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Finance for Food: Towards New Agricultural and Rural Finance

Name: Finance for Food: Towards New Agricultural and Rural Finance
ISBN: 978-3-642-54033-2

By Doris Köhn

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Book Description

This book reflects the current state of discussion about agricultural and rural finance in developing and transition countries. It provides insight into specific themes, such as commodity value chains, farm banking, risk management in agricultural banking, structured finance, crop insurance, mobile banking, and how to increase effectiveness in rural finance. Case studies illustrate various aspects of agricultural and rural finance in developing economies. The book is based on one of the yearly financial Sector Development Symposia held by the KfW Development Bank.

Table of Contents

Preface
- About This Book
Table of Contents
Abbreviations
PART I: The Big Picture: Global Trends Affecting Agricultural Finance
- CHAPTER 1 Global Dynamics in Agricultural and Rural Economy, and Its Effects on Rural Finance
  - 1 What’s New in Agricultural and Rural Environment?
    - 1.1 Mega-Trends Impacting the Rural Economy
      - Liberalization of Trade in Agricultural Crops
      - Demography and the Place of the Youth
      - Migration as a Way of Life and a Capital Building Strategy
      - Awareness on Climate Change and New Opportunities
    - 1.2 Mega-Trends Impacting the Agricultural Economy
      - Economic Growth in Emerging Countries and in the BRIC: Impact on Demand for Agricultural Produce
      - Emergence of an Urban Middle Class with New Consumption Patterns
    - 1.3 Mega-Trend Impacting Both Agricultural and Rural Economy
      - Technology and the Cell Phone and Internet Revolution
      - The Agricultural and Rural Environment Today
  - 2 Emerging Models in Agricultural and Rural Finance
    - 2.1 Definitions and Lessons from the Old Agricultural Finance
    - 2.2 Modern Rural Finance: An Emerging Model Drawing from Microfinance Best Practices
    - 2.3 Value Chain Financing, Borrowing from Private Sector Financial Services to Small and Medium Farmers
      - Brief Definition of Agricultural Value Chains and Value Chain Financing
      - Role and Positioning of Financial Institutions
      - The New Agricultural and Rural Finance Paradigm
  - 3 Potential Impact of New Agricultural and Rural Finance and Role of Major Stakeholders
    - 3.1 Potential Impact at Micro, Meso and Macro Levels
    - 3.2 Roles of Governments (Central and Local), Donors and Private Players in Supporting the New Agricultural and Rural Finance
      - Role for Governments
    - 3.3 Role for Donors
  - References
    - Publications on Value Chain Financing
- CHAPTER 2 Food Security and a Holistic Finance for Rural Markets
  - 1 Commercialisation of Farming as an Opportunity
  - 2 The Cross-Cutting Relevance of Transport Infrastructure
    - 2.1 Food Which Is Never Produced
    - 2.2 Post-harvest Losses as a Critical Factor for Food Security
    - 2.3 Post-harvest Losses as a Factor for Farm Income
    - 2.4 Efficiently Organised Value Chains Can Reduce Post-Harvest Losses
  - 3 The (Potential) Contribution of the Financial Sector
  - 4 Conclusion
  - References
PART II: Institutional and Process Innovations in Serving Rural Clients
- CHAPTER 3 Finance Through Food and Commodity Value Chains in a Globalized Economy
  - 1 Introduction
  - 2 Increased Importance of Value Chains
  - 3 Organization and Structure of Value Chains
    - 3.1 Increasing Public and Private Standards
    - 3.2 Increasing Consolidation in Processing and Retail
    - 3.3 Vertical Coordination and Value Chain Finance
  - 4 Small Farmer Participation in Value Chains
    - 4.1 Small Farmer Inclusion and Governance
  - 5 Value Chain Finance
  - 6 Models of Private Sector VCF
    - 6.1 Trade Credit
    - 6.2 Interlinked Contract-Farming
    - 6.3 Loan Guarantee Programs
    - 6.4 Special Purpose Vehicles
    - 6.5 Warehouse Receipt Finance
  - 7 Importance of VCF
  - 8 Impact of VCF on Productivity, Quality and Output
  - 9 Policy Issues
  - References
- CHAPTER 4 Agricultural Growth Corridors – Unlocking Rural Potential, Catalyzing Economic Development
  - 1 Global Challenges
  - 2 African Agriculture
    - 2.1 African Challenges
    - 2.2 Political Support
    - 2.3 African Green Revolution
    - 2.4 African Potential
  - 3 Value Chains
  - 4 Growth Corridors
    - 4.1 Corridor Clusters
    - 4.2 Corridors Established
  - 5 The BAGC
  - 6 The SAGCOT
    - 6.1 Capital Requirements
    - 6.2 Agro-Industries
    - 6.3 Regional Integration
  - 7 Infrastructure Backbone
  - 8 Investment Opportunity
    - Grow Africa
  - 9 Conclusion
  - References
- CHAPTER 5 Innovative Microfinance: Potential for Serving Rural Markets Sustainably
  - 1 Agricultural and Rural Microfinance
    - 1.1 Definitions
    - 1.2 The Subsidized Agricultural Credit Paradigm
    - 1.3 The Financial Systems Approach
  - 2 Microfinance Serving Agriculture and Rural Areas
    - 2.1 Reasons for MFIs Expanding into Rural Areas
      - Overconcentration in Some Markets
      - Improve Efficiency and Sustainability
    - 2.2 Required Adjustments in Methodology: Becoming Client Oriented
      - Product Design
      - Individual Lending
      - Decentralization and Staffing
      - Management Information Systems (MIS)
    - 2.3 Successful MFIs Rerving Rural Areas and Agriculture
      - Three Acclaimed Pioneer Asian Institutions
      - ProCredit Bank El Salvador (Formerly Financiera Calpia)
      - Centenary Bank, Formerly Centenary Rural Development Bank Ltd. (CERUDEB), Uganda
      - Opportunity International Bank of Malawi
  - 3 Member-Owned MFIs in Agricultural and Rural Finance
    - 3.1 Four Cooperative Networks
    - 3.2 Strengthening Rural Financial Cooperatives
  - 4 The Role of Donors and DFIs in Overcoming Barriers
    - 4.1 Political Interventions and Interest Rate Ceilings
    - 4.2 Subsidize Institutions and Public Goods
    - 4.3 Supporting Networks
    - 4.4 Risk Mitigation
    - 4.5 Measure and Evaluate
  - References
- CHAPTER 6 Busting Agro-Lending Myths and Back to Banking Basics: A Case Study of AccessBank’s Agricultural Lending
  - 1 Greenfield Small Business Bank in a Transitional Economy
  - 2 Lack of Agricultural Finance
  - 3 Typical Reservations Against Lending to Farmers
  - 4 Launch of Agro Loan Product
  - 5 Results After Introducing the Dedicated Agro Loan Product
  - 6 Agro Loan Product Drives Regional Bank Expansion and Access to Financial Services
  - 7 Agro Loans Providing Stability During Crisis
  - 8 Busting Agro-Myths
  - 9 Risk Management Approach
  - 10 Conclusion
  - References
PART III: Dealing with Risks in Agricultural Finance
- CHAPTER 7 Where Is the Risk? Is Agricultural Banking Really More Difficult than Other Sectors?
  - 1 Introduction
  - 2 Risks in Agricultural Finance
    - 2.1 Definitions and Classifications of Risks
      - Risks in Agriculture Versus Risks in Agricultural Finance
      - Risks in Agriculture: Principal Risks Versus Specific Risks
      - Risks in Agricultural Finance
    - 2.2 Principal Credit Risks
    - 2.3 Specific Risks in Agriculture
      - Production Risk
      - Market and Price Risks
      - Level and Correlation of Production and Market Risks
    - 2.4 Political Risks
    - 2.5 Empirical Evidence on Actual Risks
  - 3 Approaches to Risk Management in Agricultural Finance
    - 3.1 Managing Principal Credit Risks
      - Typical Risk Management Mechanisms and Their Limitations
      - Asset-Backed Lending: Focus on Collateral
      - Expert-Based Appraisal of Repayment Capacity
      - Portfolio Management: Exposure Limits and Diversification
      - Building Risk Reserves: Loan Loss Provisioning
      - Lessons Learned from Successful Agricultural Lenders
      - Contractual Arrangements and Agricultural Value Chains
      - Lessons Learned from Rural Microfinance
      - Emergence of a New Paradigm in Rural Finance
    - 3.2 Approaches to Manage the Specific Risks in Agriculture
      - Segmenting Risks into Layers
      - Risk Retention by Farmers: Prevention, Mitigation and Coping Strategies
      - Risk Pooling and Risk Transfer: Market Solutions and Instruments
      - Traditional Crop Insurance
      - Index-Based Insurance
      - Catastrophic Risk and Market Failure: Risk Transfer to Government
      - Synthesis: Structured Risk Management
      - Relevance for Financial Institutions
    - 3.3 Political Risks Remain a Challenge
  - 4 Implications and Perspectives for Agricultural Finance
    - 4.1 Towards a Hybrid Model of Agricultural Microfinance
    - 4.2 Innovative Insurance Instruments Need Further Study and Development
    - 4.3 Diversification to Remain a Core Element of Risk Management
    - 4.4 Improvements in Legal Framework and Financial Infrastructure
    - 4.5 The Role of Government and Donors
  - 5 Concluding Remarks
  - Appendix 1: Segmentation of Agricultural Risks
  - Appendix 2: Features of a Hybrid Model of Agricultural Microfinance
  - References
- CHAPTER 8 The Potential of Structured Finance to Foster Agricultural Lending in Developing Countries
  - 1 Introduction
  - 2 Concept of Structured Finance
  - 3 Risk-Based Differentiation Between Agricultural and Rural Finance
    - 3.1 Investors’ Channels to Finance Agriculture
    - 3.2 Agricultural Value Chain Finance
  - 4 Agricultural Risks and Risk Management Strategies
    - 4.1 Classification of Agricultural Risks
    - 4.2 Risk Management Strategies and the Role of Structured Finance
  - 5 Application of Structured Finance in Agricultural Lending
    - 5.1 Agricultural Portfolio Guarantees
    - 5.2 Are Agricultural Portfolio Guarantees an Appropriate Tool?
    - 5.3 How Innovative Agriculture-Specific Guarantees Could Look
    - 5.4 (No) Securitization in Agricultural Finance
    - 5.5 Structured Funds Investing in Rural Finance
  - 6 Finance Structures in Value Chain Finance
    - 6.1 Receivables-Backed Finance
    - 6.2 Warehouse Receipts Finance
    - 6.3 Forward Contracts, Futures and Options
    - 6.4 Contract Farming
  - 7 Summary
  - 8 Concluding Remarks
  - References
    - Websites
- CHAPTER 9 New Approaches to Agricultural Insurance in Developing Economies
  - 1 Ex-ante Versus Ex-post Risk Management Solutions
  - 2 First Considerations When Setting Up Agricultural Insurance: System Approach Before Product Approach
  - 3 SystemAgro: Framework and Structural Aspects of Agricultural Insurance Systems
  - 4 Operational Aspects of Agricultural Insurance Systems
  - 5 Insurance Products and the Overestimated Potential of Weather Trigger Policies
  - 6 Portfolio Management and Underwriting
  - 7 Distribution
  - 8 Loss Management and Loss Adjustment
  - 9 Administration and Data Management
  - 10 Innovation: The Driving Force in All Development Phases
  - 11 Current Status and Outlook
    - Exchange Rates
  - References
PART IV: Using Modern Technology for High-Quality Services in Rural Areas
- CHAPTER 10 Reaching the Client in Geographically Adverse Conditions: Can Outsourcing Increase Effectiveness and Efficiency?
  - 1 Introduction
  - 2 Providing Financial Services to Remote Rural Areas: Specific Constraints and Costs
    - 2.1 What Are the Constraints Faced in Remote Rural Areas?
    - 2.2 What Is the Impact of Rural Finance on Cost Structures?
      - Information Costs Are the Main Cost Driver for Lending Operations
      - Cash Management Is the Main Cost-Driver for Deposit Services
      - ... as Well as for Remittance and Payment Services
  - 3 Increasing Outreach Through Branchless Banking
    - 3.1 Branchless Banking: Banks’ Internal Solutions
      - Low-Cost Retail Outlets
      - Alternative Delivery Method: Roaming Officers
      - Staffless Delivery Channel: ATMs
      - SMS Information Services to Facilitate Data Exchange
    - 3.2 Branchless Banking: How ICT Boosted Outsourcing Possibilities
      - Information Management
      - What Can Be Outsourced?
    - 3.3 Branchless Banking: Different Types of Partnerships
      - Outsourcing by Partnering with Existing Financial Institutions
      - Outsourcing by Partnering with Existing Mobile Payment Systems
      - Conditions to Increase Outreach Through Partnering with Financial Services Providers
    - 3.4 Setting Up a Bank-Led Mobile Banking System
      - Who Are Third-Party Agents?
      - The Bank – Agent Relationship
      - Managing the Cash
      - Setting Up an Own Third-Party Agent Network
      - Banking Correspondents: A Specific Type of Third-Party Agents
      - Relevance of Setting up a Bank-Led Mobile Banking System
  - 4 Conclusions
    - 4.1 Implications of Outsourcing on a Bank’s Operations
      - From the Use of Third-Party Agents to Tellerless Banking: Impact on a Bank’s Costs
      - Impact of Outsourcing on Outreach
      - Designing Products Differently: Impact on Quality of Service
    - 4.2 When Should a Bank Contemplate Launching a Mobile Banking System?
      - Relevance of Mobile Banking Strategy
      - Bank-Related Pre-conditions
      - Environment Pre-conditions
    - 4.3 The Role of Government and Donors
  - References
- CHAPTER 11 Tameer Bank’s Experiences with Mobile Banking
  - 1 Access to Finance: The Case of Pakistan
  - 2 Mobile Penetration: Anywhere and Everywhere
  - 3 Mobile Banking: Differentiated and Low Cost
  - 4 Tameer-Telenor Partnership
  - 5 EasyPaisa: Story So Far and Way Ahead
  - References
- CHAPTER 12 Poverty-Sensitive Scorecards to Prioritize Lending and Grant Allocation with an Application in Central America
  - 1 Introduction
  - 2 Building a Scorecard
    - 2.1 Risk Scorecard
      - Methodology
    - 2.2 Poverty Scorecard
      - Methodology
      - Steps to Construct a Poverty Scorecard
  - 3 An Application to a Grant Competition in Central America
    - 3.1 Details of the Program in Central America
    - 3.2 Risk Scoring
    - 3.3 Poverty Scoring
  - 4 Concluding Remarks
  - References
Index
- Keywords
- Countries
- Organisations