bank).
The increasing need to finance and to develop agriculture arises from the severe rise in global population and the need to feed it sustainably. Despite moderate improvements in the last two decades, crop yields and returns on livestock keeping were still dramatically lower in developing countries compared to OECD countries. Lower returns are the result of a combination of different factors including the lack of agricultural input materials (seeds, fertilizer, pesticides), the lack of access to technology (machinery), environmental factors (soil degradation), post-harvest losses, the lack of adequate storage facilities, the lack of market access, information and value chain partners as well as limited insurance possibilities
All of these facts and risks highlight the urgency for sustainable agricultural practices and investments into adapted technologies to increase the efficiency and resilience of local agriculture in a context of increased macro risks. While finance is by no means the only ingredient required in this equation, the lack of access to financial solutions at adequate conditions (e.g. with regard to pricing and repayment structures) is a key hindrance across developing counties limiting transformative change in the agricultural sector.
To achieve financial inclusion there is an urgent need to promote finance and investments throughout the agricultural value chain, thus improving the situation of local farmers and food-processors. The development of agricultural finance markets is constrained by a variety of factors including:
Over the last 15 years, LFS has developed a strong expertise in the field, with relevant tools to address the above issues. We have built up expertise and developed innovative Agricultural Finance solutions for banks, microfinance institutions and specialised agriculture lenders.
The developed portfolio has already been applied in a number of projects and in different regions taking the special characteristics of businesses which are engaged along the agricultural value chain into account. Based on our experience in serving various stakeholders along the agricultural value chain, we have found typical challenges and obstacles regarding the agricultural sector and responded with the indicated methods (Table 1).
Table 1: Challenges of Rural Finance and Responses
LFS has developed a wide range of tools and services that can be applied to agricultural finance projects. These include institutional strengthening exercises, revision of processes, policies, development of new products, staff training and coaching as well as innovative and cost-efficient means to reach out to farmers sustainably (Figure 1).
In-depth analysis of local capacities(staff), demand of potential clients and output potential, analysis of delivery channels, assessment of risks, analysis of other actors in the sector.
Products tailored to local needs and risks can include:
Development product material (analysis forms, policies and procedures)
2. Recruitment and Training of Staff
Recruitment of staff dedicated to MSE or agricultural sector
Extensive training in financial analysis and credit methodology as well as agricultural knowledge
Staff planning schedule & recruitment procedures
Development of training material(initial training as well as ongoing refresher trainings)
3. Control Processes / Risk Mitigation
Establishment of coherent control processes within the department
Risk matrix for internal and external risk assessments
Development of agricultural output cards for cross-checks
Development of control procedures
4. Partnerships / Value Chains
Establishment of relationships with local actors (exchange of information regarding prices) and partnerships for value-chain financing
Training material for Middle Management on the concept of value chain financing
One solution that LFS implemented in projects is the use of mobile technology in data entry and data transfer processes for immediate decision making which reduced costs, improved accuracy and lowered transaction time. In another case, the application of score cards increased efficiency by optimizing the balance between risks, outreach, prices and transaction costs. Particularly within projects for AccessBank Tanzania and for the Social Fund for Development in Yemen, mobile banking solutions were applied for financing agricultural instruments and digitalizing data collection. With such systems, LFS has enabled its customers to enhance efficiency by reaching out to numerous farmers in remote areas to inclusively improve the access to financial solutions in a cost-effective manner.
In AccèsBanque Madagascar, LFS has designed and implemented an “Agro-lending” product that allows a farmer to use warehousing as a form of collateral. This has reduced the risk for the bank, as many of the small farmers lack traditional collateral, to ensure the secure storage of the produce which is used as collateral.This system further benefits the farmers by facilitating the sale of their crops via AccèssBanque’s current accounts, allowing payments to be made in seconds.
LFS was engaged by IFC to support a dedicated MFI in Myanmar to develop an Agricultural Finance strategy and an institutional model for supporting farmers via a lean branch network, the introduction of digital technologies in the lending process and the use of an agent network as catalyst for information gathering and input distribution. The business plan foresees the development of 20 lending hubs, 240 branches and an outreach to 360,000 farmers after full implementation of the project.
In Georgia, Credo has developed innovative approaches in agricultural lending including the Village Counsellors (VC) scheme. Through these VCs, Credo can now keep a strong presence in villages and manages to serve farmers in a flexible and tailor-made manner. VCs support loan officers, provide information to farmers and coordinate marketing activities for Credo.
Credo provides a broad range of agricultural products, including loans, overdrafts, credit lines, and insurances. Credo has been piloting an agricultural scoring system which will speed up the credit decision making. This includes the use of tablet computers by loan officers and direct data transfer to branches.
Johannes Hafner is an Advisor in the field of Agricultural Finance and Rural Business Development focusing on the development of sustainable agricultural value chains. He has first-hand experience in applied research and field-based training of agricultural stakeholder groups as well as proven expertise in assessing quantitative and qualitative data, analyzing data sets and applying statistical methods to make large data sets comprehensible for readers without statistical knowledge. Johannes has published multiple peer-reviewed articles using various statistical analysis tools.
He has more than 5 years of work experience in Sub-Saharan Africa, with special focus on the rural energy sector in Tanzania.
He obtained a Bachelor of Science degree in Economics and Business Administration from the University of Hohenheim and holds a Master of Science in Agricultural Economics from the Humboldt-Universität zu Berlin. Currently, he is in the process of finalizing his PhD thesis.
Before joining LFS, he worked for GIZ, KfW and Ambero Consulting GmbH. He speaks German, English, Kiswahili and intermediate French.