Linking Rural Entrepreneurs to Financial Services Hans Balyamujura - - PowerPoint PPT Presentation

Brussels Development Briefing n.35

Revolutionising finance for agri-value chains

5 March 2014

http://brusselsbriefings.net

Linking Rural Entrepreneurs to Financial Services.

Hans BALYAMUJURA, ZED (Pty) Limited.

Linking Rural Entrepreneurs to Financial Services

Hans Balyamujura

Brussels Policy Briefing No. 35 March 2014

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Table of Contents

1. The challenge faced by the African agricultural Entrepreneur. 2. Why Link Rural Entrepreneurs to Financial Services 3. Typical Farming Arrangement 4. New Generation Smallholder Agribusiness Model 5. Challenges

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The challenge faced by the African Agricultural Entrepreneur …

• On average globally upstream and down stream farming activities

account for 78% of the value added in all agricultural value chains.

Source: World Bank 2012

Figure 1: African Agribusiness Pyramid

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Corporates Small and Medium Enterprises Commercial Small Scale Farmers Subsistence Small Scale Farmers

Why Link Rural Entrepreneurs to Financial Services …

• Scale and profitability
• Limited collateral
• Very poor data
• Limited quantification of risks
• High cost of debt

Figure 2: African Agribusiness Pyramid

• Commercial Agricultural

lending is estimated at between 1 and 3 % of commercial debt.

• Agriculture contributes 35% of

GDP.

• Employs more than 65% of

labour force

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Typical Farming Arrangement …

Input Supplies Agricultural Production Harvest Food & Energy Middleman/Trader Financial Services Farm produce This is repeated for each segment of the value chain Smallholders farmers

• Farmers have separate

individual transactions with each segment.

• All risk between the

farmer and financier.

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New Generation Smallholder Agribusiness Model …

Input Supplies Agricultural Production Harvest Food & Energy Rural Entrepreneur Entrepreneur aggregates individual decisions Input Risk Production Risk Postharvest and Market Risk Input finance Production finance Postharvest and trade finance Technical Support

Technical Support

Technical Support Link to parallel and fully integrated value chain

Eco System

Input supplies Agricultural Production Processing – Food and energy Harvest

Figure 3: Key Aggregation Activities for Smallholder Value Chains

Smallholder perform individual production decisions farmers

Integrated Value Chain

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Example …

• Several rural entrepreneurs moving in this direction with the active

participation of key input suppliers.

• Not many farmer organisations
• Quality Food Products (Tanzania) Limited is a good example of an

entrepreneur - working to created a fully integrated value chain.

• Distribution of inputs
• Advisory services with support of input suppliers
• Mechanisation services
• Markets
• Aggregation of services such as finance and insurance
• The Southern African Confederation of Agricultural Unions (SACAU)

is playing a leading role to ensure farmer centric models of

• peration.

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Challenges …

• Corporates not open to entrepreneurial risk.
• All risks identified and possible mitigation put in place.
• Unresolved risks are shared by all the key actors (Farmers,

Entrepreneurs, Input suppliers, offtake and financial service provider) – Goal is to limit the value at risk to each segment actor’s profits within the ecosystem.

• Most of the key actors (corporates) have to account for this

risk.

• Slow process for all the necessary approves.
• Limits the potential for scale.
• Identification of like minded value chain actors.

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Challenges …

• The Rural entrepreneur does not have the financial capacity to the

lead the creation of an integrated value chain.

• The initial basket of services in the ecosystem is small due to scale.
• Insurance (crop insurance or weather based index insurance).
• Cost should drop with expanded use.
• Transportation and storage.
• Mechanisation services.
• Trading volume.

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Thank You

Email: hans@zedgroupza.com Phone: +27 83 346 1655