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AGRA’s FISFAP in Tanzania Promoting Financial Inclusion for Smallholder Farmers

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Agenda workshop FISFAP1. Introduction to AGRA and FISFAP and Q&A2. Validation needs assessment results and brainstorming 3. Information on the Request for Concept notes and Q&A

What is AGRA?

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The Alliance for a Green Revolution in Africa (AGRA) is an African-led non- governmental organization that works since 2006 with partners to significantly and sustainably improve the productivity and incomes of resource poor farmers in Africa through agricultural development.

It has interventions in 11 countries to improve:

- Soil health and access to fertilizers for smallholder farmers- Seed varieties and their availability to smallholder farmers- Smallholder farmers’ access to knowledge, markets and finance- Policies impacting agricultural productivity of smallholders

In Tanzania AGRA has supported:79 projects worth 45 million USD through > 40 partners.

Why does AGRA work on Financial Inclusion?

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Improvement of food security through increased agricultural productivity requires financing of:

• Mechanization and hired labor• Inputs (seeds, chemicals and fertilizers)• Crop insurance

Improvement of income requires financing of:

• ‘Masika loans’ to prevent sales of standing crop• Processing equipment (dryers, grading, shelling)• Storage facilities (warehouse, PICS bag, cocoon,..)• Supply chain finance (facilitate cash on delivery) • Storage finance (warehouse receipt financing)

Innovative finance, the missing jigsaw pieces

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Build capacity of farmers, value chain actors and financial institutions in the area of agricultural finance using grants

Mobilize and structure funds like credit lines, equity and guarantee resources for financial services providers

Which problem does Innovative Finance solve?

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High risks and costs

Default

Lack Agricultural knowledge

Weather

Cost of branch

Bad infrastructure

Side selling

Better opportunities

What does FISFAP propose to do?

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Reduce risks and costs by:

• Promoting use of digital channels • Building on AGRA’s existing partners and networks• Cost sharing of new product development• Cost sharing of capacity building of actors

Core principles:

• Farmer at the center• Complementary to existing AGRA work• Business case for all actors• End-to-End solutions

FISFAP, a partnership between MCF and AGRA

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• Improve income and food security of over 700,000 smallholder farmers

• AGRA to become key player in financial inclusion for agriculture

• Now in Ghana, Kenya and Tanzania

• USD 15.5 m for 1 Oct 2014 – 30 Sept 2019

Hedwig Siewertsen, Team LeaderReuben Gicheha, Kenya and branchless bankingPaa Kwesi Awuku-Darko, GhanaPeter Shao & TBD, Tanzania

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Questions and Answers

Market Needs assessment by Dalberg

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1. Ghana, Kenya and Tanzania in April-July 2015

2. In TZ focus on: maize, beans/pulses, onions

3. SAGCOT region

4. Mapping of Value Chain Actors, Financial Services Providers and ICT providers

Demand side findings needs assessment

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For SHF: • Access to markets, in time access to inputs, GAP• Risk aversion, financial illiteracy and mistrust of FSPs• Increasing active use of mobile money• Lack of value addition at farm gate

For Value Chain Actors:• Organization of improved market access• Agro dealers lack working capital to stock sufficient

products in time and operate informal (no records)• Many traders operate in informal manner (no records)

Demand side findings needs assessment (2)

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For maize: • Very loose value chain with many layers between farmer

and consumer• Lack of investment by private sector in maize market• Lack of input credit and good storage facilities for WRS

For beans/pulses: • Some nucleus farms with established (export)markets• Need to improve aggregation and market access

Rice and Sorghum were not considered but are eligible

Supply side findings needs assessment

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Banks (53):• Limited outreach to agriculture: only 5-7% of SHF and VCA

access formal financial services • Only 1% of bank lending goes to agricultural production with a

focus on cash crops (coffee, cashew, tobacco, cotton, tea)\• Ad hoc partnerships for agric lending, few dedicated productsInsurance (29):• No success stories yet for agricultural insurance(Mgen)Micro Finance Institutions (22)• Limited outreach and lack of affordable funds (high interests) SACCOS (6,000)/Vicobas• Often weak governance, systems and fundingMobile Network Operators• 38m mobile money accounts of which only 9m are active

Supply side findings needs assessment (2)

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• FSPs lack specialized financial products, that follow the cash cycle of agricultural production

• FSPs lack staff that is familiar with agriculture and its specific needs

• Government interference in markets and prices disturbs repayment capacity of borrowers

• FSPs lack affordable funding or guarantee facilities that match the risk and cost profile of agricultural lending

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Questions and Answers

GRANTS made till date

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1. Kenya Commercial Bank Ltd, Kenya 6 monthsto use existing transaction data from corporate clients to offer maize lay-away savings scheme and dairy credit to SHF

2. Umati Capital Ltd, Kenya 3 yearsto enhance supply chain finance product in staple crop value chains

3. Chase Bank Ltd, Kenya 18 monthsto develop Agro-dealer model

4. Sibesonke Ltd ,Tanzania 3 monthsto conduct market study

Where are the opportunities to collaborate?

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Who are the existing partners of AGRA? • Farmer groups• Agro dealers and fertilizer companies• Seed production companies• Buyers and processors

Examples of partners: RUDI, Faida Mali, Sokoine, Min Agri, UNYIHA, Rugimwa Company, Mviwata, seed companies On going projects: SSTP (Seeds, USAID), AFAP (Fertilisers), Yield Wise (Post Harvest, Rockefeller), MIRA (advocacy) and IGGSAS (value chains, Norad)

Which crops and regions?• Rice, Maize, Sorgum, Pulses and Soya• SAGCOT and Northern regions

Where are the opportunities to collaborate (2)?

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Criteria:

• Innovative use of Digital Channels to reduce cost and risk• Sustainability of solution (real need, tested, building on AGRA

work, business case for all actors)• Value proposition to farmers (how do >300,000 farmers in

Tanzania get access to appropriate and affordable services)

Eligibility:

• Proof of delivering financial and/or non financial services to clients which could be in demand by smallholder farmers

• Technical Services Providers should be contracted through the solution provider, no stand alone submissions.

Suggestions for FISFAP interventions

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1. Develop input credit packages for staple crops (lay away plan, (in kind) credit, seed and/or crop insurance, verification of input quality, GoodAgricPractices linked to credit)

2. Improve quality and capacity of warehouses and storage bags/silos (asset financing) and link to warehouse receipt financing for staple crops

3. Build capacity of FSP staff in agricultural lending and farmers in mobile money (financial literacy) when product is being developed

4. Support FSPs in product development, testing and roll out focused on staple crops financing using digital channels

Suggestions for FISFAP interventions (2)

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4. Facilitate contracts between FSP and value chain actors (input dealers, off takers) who can on-lend to (trusted) farmers and take some risk

5. Make use of alternative data at value chain actor level to make farmers creditworthy (e.g. automation of supply chain to get transactional data or SACCOS data)

6. Reduce cost of lending by using mobile money and development of agency banking in rural areas

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Thank you