Trends in Agricultural Finance at the European Microfinance Week 2016

Michael Kortenbusch, Managing Director of Business & Finance Consulting (BFC), hosted a panel discussion on the trends in agricultural finance on November 17, 2016 as part of European Microfinance Week. Mr. Kortenbusch invited Ms. Mariel Mensink, Mr. Bart de Bruyne, Dr. Jonathan Agwe, and Ms. Patricia Richter to each give a brief presentation followed by a discussion regarding an aspect of agricultural finance. In particular, the panel discussed agricultural value chain financing, warehouse receipt lending, and agroinsurance.

Key challenges for agricultural value chain finance schemes

Ms. Mensink broke down the key challenges for agricultural value chain finance projects into project-related challenges and finance-related challenges. Project-related challenges come when trying to put the actual financing scheme together, such as: finding the right partners, organizing farmer groups, ensuring the use of quality inputs, and instilling the spirit of the program. These, coupled with financing challenges like identifying financing sources to meet the needs of a wide range of value chain actors, make establishing a successful value chain finance scheme a complex task. Despite the challenges, Ms. Mensink pointed to the example a successful scheme in Sri Lanka helping a local, family-owned business grow into a multinational company with diversified shareholders, and pointed to how companies can better interact with smallholders in agricultural value chain finance.

European Microfinance Week. Luxembourg, November, 2016.

How other industries can become involved in agricultural value chains

Mr. Agwe presented on how value chain finance schemes have improved the fruit and vegetable market in the Seychelles, and how non-traditional industries in the agricultural sector, such as hotels, can become players in agricultural value chain finance schemes.

Warehouse receipt lending

Mr. De Bruyne discussed how warehouse receipt lending, the loan concept where the collateral is a securely-stored harvest of non-perishable agricultural products with foreseeable price fluctuations, is providing benefits for both smallholder producers — in the form of access to credit, better-informed sales decisions, multiple income moments and greater food security — and lenders, in the form of easy to commercialize collateral, good repayment rates, and rural penetration. He posed questions on how warehouse receipt lending can be made more efficient and secure for all stakeholders in the process.

Agroinsurance and bundling

Ms. Richter examined how bundling financial and non-financial services with agroinsurance can affect agricultural value chains and build the scale of agroinsurance. She gave examples of how farmers involved in a value chain in Zambia benefited not only from agroinsurance policies, but also services that gave them alerts when crop prices fluctuated or adverse weather conditions were forecast. She notes that, although there are risks associated with bundling, bundling implemented properly can help all stakeholders in agricultural value chains and encourage growth in a country’s agricultural sector.

The session ended with Mr. Kortenbusch thanking panelists and attendees for the insightful discussion on important topics related to agricultural finance.

Mariel Mensink is a senior program officer with ICCO Terrafina Microfinance. Bart de Bruyne is an independent financial consultant. Dr. Jonathan Agwe is a senior technical specialist with the International Fund for Agricultural Development (IFAD). Patricia Richter is a social finance expert with the International Labour Organization.

The author, Michael Kortenbusch, a former farmer, is the Managing Director of Business & Finance Consulting (BFC), a Zurich-based consulting boutique specialized in the implementation of innovative financing solutions delivered through financial institutions in emerging markets in support of agriculture and micro, small and medium enterprises.