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IFAD-SCC-ICA Rural Finance Workshop
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Introduction Agriculture continues to be the economic mainstay of most eastern and southern African nations. National economies remain highly dependent on agriculture, both as regards exports and as a source of employment and income. However, the productivity of agriculture in Africa remains lower than in other continents, resulting in limited development of rural areas and low farmer incomes. The functioning of agricultural value chains in Africa is challenged by the fragmentation of most of its agricultural sector and a whole range of production, transport, storage and market issues.Access to appropriate financial services has proven to be a critical success factor in improving productivity of agricultural systems. This was also supported during the IFAD-SCCVi-ICA workshop held in Rwanda in 2009, which identified many challenges facing African agriculture. Many financial institutions have been hesitant to finance agricultural activities. The complexity of relationships in the value chain, a lack of easily identifiable investment opportunities, a lack of collateral and associated higher risks and higher overheads due to decentralized service provision in rural areas are keeping local banks away. Many lack the capacity and appropriate products for financing agricultural production, while the availability of technical assistance services is limited. Upscaling is needed to offer a good business case to local banks. In turn, many rural community-based financial organisations lack professional staff, management capacities and long-term funds and face logistic difficulties with disbursement and collection. Rural finance can also be challenged by farmers' attitude towards credit and saving. Challenges include the reluctance of farmers to borrow, high expectations of quick returns and 'hand-outs' to facilitate production processes, side-selling of products when facing urgent cash needs, and limited financial literacy. Devoid of appropriate financial services, many small farmers remain in low-investment and low-return farming activities. Value chain development is seen by many development practitioners as an effective approach to increase incomes of small producers by focusing on improving productivity or value addition on the one hand, while sustaining these efforts by designing appropriate financial support mechanisms on the other. Up to now, the number of successful rural finance schemes in the region remains limited and up-scaling successful initiatives has proven problematic. Isolated interventions cannot impact on the productivity of African agriculture in a meaningful way. What is needed are the establishment of successful cases and a range of highly flexible methodologies that can be adjusted to specific needs of different regional and product contexts. The financial crisis should also be taken into account in such interventions. Although rural populations were not connected to the international financial system, their markets and their financial institutions are affected by it. Financial institutions relying on external funding definitely felt the crisis and the effects on local economies have been significant, starting with agricultural exports. As these affects trickled down they can also affect the access to credit for agricultural actors. To make value chain development work, innovative financial products and services are needed such as insurance, overdrafts, factoring, supplier credit and leasing models, as well as investment loans, guarantees and venture capital. Such a variety of services and products is usually not within the capacity of a single financial intermediary; networks are needed at different levels between different intermediaries and chain actors. For example, microfinance institutions or community financial organsations can link up with producer organizations to provide small input loans to producers, while banks can provide investment loans to processing companies and leverage the financial capacities of community organizations and MFIs. It is also important to keep in mind that external interventions in value chains are not always needed and might in cases be counterproductive and create dependencies and distortions. As such, there is a clear need to identify best practices in value chain analysis and subsequent finance interventions. Important questions remain if, when and where in the value chain to intervene; with what financial products; through which structures; how to ensure mutually beneficial relations between chain actors and service providers; how to upscale interventions; and how to build viable business cases for financial service providers to step in? Our Lusaka workshop will kick-off with a presentation on some best cases. This will set the floor for discussion on the above issues, and for contributions of our speakers and discussion between our participants. However, we do not wish to limit ourselves to best practices shown up to now. There is a clear need for innovation and creating platforms for learning. And what better platform to discuss meaningful experiments, and think about innovative solutions than with the group of rural finance experts and stakeholders we aim to bring together in Lusaka. Agenda and Presentations |
Opening ceremony by organising partners
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Last Updated: 11 February 2011
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