Finance for Smallholders

Finance for SmallholdersOpportunities for risk management by linking financial institutions and producer organisations

CASE STUDIES REPORT

Photo by ICCO Terrafina Microfinance - Fransien Wolters

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Funders:

Food & Business Knowledge Platform NpM, Platform for Inclusive FinanceAgriProFocus

Rural Finance working group members:

Cordaid Resi JansenFMO Frederik Jan van den BoschFMO Anton TimpersHivos Ben LeussinkHivos Leo SoldaatICCO Investments Ben NijkampICCO Terrafina Microfinance Mariel Mensink (coordinator)Oxfam Novib Bruno MolijnRabobank Foundation Albert Boogaard

Authors:

Lead consultant Joost de la Rive Box, Nedworc FoundationResearcher (Ethiopia) Shambachew Hussen, Wageningen University & Research CentreResearcher (Mali) Ibrahim Mare, Local consultantResearcher (Rwanda) Patrice Mugenzi, Wageningen University & Research CentreResearcher (Uganda) Peter Mukwana, Local consultantResearcher Marjola Trebels- Van Bolhuis, NpM, Platform for Inclusive Finance

Table of Contents

Ethiopia

Case Study E1: Lidet Savings and Credit Cooperatives Union 4

Case Study E2: Wasasa MFI 22

Case Study E3: Buusaa Gonofaa MFI 34

Case Study E4: Setit-Humera Ltd Farmers’ Cooperative Union 50

Mali

Case Study M1: Mali Biocarburant 64

Case Study M2: Soro Yiriwaso MFI 76

Case Study M3: myAgro Social Enterprise 90

Rwanda

Case Study R1: Duterimbere MFI Ltd / Nyagatare Branch 100

Case Study R2: Uniclecam Ejo Heza 112

Case Study R3: Amasezerano Community Banking Ltd 122

Case Study R4: Union des CLECAM Wisigara 128

Uganda

Case Study U1: Conservation Cotton Initiative Uganda 138

Case Study U2: Enterprise Support and Community Development Trust 150

Case Study U3: National Union of Coffee Agribusinesses and Farm Enterprises 162

Finance Fairs

Case Study Finance Fairs: Ethiopia, Uganda, Rwanda, Mali 180

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AbstractLidet Savings and Credit Cooperatives Union operates as a financial cooperative for 111 primary cooperatives with in total 115,713 active individual household members. Lidet is not just a Savings and Credit Co-operative (SACCO) as it also includes other producer and marketing primary Co-operatives such as Multi-Purpose Co-operatives (MPCs) and Unions. Microfinance is provided both to individual farmers and to farmer groups. Apart from credit and savings, the services include microinsurance, finance training and farm-related extension. Despite the progress, a preliminary study reveals that there was a huge need for capacity building in governance and financial management issues. In line with this, ICCO Terrafina Microfinance designed a capacity building programme and trained Union staff, board members and the Union credit control committee. In a bit to improve lending procedures, training was developed for loan officers of financial cooperatives including a Cooperative Credit Assessment Matrix (CAM). This is a tool that assesses the risks of lending to a producer cooperative. Also capacity building was undertaken by ICCO Terrafina Microfinance for the staff of cooperative promotion agencies at regional, zonal and district level.

AcronymsCAM Cooperative Credit Assessment Matrix CCB Common Capacity Building DA Development Assistant ETB Ethiopian BirrMFI Microfinance InstitutionMPC Multi-Purpose CooperativeMPU Multi-Purpose UnionPO Producer OrganisationRUFIP Rural Financial Intermediation Programme, financed by IFAD (International Fund for Agricultural Development)SACCO Savings and Credit Co-operative VSLA Village Savings and Loan Association

Case Study E1

Lidet Savings and Credit Cooperatives Union

Producer Organisation (PO) /coop profile data

Type of organisationNumber of membersNumber of employeesMain crops

Cooperatives Union 111 cooperatives 26Teff barley and maize

1. Main characteristics of the case

1.1 Farmers and their organisation

Lidet Savings and Credit Cooperatives Union Ltd. is mainly serving as a second tier cooperative for more than 111 different primary cooperatives. It started its operation in March 2006 by 18 primary cooperatives of which 6 were Multi-Purpose Cooperatives (MPCs), while 12 of them were Savings and Credit Co-operatives (SACCOs). It was established with the mission of solving the socioeconomic problems and the eradication of poverty in the region, by providing reliable, convenient and quick financial services to members and customers. The Lidet secretariat aims to strengthen its member primary cooperatives, so their customers are satisfied with the financial services offered. Unlike the other regions, the Amhara Union in general and Lidet in particular do this in the sense that the member cooperatives are not just SACCOs, but also Multi-Purpose Producers and Marketing Primary Cooperatives.

“Improving financial services from Financial Cooperative Unions to Producer Marketing Cooperatives, Amhara Region, Ethiopia”

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Kind of Producer Organisation Total numbers % of members

1 SACCO 56 50.5%

2 MPCs 38 34.2%

3 Seedling Enterprises 7 6.3%

4 Consumer Cooperatives 4 3.6%

5 Vegetable and Fruits 2 1.8%

6 Housing Development and Cooperatives 2 1.8%

7 MPUs 1 0.9%

8 Animal fattening and marketing 1 0.9%

Total 111 100%

Source: Authors computation from Lidet Union report for federal government - Update 2014-09-21

In accordance with its constitution, Lidet aims:1. To provide access to credit and financial services at an affordable interest rate to the poor

farmers, especially to women;2. To create a favourable and trusted investment climate by keeping funds of primary

cooperatives collected from members; 3. To provide training and support to primary cooperatives in the region;4. To create a better financial system for the primary cooperatives; and5. To create a platform for member cooperatives to share experience.

These functions are reflected in its organisational structure, as illustrated in the diagram below.

Currently, the services of Lidet are expanded and reach 6 districts and 140 peasant associations. There are 111 member primary cooperatives and 115,713 active individual household members under Lidet. Of this total number of individual members, about 41,894 (36%) are female. Member cooperatives are categorised into 8 different categories.

Secretary Legal office Credit management Savings office Education and

training unit Accountant

Casher

Internal Auditor

Diagram 1.1: Lidet Union’s organisational structure

Follow-up teamGeneral Assembly

Board of directors

Union Manager

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The following table shows the progress in membership since the Union’s establishment in 2006, with respect to member primary cooperative, individual members’ gender distribution and total clients reached.

Since its establishment, Lidet has been providing a variety of services for members’ cooperatives, which include:• Provide support on practical planning preparation and other support to member primary

cooperatives and Producer Organisations (POs);• Create a culture of saving for the member cooperatives and support establishment of new

cooperative societies in the region;• Broaden and empower women and young leadership roles;• Provide quick, reliable and covenant service;• Provide training for the members’ permanent employees; • Create a better financial awareness among the member cooperatives; • Expand the financial service coverage by opening new branches; and• Establish a model for primary cooperatives.

1.2 The financial institution involved

Lidet currently has an ETB 77 million loan portfolio outstanding. The profit and loss accounts of the primary cooperatives was done for 2013/14 and profit was shared among members where the biggest profit share was ETB 50,365 and the smallest was ETB 26.-.

The Union also provides loans to Village Savings and Loan Associations (VSLAs) at a rate of 11% where the VSLA retails loans to members at 12%. Moreover, since March 2014 Lidet launched a microinsurance coverage for individual members who borrowed from the member SACCOs. The aim of this insurance is to avoid the financial burden to the remaining family members if the borrower dies before he/she paid the loan back. As a result since March, there are 828 members who joined a microinsurance service from Lidet in five months time. So far this year, only two deaths claims were filed and reimbursed according to the contract. The insurance and the VSLA servicers are very negligible compared to the core business of the Union i.e. serving the primary cooperatives.

Year Membersprimary coops

Individual members Increment

Male Female Total

06/07 18 7,698 1,221 8,919

07/08 20 9,720 1,743 11,463

08/09 23 11,740 2,357 14,097

09/10 25 14,710 3,543 18,253

10/11 30 15,107 4,320 19,427

11/12 38 15,609 4,465 20,074

12/13 80 58,127 27,619 85,726

13/14 111 73,819 41,894 115,713

Source: Lidet Union report for federal government update 2014-09-21

YearCapital

Increment in ETB

2006/07 169,464.00

2007/08 318,344.80

2008/09 572,869.30

2009/10 895,129.00

2010/11 1,194,973.00

2011/12 1,725,132.00

2012/13 4,059,878.00

2013/14 7,519,876.16

MFI profile data

Total number of active clientsNumber of employees, staff Portfolio value % of farming clients

115,71326ETB 77,027,95699% (estimated)

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1.3 Nature of the programme

Rural SACCOs in Ethiopia are in general quite weak. Most rural SACCOs came into being after the start of the Rural Financial Intermediation Programme (RUFIP) in 2002. Ethiopia has a complex history with regard to cooperatives, as most cooperatives were politically initiated MPCs. Savings and Credit Unions and SACCOs are governed under one general cooperative law, together with marketing cooperatives and consumer cooperatives. This implies that, unlike the banking sector and microfinance sector, the supervision of financial cooperatives by the Central Bank in Ethiopia is lacking. No capital requirements, prudential norms, ratios and standard accounting practices have been defined. It was considered important to support these cooperatives since they operate in remote rural areas where microfinance institutions (MFIs) are often not operational. Since financial cooperatives need capacity building in institutional and financial management as well as on financial product development, ICCO Terrafina Microfinance is actively supporting them. Together with other concerned parties it also lobbies for development of a financial cooperative regulatory law.

The ICCO Terrafina Microfinance support to this Union started with a preliminary study by a local consultant. This study revealed a huge gap in human resources capacity, skills and knowledge in Union-boards and cooperative managers to safeguard good governance, portfolio management, financial management, accounting systems and cash management. Based on the preliminary study and the gaps identified, ICCO Terrafina Microfinance designed a capacity building programme in three phases. Beneficiaries of the programme included Union staffs (general manager, accountants and cashers); Union board members; and the Union credit control committee. They were joined by external staff from the cooperative promotion agency at regional level and three zonal level staffs namely from West Gojjam, East Gojjam and South Gonder.

The first phase of the training aimed at improving financial services from the Financial Cooperative Unions to MPCs and marketing cooperatives in Amhara region. ICCO Terrafina Microfinance designed and supported a Common Capacity Building (CCB) programme. The programme was provided for 6 financial cooperative Unions (including Lidet Union) and the cooperative promotion office at zonal and regional levels in the Amhara region. The second phase concentrated on Union product development. One element in this phase was to improve the financial services from the Unions to their primary MPC members. MPCs are the main credit recipients of the Amhara Unions. They account for 70-80% of all outstanding loans of the Unions. Most MPCs are producer/marketing cooperatives of grain staple food, mostly teff and maize. Their main activity is to buy, after harvest, the grain from the farmers for storage at the market-rate of that moment and become owner and responsible for marketing. In a bit to improve lending procedures, training was developed for loan officers of financial cooperatives using an assessment tool called “Cooperative Credit Assessment Matrix” (CAM)1, which was developed by a consultant of ICCO Terrafina Microfinance.

The objective of the training was to equip the Unions with tools to enable them to quickly analyse the key capacities and risks, and to be able to suggest proper loans to MPCs in terms of size, price and conditions. Loan demand from MPCs to Unions is usually much higher than the total value of their collateral. MPCs’ loan demand is based on estimated grain supply from members at harvest time, plus their storage and marketing facility. The CAM tool aims to facilitate increased MPC loan size beyond existing collateral possibilities, based upon investment needs and repayment capacity. In addition, ICCO Terrafina Microfinance lobbied with the regional government to have an adjustment of the requirements for SACCOs’ loan provisioning and collateral cover. Also in this product development phase of CCB, an effort was done to introduce professional solidarity lending by Union credit agents through SACCO committees and members, as well as an agri-lending product specifically for farmers, based on solidarity lending mechanisms. In line with this, trainings were given on solidarity group formation. Based on the needed assessment of the Unions, ICCO Terrafina Microfinance also provided support through funding for motorbikes for credit officers and for improvement of their salaries.

1 An excel tool with (20) concrete indicators and norms to score the institutional, financial, and marketing capacities as well as relevancy to members and credit worthiness of an MPC.

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1.4 Other stakeholders

Cooperative Promotion Office. The Amhara Cooperative Agency is supporting the Unions at the regional, zonal and district level. At the regional level the cooperative promotion agency has a role in designing policies and rules for the way Unions should be governed. It also provides training and conducts research at the regional level. At the zonal level the agency supervises Unions on the given mandate. And at the district level, grassroots level support has been given through establishing new Unions, ensuring licensing and performing close regulatory follow-up on their operations through audit reports and inspections.

Zone/district administration office (ZAO/DAO). The agricultural services of the Government are extended starting from regional, zonal, and then district office administration and peasant association level. At the peasant association government, authorities are responsible for timely endorsement of credit clients. This is done by issuing a “Letter of Support” to Lidet - or members cooperatives - certifying that the prospective client operates in their area and that their loan requirements are assessed to be relevant and genuine.

Agricultural Development Assistants (DAs). The agricultural DA officers mainly aim to provide agricultural extension support to smallholder farmers and ensure the application and practice of good agronomic practices (GAP). At the peasant association level they are also responsible to issue the Letter of Support to Lidet Union/members’ cooperatives. They verify and certify that prospective clients’ business proposals are feasible and justified with respect to the loan size requested.

ICCO Terrafina Microfinance. ICCO Terrafina Microfinance aims to contribute to rural development and poverty alleviation through improved access to microfinance and the facilitation of expanded rural outreach by sustainable microfinance providers for rural producers and entrepreneurs in selected African countries. It was founded in January 2005 as a joint microfinance programme of ICCO, Oikocredit International and Rabobank Foundation. ICCO Terrafina Microfinance is active in supporting financial Unions and SACCOs in Ethiopia since 2007, mostly in Oromia and in southern nations. ICCO Terrafina Microfinance believes in the importance of having a diversified microfinance sector, to reduce risk and promote a multitude of best practices, adapted to the local situation and needs. Thus support has been given for institution-based MFIs and member-based financial institutions. The Rabobank Foundation consortium partner is especially interested in cooperatives, and is investigating possibilities to provide a guarantee for a loan of CBE to Lidet.

1.5 Nature of the financial transactions

Lidet Union is mainly serving as a secondary cooperative for more than 111 primary cooperatives, included as a membership umbrella. Despite these secondary cooperative activities, the Union also recently started to provide loans to VSLAs and insurance service to individual members.

Table 1.2: Credit product(s) for agriculture

Name # of months

Interest % Interest mode Flat or R.B.

Repayment Bullet / instalment

Security mode

Member cooperative loan2

- 12% Dealing Bullet Storage, crop and collateral

VSLA - 11% Dealing Bullet Group-based

AMLD/GRD project 36 12% Dealing Bullet Land & p.guar

2 This loan is provided for member primary cooperatives, SACCOs and Multi-Purpose Unions (MPUs).

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For member cooperatives, Unions or other producer groups, credit is approved based on the CAM-tool. The interest rate for this loan is 12% interest per annum with a bullet repayment. The purpose of the loan is dependent on the nature and activities of the cooperatives, which can differ greatly, especially in the case of MPCs which form the second largest credit-receiving category. They account for 34.2% of all outstanding membership of the Unions. Most MPCs are de-facto producer marketing cooperatives of grain staple food, mostly teff and maize. They are mainly active in buying the grain from the farmers for storage, after harvest. The loan therefore aims to have working capital and to buy the produce from their member smallholder farmers at the harvest time (i.e. post-harvest credit).

For village savings and loan associations loan is given based on a due diligence process. This loan has been provided on an 11% interest rate with a bullet repayment scheme. The loan is secured by a group security mechanism. Lidet is also administering loans provided by the AMLD/GRD project. This project is based on ETB 14 million capital, contributed by both AMLD/GRD and Lidet, where they contribute equal shares (50% / 50%). For this loan Lidet workers are directly administering the credit appraisal, disbursement and collection process. The loan is meant for animal fattening, where borrowers from the highlands invest in goat farming and farmers in the lowlands invest in sheep. The annual interest rate for this loan is 12%. The loan is given for three years with a bullet repayment and flexible interest rate charges on the amount outstanding. SACCOs are also among the primary cooperatives that take loans from the Union, with the purpose to satisfy credit demand of their members.

2. Risk analysis

2.1 How has risk management been approached?

Loan appraisal by the financial institution (due diligence) For each of the financial products of Lidet, a set of specific criteria is to be used in the due diligence process. Different financial products were developed for member primary cooperatives, Village Savings and Loan Associations (VSLAs) and individual AMLD/GRD project loans. The criteria and steps in the due diligence processes of each of the products are listed below.

Cooperatives and UnionsUnder this loan product only member cooperatives are eligible for loans from Lidet. The amount of credit to be granted to this member primary cooperative is based on (a) the amount of savings (mandatory and voluntary savings held at the Union); (b) storage; (c) the fixed asset ownership; (d) equivalent primary cooperative guarantee; (e) repayment history; and (f) the leadership quality of the cooperative. Based on these criteria there is a possibility to grant 25% or 35% or even 100% loan beyond the collateral requirements of the member cooperative. A remarkable change in due diligence after introduction of the Cooperative Credit Assessment Matrix (CAM) is that there is a possibility to grant loans beyond the physical collaterals that the prospective cooperative borrowers have.

Individual loans AMELD/GRD The AMELD project promoters can nominate smallholder farmers who need financial assistance under the project. In principle the nominated borrower should have fixed asset collateral such as land, be known in the village for his/her personal integrity and credit repayment history, have a permanent residence in the area of the peasant association and be able to co-sign the loan contract with his spouse. The promoters will also assist the farmers to develop a business proposal, to be submitted for the loan. The next step is confirmation and recommendation from the peasant association chairman and the agricultural extension officer, also called Development Assistant (DA). The peasant association chairman will confirm the permanent residence of the prospective borrower while the Agricultural Development officer of the peasant association will check the business proposal and will confirm and recommend it for financing

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After all these processes and steps, Lidet will approach the prospective borrower and provide pre-loan disbursement, training and education. The training aims to create better awareness of the prospective borrower about the financial product, the terms and conditions and loan repayment discipline. Then the loan will be sanctioned and disbursed to the borrower in cash. Within 15 days’ time the borrower is expected to start the farm investments which will be checked by Lidet credit field officers as a follow-up. The borrower will be forced to repay the loan as soon as possible in case he/she did not comply with the business proposal or divert the loan to unplanned purposes.

2.2 Risk management by the stakeholders

In the design and development of the Union finance products, the lead actors have jointly assessed the risks for farmers and the primary cooperatives, and identified means to mitigate these risks. For the purpose of the case study, a distinction is made between the six crucial aspects of smallholder production, i.e. risks related to:• The specific crop: i.e. coffee;• The farming system and farm production;• The strength of the farmer organisation / Producer Organisation (PO);• The market for malt barley and food crops;• The viability of the farming system promoted; and• The financing of farmers. These risks and the way they were mitigated and managed have been tabulated in a risk catalogue (see table 2.1) and are briefly summarised below.

Product-related risksIn the Lidet Union area the main crops are teff, barley and maize. At the grassroots level, individual member farmers are exposed to the risk of having a lack of proper seed and problems with timely delivery of appropriate seeds. For the quality of the produce, the type of seeding material is essential. Poor quality seed, even if it is the right variety, may have poor germination performance, thus leading to lower yields. In order to mitigate these risks, the Union has been financing certified seedling enterprises and linking the farmers with these enterprises for easy access to seed. With respect to the individual loan given to the farmers for animal fattening, the risk of animal diseases is the main risk exposed. As a mitigation measure, close follow-up by agricultural extension offices was devised, even though it is still limited in coverage.

Production-related risksThe yield per acre for the participating farmers is still relatively low, as predominantly traditional farming systems are practiced. Yield improvement depends critically upon the availability of qualified extension officers and agronomists, methods for farmers’ education and exposure and incentives for increased production volumes. The production risk for the individual farmer refers to decisions to minimise the risk of crop failure and to maximise gross margins earned. Guidance on these issues critically depends upon the staff of the cooperatives to which the farmer belongs. A low level of financial education, weak organisational structure and human resources at both the Union and the primary cooperative levels are constraints to be addressed. With the help of ICCO Terrafina Microfinance, trainings, education, Union monitoring and a follow-up committee have been provided to the Union managers, accountants and cashers. Regional, zonal and district level cooperative agency staff were also involved in the training. The training and capacity building given is limited still and needs a continuous support at the different levels of Union operations.

Farmers’- organisation-related risksThe main risks involved at the farmers’ level are the low level of awareness about the financial services provided and about proper agricultural practices. At the cooperative and Union level there is a lack of skilled manpower at the right positions. As a mitigation measure insurance was introduced by the Union to individual members who had a loan from the cooperatives. About 828 insurance members voluntarily joined the insurance service. Further training and education about the loan were also given at the pre-disbursement and post-disbursement of loans, including application processes, steps, requirements and the details. Absence of legal experts at the Union level remains an unsolved problem.

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Marketing-related risksThe main risk with respect to market risks under this value chain finance scheme is the lack of a good market linkage between the farmers and the POs, and the final market. In order to mitigate this, the Union tried to link the farmers and their producers’ group with the other member producers’ groups through: a) forwarding contracts; b) linking the farmers and POs to a better market such as university for animal fattening projects with respect to the AMLD/GRD project and Malt Barley Factory for malt barley producers and their respective Multi-Purpose Cooperatives (MPCs). Another resolution was to provide working capital loan to MPCs in order to facilitate them to buy and store farmers’ produce and in turn enable them to sell it at the right time. Despite all this market linking and capacity building mitigation measures, the efforts were not well organised and the coverage is very limited.

Finance-related risksThe main financial risks concern late repayment and default at both the cooperative and the final individual members’ level. To mitigate this, cooperatives were assessed with a proper due diligence process which required a proper collateral and related guarantees. Individual members were also properly assessed, trained and checked by the credit field officers. Although in a limited way, a report and audit has been conducted in order to tackle possible fraud risk at the cooperative and Union level. Field officers of the Union are mostly in the field either for proper follow-up, screening or educating the individual clients at the village level. As a result the repayment rate at the Union and cooperative level is very successful as they have a 97% repayment rate. For the risk of default as a result of death of the borrower, the Union introduced insurance and minimised the risk.

Table 2.1: Overview of main risk management items

Aspect Risk assessment the risk owner Risk mitigation measures Risk monitoring

Product risks Lack of proper seed Linking and financing seed enterprise Still there is shortage and lack of reliability

Diseases for animal Close follow-up by agricultural extension offices Limited service with limited extension offices

Poor harvesting season for crop farmers • Diversification of crops • Diversification of the type of cooperatives

• Yes, but need much more to do • There are 8 different cooperative categories

Lack of good agronomic practice Close follow-up with agri-extension officers Limited

Production Risk Members have low level of financial education Training and education Done on a limited basis

Weak organisational structure and human resources of members

Client/relationship risk Fear of premature death of borrowers Insurance So far 802 of these members are insured

Farmers have low level of awareness Training and education about the loan, application processes, steps, requirements and the details

Done. Still need much more to build the capacity of these members

Absence of legal expert in organisation

Absence of skilled human power Keeping the employee at most benefit Benefits were adjusted based on government scale

Wrong perception of borrowers towards loan Education, training, follow-up Working well

Marketing Risk Lack of good market linkage between the farmers and the POs and final market

• Forward contracts • Linking the farmers and POs to a better market such as university and Malt Barley Factory • For animal fattening university • For barley farmers Malt Barley Factory • Providing working capital loan to multi-purpose cooperatives (MPCs) to buy and store farmers’ produce

• Not yet organised• Yes, but at a limited scale

• Done, to be strengthened • Done and is promising business linkage • Is doing great based on CAM criteria

Price fluctuations Contract farming Not yet well organised

Financial risk Fraud employees Periodic review, report and audit Yearly Audit report

Early repayment • Repayment collection based on the actual interest on the repayment date • Training and education

Good and flexible enough

Lack of internal Auditor Audit is on yearly basis and done by the Coop offices. Standard is very low

Diversion of loan Close follow-up by the credit officers Immediate repayment for non-compliance

Default / moral hazard by members • Close follow-up by the credit officers• Primary cooperatives have various committees

20 days in office and good repayment progress (I.e100% repayment rate)

Risk of default by members Collaterals & equivalent cooperative as guarantor and loan based on CAM

Working well

Risk of death of the borrower Insurance coverage against death 802 insured so far

Pre-loan moral hazard (inflating demand by cooperatives)

• CAM • And due diligence process

100% repayment rate

Pre-loan moral hazard (inflating demand by individuals farmers)

Credit appraisal based on business plan recommended by PA chair and DA offices

Delay in repayment by individual borrowers • Proper examination of reasons • Close follow-up credit filed officers, primary coops credit repayment and other committees

Extension with a proof of reasonable reason

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2.3 What is the finance strategy?

I. Financial appraisal Multiple classified criteria were applied for individual loans and loans given to the member cooperatives and VSLA. A. Individual loan AMELD/GRD

• Preparing business plan – promoters;• Having a fixed collateral asset;• Known in the village for his/ her good personality and good credit history;• Co-signing with his/her spouse; • Permanently and legally resident, approved by PA chair;• DA approves feasibility of the business plans;• Pre-disbursement education for both borrower and spouse;• Follow-up business plan implementations in 15 days; and• If not implemented the loan will be forced to be repaid.

B. For cooperatives and Unions due diligence • Membership and their mandatory and voluntary savings amount;• Taking their fixed asset as collateral;• Equivalent cooperative guarantee;• Prior credit repayment history; and• Cooperative Assessment Matrix.

Based on the CAM, a decision will be made on 25%, 35% and 100% loan. Key elements to consider while giving loans to the MPCs are the overall CAM result, credit worthiness of the borrower, like character in individual, economic evaluation/supply and demand and repayment capacity (cash flow, asset and capital position).

II. Finance Needs AssessmentBefore the application of the CAM, only tangible collaterals were considered in order to assess the demand of loan and then grant loans to cooperatives. ICCO Terrafina Microfinance provides the training about how to assess loan based on CAM. Concepts covered under the Common Capacity Building (CCB) trainings included the notion of lender and borrower and loan processing steps such as the how of loan application, appraisal, approval, signing of loan agreement and loan disbursement.

Key elements to consider while giving loans to the MPCs are the overall CAM result, credit worthiness of the borrower, like character in individual, economic evaluation/supply and demand and repayment capacity (Cash flow, asset and capital position). Credit history/character assessment, repayment capacity, balance sheet information, collateral issues, and risk management are also issues to be considered in the CAM. The following table shows the criteria and yardsticks to be considered in the CAM and appraisal norms.

S/N

CAM Results

Loan Delivery Conditions

30% Clean Loan

50% Clean Loan

Savings and Equity

Fixed Assets (67%)

Peer Guarantee

Increase Interest Rate

Reduce Loan Amount

Reject the loan

1 < 50%

2 51-65%

3 66-85%

4 > 85%

Source: SACCO Unions Capacity Building Programme in Amhara Region November 2013

Rem

arks

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III. Financial products / Instrument The financial products are loans to member primary cooperatives, VSLAs and individual AMLD/GRD project loans. For loans to the member cooperatives, the loan is based on the CAM and there is a bullet repayment.The purpose of the loan is dependent on the nature and activities of the cooperatives. Most MPCs are de facto producer marketing cooperatives of grain staple food, mostly teff and maize. MPCs buy, after harvest, the grain from the farmers for storage at the market-rate of that moment and become owner and responsible for marketing. The loan is therefore amid to have a working capital to buy the produces from their member smallholder farmers at the harvest time.

2.4 What capacity for agri-finance has Lidet Union installed to perform these tasks?

The Union has three main leadership teams. These include a general assembly, a board of directors and monitoring, and a follow-up committee. The general assembly is composed of three appointed representatives from each of the member cooperatives/POs where at least one of them must be a female representative. The board of directors is composed of appointed leaders. Leaders are appointed based on the criteria such as a person who is known for his/her good personality and confirmed by the general assembly, for his/her admirable experience and educational background and who has no other responsibilities. Moreover, the appointee should be legally capable to be voted and should have a very good prior loan repayment history.

Currently there are about 26 permanent employees scattered over the six breaches who are responsible for 140 peasant associations. At the head quarter level everyone is committed to these financial transactions. There are monthly, quarterly, and yearly audit reports from each of the branches to the concerned regional finance offices. There are four specialised credit officers at the main branch office who are active in the field, 20 days in a month time. Moreover, the Zonal Agricultural Offices and the concerned District Agricultural Offices are closely supporting, monitoring and evaluating progresses. This clearly shows that the human resources back-up that Lidet possessed and the follow-up and monitoring activities are held accountable, with a clear assignment of operations. To conclude this section, it can be said that the Union has still not enough risk assessment capacity and systems in place. This therefore calls for a lot of support at both the Union level, at the member cooperatives’ organisational structure and from human resource capacity.

2.5 What connections were entertained by Lidet Union with other stakeholders in the sector? Who was the lead actor in orchestrating the chain?

This value chain is mostly orchestrated by the Union where they provide the loan to the member MPC, Savings and Credit Co-operatives (SACCOs), VSLAs and other marketing-related cooperatives and Unions. The main activity is done by the Union acting as a secondary cooperative where they provide loans to the member cooperatives, POs and other marketing-related cooperatives.

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3. What makes it tick?

3.1 What are the success factors in this case? What risk mitigation measures proved effective?

Based on a microscore assessment done to all the Unions of the Amhara region, Lidet has shown an increased progress. In the first assessment report it scores 2.28 which was the lowest of all the Unions’ scores. Since then Lidet has been improving its operations and able to stand first at national level for its performance. It became highly profitable and opened branches in six districts and 140 peasant associations. It recently also started providing microinsurance products to its members. Taking into account the performances and awards in the second microscore assessment, Lidet has shown considerable progress and scored 7 out of 10, which was the biggest microscore assessment result of all Unions in the Amhara region.

Lidet is providing timely credit provision with clear requirements and procedures to be used commonly and transparently by all member cooperatives. It also provides flexible and need- based loan at a lower interest (12% Vs 18%). Trainings were given to members, member employees and leaders, and panel discussions with the concerned stakeholders were done in close collaboration with Lidet. The Union also created market linkage to farmers, Producer Organisations (POs) and consumers by providing a variety of finance products at different stages in the value chain In order to have enough funds on hand and satisfy the credit demand of the members, various bankable business proposals were developed and submitted to different lending institutions. Following the human resources rules of the Union, the employee’s interest has been addressed as much as possible.

3.2 What are the (remaining) weaknesses/threats/risks?

Shortage of the loan amount given for cooperative and Union members. It did not meet the members’ need for finance so far. There is a huge gap between the demand for and supply of loanable funds, although the Union is striving to satisfy the demand;• Member cooperatives are still not well aware of the organisation and management of

cooperatives and their operations. This needs much more capacity building in training and education and recruiting better human resources officers in the key positions;

• Lack of support from the regional and district office administration for both Lidet cooperative cash savings and credit Union and the member cooperatives and Unions. Other stakeholders’ support to the Union and its member cooperatives were very limited in various aspects; and

• Lack of well skilled human resources employees at the Union level.

3.3 Do stakeholders have a view on how to better deal with these remaining risks in the future?

• The demand for loans by member cooperative is much more than the current capacity of the Union. The Union has been (and will be) developing a bankable business plan and approach financial institutions and lenders. By doing so the Union is striving to satisfy the demand for loanable funds by the member cooperatives, Unions and enterprises;

• Member cooperatives and their respective members (mostly farmers) have a very limited level of financial education. They are insufficiently aware of the bank’s basic products, procedures and requirements. Therefore, much more effort is required for creating better awareness through trainings, education, panel and focus group discussions with farmers, farmers’ organisations and other stakeholders concerned in this financial value chain. In line with this, Lidet has been doing a good job in providing various trainings, in preparing panel discussions for members, members’ leadership staffs and other stakeholders involved in this financial service in the region where Lidet is functionally operating;

• Furthermore, the Union has been working on women training and support, in collaboration with the peasant association, district women affairs and other official bureaus;

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• In line with the organisation’s general assembly and human resource policy, the Union is striving to secure benefits of the employees at most; and

• ICCO Terrafina Mirofinance has organised forums to discuss these challenges with the board and management of the Union and the promotion office. Attention was given to some of the points raised, like putting aside provisions for unpaid loans, diversifying guarantee systems, like introducing Solidarity groups etc. The cooperative promotion office has positively accepted the suggestion and passed directives

3.4 How can linkage between financier (Lidet Union) and Producer Organisation (PO) be strengthened?

There is a huge demand for credit by the member cooperative Unions. Despite this high demand, the supply by Lidet cooperatives’ cash savings and credit Union is way less than the demand. It therefore requires a financial source beyond the Union. One of the alternatives for the Union is to have some donations and development partner collaborations to design a bankable business proposal that may enable them to have a better credit for the Union level, which will in return be disbursed to primary cooperatives and Unions accordingly. The Linkage with Rabobank bank via ICCO Terrafina Microfinance is essential for guarantying the loan demand of Lidet.

3.5 What are the lessons learned for the industry?

• The Cooperative Credit Assessment Matrix (CAM) tool is supposed to contribute in a responsible way to increased Multi-Purpose Cooperative (MPC) loan size, beyond existing collateral possibilities. Loan demand from MPCs to Unions is usually much higher than the total value of their collateral. An MPC’s loan demand is based on estimated grain supply from members at harvest time, plus their storage and marketing facility;

• Microinsurance service can strengthen the trust between borrower and lender and create confidence to the borrower in case of premature death. It is also possible to launch the culture of having insurance even in remote rural families;

• Cooperatives can have more collective power through membership in the secondary cooperatives. This enables them to help each other in guarantee ship and share experiences from one another; and

• They need to come up with product development like organising groups within the Savings and Credit Co-operatives (SACCOs) to solve guarantee problems and at the same time mobilise more resources etc. It is a project of ICCO Terrafina Microfinance.

SourcesInterviews:1. Mr Abereham chanie Accountant (was also in charge of the Manager)2. Mr Shemeles Credit Officer 3. Mss Serkalem Zewdu Credit Officer4. Mr Salamlak Alebie Credit Officer5. Mr Abebaw Abebu Member(Tehay SACCO) General Manager 6. Miss Meseret Members member (individual client)7. Mr Belete Members member (individual client)8. Ato Dagnew ICCO Terrafina Microfinance Local Consultant

Documents: 1. ICCO Terrafina Microfinance & F&SE, 2013. SACCO Unions Capacity Building Program in

Amhara Region. Training Report on Assessment Model of Marketing Cooperatives, Addis Ababa.

2. Lidet Union 2013/14 fiscal year 4th quarterly financial repot. June 2014, Nefas Mewecha3. An Amharic version Power point document prepared by Lidet Union to federal agency for

documentary film preparation, August 16 2014. Nefas Mewecha.4. Micro Score Assessment of the six SACCOs Unions operating in Amhara, second round

assessment report. (NpM Study case documentation).5. CAM Tools and its ten dimensions ((NpM Study case documentation).

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Appendices

Appendix 1: Insurance provisions against loan and its terms and conditions

Insurance type Loan terms and conditions Insurance premiumas % of loan

Term Repayment

Term Repayment

One year life insurance 1 year Monthly 1.2%

One year life insurance 1 year One time repayment 1.3%

Two year life insurance 2 year Monthly 1.4%

Two year life insurance 2 year One time repayment 1.5%

Three year life insurance 3 Year Monthly 1.6%

Three year life insurance 3 Year Yearly repayment 1.7%

Three year life insurance 3 Year One time repayment 1.8%

Four year life insurance 4 Year Monthly 1.9%

Four year life insurance 4 year Yearly repayment 1.95%

Four year life insurance 4 Year One time repayment 2%

Five year life insurance 5 Year Monthly 2%

Five year life insurance 5 year Yearly repayment 2.25%

Source: Lidet Union report for federal government Update 2014-09-21

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Appendix 2: Microscore Assessment of the six (Savings and Credit Co-operatives (SACCOs) Unions operating in Amhara

Name of the Unions

1st assessment result

2nd assessment result

Remarks

Jabi 6.82 4.63 It failed to secure REUFIP loan and is not attentively using peach tree. It has lost rank in the completion between Unions at federal level. There seems to be a problem in its financial performance. Hence, the assessment result has lowered it to Developing category for the stated reasons.

Menkorer 2.35 3.63 It is still in the same category. It is improving a lot but its loan portfolio is still marginal, staff turnover is very high and has not won most marketing cooperatives to take loan from the Union. It has improved in outreach but some of the members are far from the centre.

Abaye Ber 6.58 5.35 Aaye Ber failed to win Rural Financial Intermediation Programme (RUFIP) loan and has lost money in the bank that should have been used as loan. The problems with Abay Ber are the increased depreciation that came from the new building. In terms of reporting and working with Marketing cooperatives it is good. Therefore it is reasonable to lower it to the emerging category.

Goh 2.89 3.89 The points for the first assessment were lower than what it deserves. The impact of the depreciation that comes from the heavy building investment has lowered its profitability. It has good relations with the marketing cooperatives. It has improved from emerging to developing category.

Ledte 2.28 7.00 Stood first at national level for its performance. It has opened branches. It is highly profitable. It is winning a lot of stakeholders to work with. It has started microinsurance. It has won RUFIP loan twice.

Tana 3.47 5.47 Tana is newly emerging and a promising one. It has won REUFIP loan and its performance is improving. The performance is encouraging in terms of profitability. The GM is new but he is catching up and the Union is fast growing.

Source: Microscore Assessment of the six SACCOs Unions operating in the Amhara region

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Appendix 3: CAM Tool and its ten dimensions

S/N Sub-topics and Indicators

Norms Scores Comments

1 Dimension 1: Long Term Strategy/Business plan

1.1 Strategic/Business plan, location and product

Having strategic/business plan and its quality

Assess availability and quality0 - No BP1 - Has BP but poor quality2 - Has BP of good quality but not shared3 - Has BP of good quality and shared4 - Has BP of good quality, shared but was not prepared in participatory manner5 - Has BP of good quality, shared & developed in participatory manner

Susceptibility of the MPC's products to price fluctuations

0 - Highly susceptible and very difficult to forecast 1 - Highly susceptible but possible to make some forecasts2 - Susceptible to some extent and possible to forecast somehow3 - Susceptibility is low and possible to forecast 4 -Susceptibility is very low and possible to forecast 5 - Not susceptible and possible to forecast easily

Nature of the products that the MPC is dealing with (its comparative advantages)

0 - Not possible to add value and bulking is difficult1 - Possible to make bulk but value addition is difficult 2 - Bulk is difficult but preliminary value addition is possible 3 - Both bulking and value addition is possible to some extent4 - Both bulking and value addition is possible 5 - Very suitable for bulking or value addition and fetch higher income

MPC's location and accessibility (strategic location)

0 - > 20km from any accessible road1 - 15 to 20km from any accessible road2 - 10 to15km from any accessible road3 - 5 to 10km from any accessible road4 - 1 to 5km from any accessible road5 - <1km from any accessible road

1.2 Strategic relationship with its members

How relevant is the MPC for its members (in terms of market access, price, dividend, inputs, technology, etc.)

0 - Not relevant at all1 - Relevant for <10% of the members2 - Relevant for up to 30% of the members3 - Relevant for up to 75% of the members4 - Relevant for up to 95% of the members5 - All members have strong relation with the MPC and are ready to support it

2 Dimension 2: Financial Performance

2.1 Balance sheet

How did the value of the assets develop every year?

0 - < 0% 1 - 1 to 5% 2 - 5 to 10%3 - 10 to 15%4 - 15 to 20% 5 - >20%

How did the equity develop every year?

0 - < 0% 1 - 1 to 5% 2 - 5 to 10%3 - 10 to 15%4 - 15 to 20% 5 - >20%

2.2 Profitability

Operational profit (EBD: Earnings Before Depreciation)

0 - < 0% 1-1 to 5% 2 - 5 to 10%3 - 10 to 15%4 - 15 to 20% 5 - >20%

Return on Capital (ROC= Net Income/ capital employed)

0 - < 0% 1-1 to 5% 2 - 5 to 10%3 - 10 to 15%4 - 15 to 20% 5 - >20%

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2.3 Debt Leverage and Management

Loan truck record of the MPC over the last three years with the SACCO Union?

0 - Zero experience of taking loan 1 - Took loan one time and repayment is >50%2 - Took loan twice and repayment is 50-75%3 - Took loan three times and repayment is 75-85%4 - Took loan four times and repayment is 85-95%5 - Took loan more than four times and repayment is 100%

3 Dimension 3: Marketing

3.1 Marketing experiences and track records

How often does the MPC face marketing problems and capacity to overcome the problem?

0 - Every year1 - Once in two years and did not make any effort to overcome2 - Once in three years and did not make any effort to overcome3 - Once in five years and made some effort to overcome4 - Once in five years and overcame it easily5 - Did not face any market problem

3.2 Market Outlets

Has the MPC established market linkages (mark up markets)

0 - No linkages - fully speculative1 - Has known buyers but do not have any form of contracts2 - Has known buyers and has some form of oral commitments 3 - has buyers and oral contracts 4 - Has been working in written contracts for more than 1 years 5 - Has been working in written contracts for more than 3 years

4 Dimension 4: Outsourcing/Supply

4.1 Understanding the supply (Quantity & Quality)

What % of members sell their produce to the MPC?

0 - Less than 10%1 - 10-20%2 - 20-50%3 - 50-70%4 - 70-90%5 - Greater than 90%

How much percent of the produce that members produce is sold to the MPC?

0 - Less than 10%1 - 10-20%2 - 20-50%3 - 50-70%4 - 70-90%5 - Greater than 90%

Quality control and the standards to be used by the MPC

0 - No quality concerns1 - Has quality concerns but did not make much effort2 - Made some physical quality checks 3 - Physical quality checks and trained committee4 - Written quality control procedures and trained committee5 - Well established quality control standards and procedures/written

5 Dimension 5: Governance

5.1 General Assembly (GA)

GA Assembly participation rate of the MPC

0 - Less than 10%1 - 10-45%2 - 45-60%3 - 60-80%4 - 80-95%5 -Greater than 95%

5.2 Board of Directors and autonomy

Frequency of meeting, availability of meeting minutes and autonomy of the board

0 - Never met1 - Meets once in a year, no minutes2 - Meets twice a year, makes minutes but does not make decisions autonomously 3 - Meets four times a year, makes minutes and has autonomy to make only minor decisions4 - Meets more than four times a year, minutes are available and makes some key decisions 5 _ Meets more than four times a year, minutes are available and makes all key decisions

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6 Dimension 6: Management

6.1 General Manager (GM)

Adequate delegation and responsibility of the GM

0 - Does not make any decision without consulting the board1 - Can make few decisions by consulting the board2 - Can make some operational decisions without consulting board3 - Roles are defined but cannot decide without board4 - Roles are defined but needs to inform the board5 - Roles are clearly defined and can make all decisions within that

6.2 Staffing

Sufficient and qualified staffing (Basic = GM, Accountant, Cashier; Adequate = purchaser, store keeper, security guard)

0 - Do not have any staff1 - Has only manager who is not qualified2 - Has only qualified manager3 -Has basic staff 4 - Has basic and adequate staff with some limitation on qualification5 - Has basic and adequate staff who are qualified and experienced

6.3 Incentives and benefits

The level of salaries and incentives of staff to reduce turn over

0 - Does not bother about this1 - Gives only basic salary2 - Salary revised and adjusted but not regularly3 -Salary revised and adjusted as per the labour market regularly4 - Performance evaluations made and provide basic benefits 5 - Performance evaluations made, sufficient benefits like training, bonus, credit etc.

7 Dimension 7: Administration

7.1 Bookkeeping

Availability of proper bookkeeping and financial reports (income statements, balance sheet, stock issues, etc.)

0 - Does not have any bookkeeping documents1 - Has some documents but financial reporting is not done at all2 - Has all the basic documents and reporting has been done but not regularly3 - Has all the basic documents and some financial reporting has been done regularly4 - Has all the documents and reporting has been done but has some quality limitations5 - Has all the documents and standard reporting has been done including the use of Peachtree

7.2 Auditing

Availability and quality of audits (remarks of auditor and audit qualifications)

0 - Audits never done1 - Audits done once in more than three years2 -Audits done once in more than one year3 - Audits done annually and receives strong negative comments of the auditor4 - Audits done annually and receives minor negative comments 5 - Audits done annually and receives positive comments

8 Dimension 8: Operations

8.1 Ownership, management and utilisation of assets

Ownership of assets (office, store, factory, car/trucks/motorbikes, shop, weighing machines, etc.

0 - Does not have any of these 1 - Has only few of them and the quality is very poor 2 - Has only essential ones like store and carrying capacity is small3 - Has most of them but not the required capacity and quality4 - Has most of them and the required capacity and quality5 - Has all of them and the required capacity and quality

Management and utilisation of these assets

0 - Does not have any of these assets1 - All of them are poorly managed 2 - Most of them are well managed 3 - All of them are well managed but poorly utilised 4 - All of them are well managed and utilised more than half 5 - All of them are well managed and fully utilised

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9 Dimension 9: Enabling Environment

9.1 External Relationships and supports

Level of external relationship with enablers

0 - Does not have any external relation 1 - Relationship built by external push 2 - It builds relations but there are high interferences in its business 3 - It has built relations but there are some interferences in its business 4 - It has built relations but there are high interferences in its business 5 - It has built relations that are enabling

External support (all kinds of support) available to the MPC (NGOs, PLCs etc.)

0 - Do not have any support1 - Has one supports but with strict conditions/strings 2 - Has 2-3 supports but with some conditions/strings 3 - Has many supports without conditions/strings 4 - Has many supports but some of them hindered its growth5 - Has many supports which boosted its capacity

10 Dimension 10: Risk Assessment

10.1 Overall risk Assessment

Experiences of the MPC related to the overall risks over the last five years

0 - Risks are never discussed and managed1 - Risks are discussed by the management but never managed2 - Risks are discussed at GA level but never managed3 - Risks are discussed at GA level but only managed sometimes4 - Risks are discussed at GA level and managed most of the time 5 - Risks never happened but the MPC has the capacity and readiness to overcome

10.2 Price Risks

Experiences of the MPC related to price risks of the products it is dealing with over the last five years

0 - Happened every year 1 - Happened once in three years and the MPC was not aware2 - Happened once in five years and the MPC was not aware3 - Happened once in five year and the MPC was aware4 - Happened once in five year and the MPC was aware and mitigated 5 - Rarely happened (once in 20 years)

10.3 Production Risks

Any experience of crop failure over the last five years in the area

0 - Happened every year 1 - Happened once in three years and the MPC was not aware2 - Happened once in five years and the MPC was not aware3 - Happened once in five year and the MPC was aware4 - Happened once in five year and the MPC was aware and mitigated 5 - Rarely Happens

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AbstractWasasa Microfinance Institution (MFI) participates in the Agricultural Finance Programme (AFPEU), which is funded by the EU and implemented by MicroSave-Cordaid. Starting from October 2012, the EU programme is working with MFIs in four countries to implement a project aiming to increase access to agricultural finance for farming households through product development. As a result of the support, Wasasa MFI has developed an inclusive financial scheme called the “Coffee Improvement Loan”. As Wasasa MFI had no previous experience in providing loans to smallholder coffee farmers, they had to start with a financial needs assessment, product development, and assessment of the risks involved in lending to smallholder coffee farmers. The programme is currently operating with 200 coffee farmers in the Chora district. The programme was supported by Cordaid. ICCO Terrafina Microfinance has also supported Wasasa MFI with guarantees for expansion of their portfolio, as well as with capacity building for MIS and product development in the malt barley value chain.

AcronymsACDI/VOCA Agricultural Cooperative Development International / Volunteers in Overseas Cooperative Assistance ACE Agricultural Cooperatives in EthiopiaACSI Amhara Credit And Savings InstitutionAFPEU Agricultural Finance Programme EuropeDA Development AssistantECX Ethiopian Commodity ExchangeETB Ethiopian BirrMFI Microfinance InstitutionMoU Memorandum Of UnderstandingOCFCU Oromia Coffee Farmers’ Cooperative UnionOSRA Oromo Self-Reliance AssociationPC Primary CooperativePO Producer OrganisationToT Training of TrainersVCD Value Chain DevelopmentWAO Woreda Agriculture OfficeWCPO Woreda Cooperatives Promotion Office

Case Study E2

Wasasa MFI



Chora Smallholder Coffee farmersChora is a district in the Luababora Zone of Oromia National Regional State. It is bordered on the south by Jimma Zone, on the west by Yayo, on the north by Dega and on the east by Bedele. The district has a population of 318,483 people in a predominantly rural setting (only 9,500 recorded urban households). With an area of 947 square kilometres, Chora has a population density of 125 inch/km2, which is greater than the zonal average of 72. The main economic activity of the district is agriculture.

“Coffee Value Chain Finance to Smallholder Farmers, Chora District, Ethiopia”

Producer Organisation (PO) /Coop Profile Data

Type of organisationNumber of membersMain crops Other crops

Smallholder farmers 200 farmers Coffee Khat, maize & teff

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This includes crop farming and animal rearing. Crops grown include maize, teff, sorghum, wheat, khat, mangos, avocado and papaya. The most valued crop is coffee, followed by khat, then maize and teff. Coffee is spread over an area of over 50 square kilometres in which some 22,000 hectares of productive coffee can be found. This represents about 0.5% of the national coffee area. Some 14,500 households are involved in coffee production, giving an average of 1.5 hectare of coffee per family. This is well above the national average, yet the intensity of the production is below national average.

The Oromia Coffee Farmers’ Cooperative Union (OCFCU) Ethiopia’s Oromia Coffee Farmers’ Cooperative Union (OCFCU) aims to help small-scale coffee farmers taking advantage of the Fair Trade coffee market. The OCFCU was established in 1999 in order to help the 100,000 farmer families working in Oromia cooperatives to get through the difficult price crisis. The OCFCU comprises 34 cooperatives, cultivates 86,487 acres of land, has an average annual production of 16,507 tons and is known for its high quality coffee; all of which is heirloom, organic, and produced by smallholders. Only in its third year, the OCFCU is already starting to return 70 percent of its gross profits back to the Primary Cooperatives (PCs), in order to help cooperative members.

Part of the sales of the OCFCU’s coffee is going back to the communities to be used to build schools, which will help to address problems in the impoverished communities in an area where only about a quarter of the school-aged children attends school. Fair Trade coffee helps providing living wages to the farmers, as well as providing up to three times as much income as the average coffee producer. This income will help farmers provide for their families, increase their quality of life and allow them to continue working on their farms.

1.2 Wasasa Microfinance Institution (MFI)

Wasasa MFI S.C. was established in September 2000 by its mother NGO: the Oromo Self-Reliance Association (OSRA) to take over its microfinance activities, running since 1996. At that time it also acquired a Microfinance Business License from the National Bank of Ethiopia. Since then, the company has been working with poor communities (mainly the rural poor) by providing savings and credit services. It currently has 28 branches and 20 rural outlets operating in 34 Woreda (districts) of Oromia Regional State, with the ambition to expand every year. The Head Quarter is in Alemgena town, near to Addis Ababa. The mission of Wasasa MFI is to provide sustainable financial services to the active poor in order to employ capital for poverty alleviation.

Rural loans account for 84% of the total loan portfolio of Wasasa MFI. The large group loan product is the agricultural loan that Wasasa MFI provides through all of its branches. It accounts for a large proportion of the loan portfolio. Wasasa MFI has a mandatory savings product and several voluntary savings products, like group voluntary saving, time deposit, planned time deposit, and passbook savings account. A credit life insurance service is also incorporated in the group loans. In addition, in collaboration with other partners, Wasasa MFI developed specialised loan products for different target groups. These include dairy loans, malt-barley production financing, working capital loans for “Farmers Marketing Organisations”, micro-irrigation technology loans and others.

MFI profile data

Total # of active clientsPortfolio value (in euros)Number of branchesNumber of rural branches% of farming clients% of portfolio in agriculture

64056 Hh185.5 M Birr282084% Estimated

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1.3 Nature of the programme

Wasasa MFI participates in the Agricultural Finance Programme funded by the EU (AFPEU) and implemented by MicroSave-Cordaid. Cordaid is one of the largest development aid organisations in the Netherlands and member of the Dutch Platform for Inclusive Finance (NpM). In this programme, it collaborates with MicroSave, a Kenyan organisation specialised in financial product development. Together they obtained funding from the EU to support 6 to 10 MFIs to develop financial products for farmers, to link these farmers to agricultural service providers and to elaborate on appropriate risk mitigating measures. Starting from October 2012, the programme aimed at working with MFIs in Kenya, Uganda, Ethiopia and Ghana. The goal of the project was to increase access to appropriate agricultural finance for farming households. Six to ten participating MFIs would have developed or refined agricultural microfinance products, and by the end of 2014 14,000 new MFI clients would have accessed an agricultural loan product. Furthermore, the MFIs would have developed appropriate risk-mitigating measures associated with agricultural financing. Half of the MFIs would have successfully linked their clients to agricultural service providers. The target was that 75% of the agricultural clients would have received financial education.

AFP-Ethiopia: Wasasa MFI and Amhara Credit and Savings Institution (ACSI) are the MFIs selected in Ethiopia to participate in this project (on coffee and wheat, respectively). The project aims to increase access to agricultural finance for farming households via product development. As a result of the support from the AFPEU MicroSave/Cordaid agricultural finance project, funded by the EU and Cordaid, Wasasa MFI has developed an inclusive financial scheme called the “Coffee Improvement Loan”.

Wasasa MFI was selected as one of the two MFIs to participate in the programme. The organisation had no previous experience in providing loans to smallholder coffee farmers, as they are located far from the coffee growing areas. Thus, Wasasa MFI did not know the financial needs and the risks involved in lending to smallholder coffee farmers. As a result, there was a need to conduct a preliminary study to get to know more about the overall financial services provided to coffee smallholders in Ethiopia and the stakeholders/actors in the coffee value chain. Thus, Wasasa MFI conducted a preliminary study in Chora district in order to identify the options for direct financial services to primary actors in the coffee chain: farmers, cooperatives and traders, with a value chain financing approach. In case any potentional could be demonstrated, the preliminary study also aimed to define the financial products and services that Wasasa MFI could offer, as well as potential support mechanisms to increase the impact of the financial services.

Baseline study: In line with the above goals, the staff of Wasasa MFI and MicroSave did a preliminary study in May 2013 in the coffee value chain of Chora district, which was chosen as a pilot area as Wasasa had recently opened a branch in this district. It provided a broad understanding of the stakeholders in the coffee chain. More specifically, the study identified the following aspects of the chain:• Stakeholders involved in the coffee chain and their willingness to collaborate;• Gaps/challenges in the coffee production and marketing;• Existing and potential risks in the value chain;• The needs for financial intervention; and• Some information for designing appropriate need-based financial products.

In order to create a proper capacity to launch the programme, there was also a need for human resources development. Thus, the project team trained the staff of Wasasa MFI in Value Chain Analysis and in Value Chain Finance. With the new insights gained, a second field study was done in August 2013 by a multidisciplinary team of experts from Wasasa MFI, MicroSave and Cordaid/ICCO Fair and Sustainable Advisory Services (FSAS). Various data collection methods were used, like Focus Group Discussions, individual interviews, field/farm observations, enterprise budgeting and market visits. Primary data were obtained from primary actors in the coffee chain (farmers, traders, cooperatives, unions) as well as from support actors (ACDI/VOCA, TechnoServe, the Woreda Agriculture Office (WAO), the Woreda Cooperative Promotion Office (WCPO), the Oromia Credits and Savings Share Company (OCSSCO), etc.). The primary data were supplemented by various secondary data from reports, studies, research, statistical data, the Ethiopian Commodity Exchange (ECX), market data etc. All data were digested through a process of staff discussions and triangulation of the various data sources.

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In Ethiopia the coffee value chain generally starts from the coffee farmers, to processing and trading up to the local retailers (local consumption) or coffee exporters. The coffee value chain for Chora smallholder farmer is no exception (see below the value chain map of Chora). The fieldwork identified the overall landscape of the coffee value chain in Chora and its participants were categorised as primary participants and secondary chain actors. Primary chain actors include smallholder coffee producers, PCs, processors traders, the ECX and various Unions like Chora Cooperative Union and the OCFCU. Secondary chain actors include other non-financial service providers working with the farmers, like the WAO and the WCPO. In addition, TechnoServe and ACDI/VOCA are also among the secondary players in this particular value chain.

TechnoServe is an international non-profit organisation that develops business solutions to poverty alleviation by linking people to information, capital and markets. Its work is rooted in the idea that hardworking people can generate income, jobs and wealth for their families and communities. The organisation believes in the power of private enterprises to transform lives. TechnoServe is currently helping farmers by installing and operating ecological coffee wet mills. Furthermore, they support farmers to obtain the skills and influence necessary to organise themselves and defend their own interests.

Agricultural Cooperative Development International / Volunteers in Overseas Cooperative Assistance (ACDI/VOCA) is an economic development organisation that fosters broad-based economic growth, raises living standards, and creates vibrant communities. Its areas of practice are agribusiness, food security, enterprise development, financial services, and community development. ACDI/VOCA began implementing the USAID-funded five-year Agricultural Cooperatives in Ethiopia (ACE) project. As part of this novel initiative, ACE aided the OCFCUs, which are directly linked with this coffee value chain.

Programme inception In May 2014, Wasasa MFI and a Cordaid consultant organised a multi-stakeholder meeting with the District Agricultural Department, the WCPO, the Chora Cooperative Union, some private coffee traders and other stakeholders such as TechnoServe, the OCFCU and ACDI/VOCA. A Memorandum of Understanding (MoU) was signed with the aim to align the efforts to improve the production, quality and marketing of Chora coffee. Below some of the primary (chain) actors and supporters are listed and described.

Cooperative

Wet cherry Dry cherry

Washing and drying Hulling

Traders

Private Distributors

Rejected Grades

Coffee Producers

Export Market

Direct Consumption and Local market (40%)

Private Exporters

Commodity Auction ECX

Traders

Cooperative Unions

Cooperative

Figure 1.1: Coffee value chain of Chora district (Source: Value Chain financing report, Wasasa, September 2013)

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Primary (Chain) actorsA. Farmers are responsible for producing high quality coffee, based on proper husbandry of their

fields (i.e. weeding, pruning, etc.), proper harvesting techniques (picking only ripe fruits) and drying methods (i.e., using coated mesh wire on raised beds).

B. Primary Cooperatives (PCs) are members of the Union and responsible for offering farmers access to quality inputs and markets. In the future they should be able to play a role in the administration of loans to members (e.g. select members that qualify for a loan and administrate the repayment of the loan through the coffee that is marketed via the PC).

C. The Chora cooperative Union covers the whole Chora district and represents the coffee cooperative and their members. As such it was responsible for coordinating all farmers’ efforts. It will ensure that the right PCs and farmers get selected for the support offered by other signatories. As a member of the OCFCU, it links all member cooperatives to the OCFCU. In the future they should be able to play a role in administrating loans to cooperatives (e.g. select PCs that qualify for loans and administrate the repayment of these loans via coffee, marketed via the union).

D. The Oromia Coffee Farmers’ Cooperative Union (OCFCU) has a large number of support programmes for its member cooperatives. These include loans for working capital and training programmes on issues on PC level (like leadership training) and farmer level (like coffee quality management). It can link specific unions or PCs to banks for loans, and to specific (niche) markets in and outside Ethiopia. As a centre of practical skills and market knowledge on coffee, it cooperates with various other stakeholders and service providers on capacity building.

Chain Support actorsA. The Woreda Agriculture Office (WAO) is overall responsible for coffee farmers from the

governmental side. They offer technical training to farmers and assist other MoU signatories in selecting farmers that fulfil the eligibility criteria. This could offer different kinds of support: training, loans, market access etc. They are able to follow up this selection and supervise beneficiaries of the trainings and loans to see if they indeed apply the skills and the money for its intended purpose. It can facilitate all required support from local government partners and it can invite additional traders in the area to enhance the competitiveness of coffee marketing.

B. The Woreda Cooperative Promotion Office (WCPO) is responsible for training and supporting PCs and the Union in administrative and management issues. They will ensure that the cooperatives and the union can play their proper roles.

C. TechnoServe can offer Training of Trainers (ToT) to cooperatives and unions in coffee processing (wet and dry), business management (leadership, bookkeeping), and coffee marketing. It can facilitate access to finance as well, and in some cases direct access to export markets.

D. ADCI/VOCA via its Agribusiness and Market Development (AMDE) project can offer ToT to cooperatives and farmers on cooperative management, coffee quality, post-harvest handling and marketing.


After the decision to provide financial services to these coffee farmers was made by Wasasa, the next step was an assessment of the monthly financial needs of these smallholders. The chart below shows the monthly income, expenditures, savings and the need for finance from smallholders during the year. It shows that credit needs grow from April to August and that repayment could start from September/October. In view of the fact that farmers are often not paid immediately after harvest, the actual loan repayment is often scheduled later. Depending upon the circumstances per farmer, Wasasa decides on the loan term, ranging between 6 and 9 months.

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Income Expenditure Saving Credit

Figure 1.2: Smallholder coffee farmers’ monthly need for finance with respect to income, savings and expenditure. (Source: Wasasa MFI’s need assessment report September 2013).

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2. Risk analysis


Loan appraisal by the Microfinance Institution (MFI) - Due diligenceIn addition to the two preliminary studies conducted, the financial product for the coffee farmers was developed. The following access requirements were defined:

A. Follow standard loan procedure;B. Legally registered and permanently living in the peasant association with land ownership

certificate;C. Eligible land ownership ranging from 0.5 –to 2 hectare(s) of coffee land; D. Willing to be inspected by the Woreda Agriculture Office (WAO)/ Wasasa MFI and follow-up

of advice;E. Member of a peer group with mandatory saving, (10% of loan size as mandatory saving) and

credit life insurance as group;F. No other loans with other MFIs; andG. Willing to join training on the following issues:

• Standard training on loan policies and procedures;• Technical training by the WAO (VOCA) coffee quality;• Training on cooperative and union management by VOCA; and• Training on Value Chain Development (VCD) and quality.

Pre-disbursement phase: After initial screening of eligibility, the group formation will be completed and training on policies/procedures is conducted. Subsequently, applicants will pass through the following loan processing steps for application, appraisal and disbursement:• Field staff will assess credit needs with the group and fill out the necessary forms (incl.

peasant association official letter, on coffee area). Support is provided by the agricultural Development Assistant (DA) to check the farmer’s coffee area;

• Check with other MFIs whether the potential customer has loans from other financial institutions;

• Loan approval by branch manager; and• Loan disbursement at the branch office. Disbursement will be undertaken in the presence

of all credit group members, as they sign mutual guarantees. It is assumed that the total loan application procedure will take 15 days to complete for existing groups. If the credit group is to be formed and established as a new credit group, the time for the loan application is obviously longer.

Repayment: Loan repayment by the borrower will be done at village level. The staff of Wasasa MFI will collect the repayment at village level.


In the design and development of the coffee programme, the lead actors have jointly assessed the risks for farmers and the Producer Organisations (POs), and identified means to mitigate these risks. For the purpose of the case study, a distinction is made between the six crucial aspects of smallholder production, i.e. risks related to:• The specific crop: i.e., coffee;• The farming system and farm production;• The strength of the farmer organisation / PO; • The market for malt barley and food crops;• The viability of the farming system promoted; and• The financing of farmers.These risks and the way they were mitigated and managed have been tabulated in a risk catalogue (see table 2.1) and are briefly summarised below.

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Risk assessment by Wasasa MFI: The risk management matrix below displays the risk management process in the Coffee Improvement Loan product. It provides the main risks that were identified, the mitigating measures and the action plans for the actors that are involved as risk owners or in the implementation of the mitigating measures. This risk management matrix (known as a Risk Register by Wasasa MFI) is assumed to be reviewed (and adapted) periodically to see whether risks have changed or new risks have been identified. Implementation of the actions plan can be monitored monthly. From the very beginning in August 2013, 3 Wasasa staff members participated in the 2 days Agricultural Microfinance Risk management training provided by Cordaid staff. Participants made an inventory of all risks related to the production of coffee and the provision of loans to coffee farmers. A start was made with the elaboration of a Risk Register. It is stressed that the risk matrix format used in this study for all cases, does not necessarily correspond to the more detailed format of the Risk Register developed by Wasasa MFI with support from Cordaid.

Product-related risks In the region there is a risk of unfavourable weather conditions for coffee - sometimes rain shortage and sometimes excessive rain. This has regularly been hurting smallholder farmers in terms of production and income. Moreover, once every 2-3 years production is much lower due to internal plant properties, which makes the income of the farmers very volatile. In order to mitigate these risks, the programme has been linking farmers with the Research Institute to seek improvement of the coffee variety used. Wasasa MFI also has been offering an appropriate savings product to buffer temporary income deficits, and provided financial education to the farmers. These measures will continue to be done. A lack of appropriate coffee quality, contamination and absence of fertiliser utilisation reduces the potential benefits for coffee farmers. To mitigate the risks, training and sensitisation on proper coffee plantation was done by extension officers.

Production-related risks The yield per hectare is still relatively low due to a lack of skills and experience of farmers on coffee management, composting and seedling preparation. For this reason, an effort was made to link smallholder coffee farmers to the Agricultural Office and NGOs in order to increase awareness on these issues and provide extension services. Other risks regarding the production volume of these smallholder farmers include losses due to animal attacks to coffee farms and the lack of capital to buy bags and mesh-wire beds. The Coffee Improvement Loan by itself helps to mitigate these risks, as it allows to make the necessary investments. Wasasa MFI also contributed to create a linkage between farmers and suppliers of mesh-wire beds.

Farmers organisation-related risksA lack of strong organisation hampers farmers in the negotiations for better prices. As they depend on a few traders, they faced limited competitiveness. Price fluctuation, although partly due to changes in world market prices, adds to the insecurity of smallholder farmers regarding the viability of their coffee farms. To mitigate these risks, collective selling through cooperatives and contract farming were among the efforts made to seek improvement through stronger farmer organisation. There are plans for the future laid down in the Memorandum of Understanding (MoU), to strengthen coffee cooperatives, to enable them to undertake collective bulking, to have a better and strong bargaining position, and to create direct access to export markets.

Marketing-related risksWith respect to marketing-related risks, farmers lack information on prices and on cost margins in the value chain, causing weak negotiating power and also mistrust. If there is not a sufficiently rewarding price for improved quality, farmers are not encouraged to invest in efforts to improve quality and maintaining it through extra effort and expenses. When farmers have difficulty to sell their coffee or when they can only do so at a low price, the chances for defaults to loan repayment will become much higher. To mitigate these risks, efforts have been done to examine how the SMS price information of the Ethiopian Commodity Exchange (ECX), through text messages, works for the farmers of the pilot area and what specific training needs exist to familiarise the farmers with these modern systems. Discussion took place with relevant stakeholders on how up to date coffee price information can be accessed for the coops and the farmers, and how the MoU could be improved to include price information and training for the smallholder farmers.

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Finance-related risks The diversion of the money disbursed, intended for increasing coffee production and quality, has been observed. To mitigate these risks, Wasasa MFI closely follows up the farmers and raises awareness through financial education. Once diversion is detected, immediate action is taken by the supervising loan officer. In some cases people intentionally default their loans without a direct reason. For this reason, the solidarity group lending methodology is also used for the coffee farmers.

The risk management catalogue in table 2.1 below systematically lists these various risk items, the way they were assessed, the risk mitigation measures identified and implemented, and the risk monitoring performed in the post-lending stage (after disbursement). It is noted that the format for the risk catalogue does not tally with the Risk Register developed by Wasasa MFI with support from Cordaid.

Table 2.1: Risk catalogue: Overview of the risk assessment and risk mitigation measures

Risk Aspect Risk assessment Risk mitigation measures Risk monitoring

Product risks Cyclic reduced productionOnce every 2-3 years production is much lower due to internal plant properties

• Link with Research Institute • Offer an appropriate savings product• Financial education

• Monitoring of coffee quality by buyers and Coops/Union• Training materials expected from AFPEU to educate farmers

Reduced harvest due to diseases • Lack of appropriate coffee variety • Contamination • No fertiliser use

Awareness raising/extensionAwareness on proper coffee plantation

• Continue farmer training • Monitoring compliance with the MoU & action to be coordinated with WAO

Production risks Failed harvest due to bad production techniquesLack of skills/experience of farmers on coffee management, compost and seedling preparation

Link farmers to agricultural office or NGOs to increase awareness

Monitoring compliance with the MoU (with WAO) & action to be coordinated with WAO

Loss of production Because of animal attacks (monkeys)

Already included in MoU

Post-harvest losses: quantity and quality Losses due to lack of capital to buy bags, mesh-wire beds, etc

Coffee Improvement Loan and facilitate linkage to suppliers of mesh-wire beds

Client, farmer organisation

Low prices for coffee / price risks• In some places: lack of competition among traders, dependence on a few traders• Lack of strong organisation that could help farmers in negotiating for better prices • Price fluctuation (most fluctuations are due to changes in world market prices)

• Collective selling by Wasasa MFI coffee clients • Collective selling through coops • Contract farming (future)

• Effectiveness yet to be examined. Coops need to be strengthened• Included in MoU – action to be coordinated with other stakeholders

Marketing-related risks

Market imperfectionIn some places: lack of competition among traders, dependence on a few traders

Insure that more buyers will be aware of supply potential in the pilot areaLinking, organise SMS text messages with price information

Not yet feasible

Low prices for coffee/ price risks• Farmers lack information on prices and on cost margins in the value chain, causing lack of negotiating power and/or mistrust • No rewarding price for quality so that farmers are not encouraged to invest in maintaining or getting good quality (lack of appropriate grading)

• Price information through SMS • Price information through COs • Include value chain financial info in financial education

Included in MoU, monitoring of compliance

Marketing / price risksWhen farmers have difficulty to sell their coffee or if they can only do that at a low price, defaults might increase

Financial Risks Diversion risksMoney intended for increasing coffee production and quality might be diverted into other uses

• Financial education, as diversion depends on household controls, money from the loan and who controls the income• Part of the peer-group social control• One third of the loan can be used for household purposes

Immediate follow-up by CO if diversion is detected.

Defaulting riskSome people default on their loans without a direct reason

This is prevented by the guarantee peer group and partly by the mandatory savings

Weekly loan tracking & loan repayment performance per client / group / CO

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After the training of participants, the Cordaid staff members continued to work on the risk register. With a two day field visit, they were able to develop a risk management matrix. Many risks are at farmer level. However, the risk for Wasasa MFI that farmers ultimately will not repay their loans is low: current yields are already sufficient, loans can be rescheduled, farmers can repay from other sources of income or group members pay for each other’s loans. Nonetheless, quality and prices and thus income can be much higher for farmers if all “risk-mitigating measures” will be implemented in effective and efficient ways.

One of the biggest risks is the world market price for coffee, which is impossible to be influenced by the farmers or Wasasa MFI. The latter, however, intends to look for possibilities in which the farmers can sell their coffee as specialty coffee, through which prices can be stabilised.


After a thorough needs assessment, appraisal of client repayment capacity and screening on eligibility criteria, credit is provided as a direct loan to coffee farmers, to enable them to implement proper coffee management and to ensure that they can harvest and process the coffee properly. An individual loan offers up to Ethiopian Birr (ETB) 4,000 per hectare of coffee, with a minimum of 0.5 and a maximum of 2 hectares. An additional ETB 2,000 is offered for households needs. This means that the minimum loan is ETB 4,000 (for farmers with 0.5 hectare) and the maximum ETB 10,000 (for farmers with 2 hectares or more).The credit product is named as “Coffee Quality Improvement Loan”. The interest rate is 18% per year or 1.5% per month. The service charge is 3% and the credit life insurance costs 1%. The loan is based on one loan agreement but it is disbursed in two tranches: half in June/July and the other half in August/September. The repayment is made in three equal tranches in the months of January1, February and March. The total repayment after 6-9 months will be less than ETB 12,000 for a farmer with 2 hectares of coffee. So far the first instalment disbursement of the 40% is given to pilot farmers to be used for weeding coffee, and the second instalment of 60% will be disbursed in August/September. It is assumed that this will be used for labour costs and ‘Debi’ (costs of food and drinks for friends and neighbours who assisted them in harvesting) and buying wire beds for improved drying. Part of it can also be used for children’s schooling and personal consumption. The loan will be guaranteed by the peer group and additional guarantee comes as mandatory saving (10% of the loan size).

2.4 What capacity for agri-finance has the MFI installed?

As Wasasa MFI had no previous experience in providing financial services to smallholder coffee farmers in the region, it had to build up its human resource capacity. In order to mitigate the possible risks that might be involved in this value chain, it went through a stage of programme design and product development. This included an organised field survey and the development of a risk register in which the method of risk assessments, the risk mitigation measures and the risk evaluation mechanisms were developed (as shown in table 2.1 above). Furthermore, in order to have a better capacity of providing financial services, Wasasa MFI recently opened a new branch in the Chora district, which will enable close assessment and to address credit demand, appraise and monitor risks involved and ensure close follow-up. In the future, Wasasa MFI hopes to achieve economy of scale through this value chain financing scheme in the coffee sector, by mainstreaming the experience gained from this pilot value chain finance scheme.

1 January is the month in which the farmers’ income was the highest in the need assessment.

Credit product(s) for agriculture

Name # of months



Coffee Quality Improvement Loan

6-9 months

18% + 3% service charge + 1% insurance

Flat Three instalments: one per month in Jan- March

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At the head quarter level, a new position of “Operations Support” is being created. This can be expanded in the future, once the product has been rolled out and responsibilities handed over to branches. Cordaid, MicroSave and ICCO/Fair and Sustainable Advisory Services (FSAS) were supporting in capacity building of both Wasasa MFI staff and farmers, by providing training and related support. Wasasa MFI has a trained staff in marketing research, risk management and hopes to maintain the good linkage with these development partners in the future.

2.5 What connections were entertained by the MFI with other stakeholders in the sector? Who was the lead actor in orchestrating the chain?

This value chain is mainly orchestrated by Wasasa MFI, as it has been conducting the preliminary study and then the process of programme design and product development. This included the risk register, developed by Wasasa MFI with close support from Cordaid, MicroSave and FSAS-ICCO. Apart from Wasasa MFI, there are also other chain actors and supporters that have made their own contribution. Among these are the smallholders coffee producers, Primary Cooperatives (PCs), processes, Cooperative Unions and the Oromia Coffee Farmers’ Cooperative Union (OCFCU), traders and the ECX. In addition to the primary actors, there are also secondary actors who have been supporting this vale chain by providing non-financial services to the farmers; these include actors such as the Woreda Agriculture Office (WAO), the Woreda Cooperative Promotion Office (WCPO), TechnoServe and the Agricultural Cooperative Development International / Volunteers in Overseas Cooperative Assistance (ACDI/VOCA). TechnoServe developed business solutions for poverty alleviation by linking people to information, capital and markets. TechnoServe is currently helping farmers by installing and operating ecological coffee wet mills. It also helps farmers to gain the skills and organisation to better defend their own interests and build up a stronger negotiating position. ACDI/VOCA began implementing the USAID-funded five-year Agricultural Cooperatives in Ethiopia (ACE) project. As part of the novel initiative, ACE aided the OCFCU, which is also directly linked to this pilot coffee value chain.



The point of departure for Wasasa Microfinance Institution (MFI) has been the belief that a support system of non-financial services is needed in order to secure the advantages of value chain finance. It is noted that through its mother NGO, the Oromo Self-Reliance Association (OSRA), Wasasa MFI embodies strong social objectives, and sees credit as supporting development and a means of poverty alleviation. In line with the EU funded Agricultural Finance Programme (AFPEU), Wasasa MFI has successfully piloted the financial feasibility study and was able to design an effective intervention programme with other stakeholder and develop an appropriate financial product, tailored to the needs and farming calendar of the coffee farmers. As a result, Wasasa MFI could launch the first financial services for coffee smallholder farmers in the Chora district. Wasasa MFI was able to map the value chain actors and orchestrate them, so as to create a favourable business environment around the Chora Woreda. From the needs assessment process and field data collection, Wasasa MFI learned a lot and was able to come up with substantive know-how of the complex environment and the stakeholders involved in the coffee value chain. The value chain finance approach is very demanding as it requires a good understanding of and collaboration with a variety of actors, starting from the smallholder coffee growers up to the upper level of coffee processors and buyers. As quality is the determining factor for both the price of coffee and (thus) the income of coffee farmers, the coffee improvement loans are believed to have helped in creating new value added for the farmers involved in the pilot. Any intervention (including credit) in the coffee chain should work on improving the quality. This requires an integrated intervention to strengthen all chain actors: farmers, traders, coops and unions. The Risk Register is a good example of a very systematic approach towards the management of agricultural risks. It is more detailed then the risk matrix format used in this study, as it also adds for each risk driver the likelihood of its occurrence and an action plan for follow-up.

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The financial services provided by Wasasa MFI through this loan product can, strictly speaking, not be labelled as value chain financing as intended by the AFPEU, as it only serves smallholder coffee farmers with a limited amount of loan; of a maximum of Ethiopian Birr (ETB) 10,000 (around 375 euros). It does not (yet) finance other actors in the chain, for instance those who buy the coffee from the farmers. However, Wasasa MFI successfully adopted a value chain finance approach, so as to mitigate the risks for farmers and indirectly for the financier. The “return on investment” comes in the form of lower default risk expenses and less administrative costs. In this case, the potential to exploit the risk-mitigating potential of good chain organisation are limited, as the capacities of the main actors in the chain are still rather weak. Hence Wasasa MFI had to invest considerable time and expenses in Value Chain Development (VCD) activities. This would normally go beyond the financial and human resources of Wasasa, but as a result of external support through the EU/Cordaid programme, the investment became feasible and offered good potential economics for scaling up to mainstreaming coffee smallholder finance. As a result of this experience, Wasasa MFI took it as a “lesson learned” that the investment in VCD should not be underestimated, as they do not have the financial and human resources required to improve the coffee chain on their own. Other partners are needed and an orchestration of all stakeholders in a round table meeting should be undertaken by external facilitators. Despite the fact that this type of VCD obviously brings great benefits to the MFI in terms of risk management, the full investment in it should not be expected from the MFI as it exceeds both its professional and financial capacities.


Even though the effort made by Wasasa MFI was a great beginning and a good experience, for mainstreaming the programme there is a need for collaboration with other stakeholders, financiers and development partners. The high cost of the product development process cannot be recovered by the clients of the MFI, especially when the microfinance component is too small and the number of clients too limited to have economy of scale. Other banks and MFIs should also contribute, by financing different stages of the value chain such as cooperatives, traders and other chain actors in this value chain. The support from development partners should be continued in a sustainable manner as it has proven to be an effective intervention for the smallholder farmers and their producers’ groups. This further supports the country’s economy by having generated increased export revenues and foreign exchange earnings.

3.4 How can linkage between financier (MFI) and Producer Organisation (PO) be strengthened?

The pilot experience and the lessons learned from this value chain offer promising perspectives for the replication of coffee farmers’ schemes and upscaling in other regions. In this value chain the finance scheme capacities are still too limited to build sustainable linkages among the value chain actors. Stakeholders and development partners should therefore be organised to build their capacities and stimulate their willingness to collaborate. Financiers can play a very useful role here. By financing the different actors in the subsequent stages of the value chain, banks and other financial institutions can stimulate tripartite arrangements with e.g. farmers and a coffee processor.

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SourcesPersons contacted for interview: • Ato Amsalu Alemayehu, General Manager of Wasasa MFI S.C.• Ato Teklemariam Awoke, Marketing manager of Wasasa MFI S.C.

Documents used:• Risk Register for Coffee Improvement Loan by Teklemariam Awoke (Wasasa MFI),

Mosisa Soboka (Wasasa MFI), Resi Janssen (Cordaid). June 2014.• Coffee Value Chain Finance Chora Woreda by Wasasa MFI S.C., MicroSave Consulting LTD,

Fair and Sustainable Ethiopia PLC. September 2013, Addis Ababa.

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AbstractWith support of ICCO Terrafina Microfinance, Buusaa Gonofaa Microfinance Institution (BG MFI) identified the Malt Barley Value Chain (MBVC) as a promising sub-sector for a pilot scheme in Value Chain Finance (VCF). It started with discussions with the main actors in this chain, the Assela Malt Factory (AMF), the Oromia Seed Enterprise (OSE) and the local Zonal Agricultural Office (ZAO) in 2013. This resulted in a collaboration agreement in 2014 for the promotion of high quality barley as a profitable crop for smallholder farmers. The agreement stipulated that BG MFI would implement the financing for smallholder malt barley producers, whereas OSE would supply certified seeds to farmer clients of BG MFI, and the ZOA to collaborate with OSE to provide technical support to these farmers. As AMF is interested in obtaining high quality malt-barley, it agreed to purchase contracts with the farmers and provide them with technical support. This value chain finance scheme aims to reach 1000 farmers in two districts (Lima Kara and Sirbo). Actual adoption levels in the period 2011-14 have varied between 124 and 989. Loan retailing to farmers is done through Rural Service Facility (RSF) centres promoted by BG MFI, which have substantial flexibility for determining loan size, pre-disbursement conditions and loan management, as well as facilitation of seed distribution and marketing for the smallholder farmers. BG MFI would provide loans to farmers from its loan funds. For this BG MFI received a loan from the Central Bank of Ethiopia (CBE), backed by a guarantee of 50% from Rabobank and ICCO investment fund.

AcronymsAMFBG MFICBECIDRDAO DOAESE ETB MBVCMFIMoUOSE PAPORSFRUSCCVCFZAO ZOA

Assela Malt FactoryBuusaa Gonofaa Microfinance Institution Central Bank of EthiopiaCentre International de Développement et de RechercheDistrict Agricultural Offices District Office Association Ethiopian Seed EnterpriseEthiopian BirrMalt Barley Value Chain Microfinance InstitutionMemorandum of UnderstandingOromia Seed EnterprisePeasant Association Producer OrganisationRural Service FacilityRural Unit (RU)Savings and Credit CommitteValue Chain FinanceZonal Agricultural Offices Zonal Office Administration

Case Study E3

Buusaa Gonofaa MFI

“Value chain finance scheme for malt barley smallholder farmers in the Arsi district, Oromia, Ethiopia”

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1. Main characteristics


The Rural Service Facility (RSF) is an informal client grouping promoted by Buusaa Gonofaa Microfinance Institution (BG MFI), with the aim to facilitate access to finance for farmers and facilitate non-financial services such as seed distribution and marketing. Under the RSF the producers are organised by groups at village level and at Kebele (peasant association - PA) level. The groups are formed with thirty to fifty individual producers, and clustered to form a centre at Kebele level. The group and centre will have representatives elected from members. The centre is managed by a team of three elected representative members; a leader, a secretary and a cashier.

Each of the groups are represented by two representatives; a group-leader and vice group-leader. Both the group and the centre representatives are responsible for supply and delivery of the right variety of seed, as well as for marketing and output pooling activities and loan management. The seed supply and delivery role of centres and group representatives involves conducting field meetings with farmer representatives, seed delivery to the RSF/PA centres, managing logistics (timely transportation facilities for seed delivery) and marketing of the farm produce, including the grain bulking / storage at PA level. With respect to the latter, the RSF representatives will collect and manage storage of output at PA level: ensure and verify members’ delivery of quality products, search and avail temporary products storage and weighing scales. They also communicate with the Assela Malt Factory (AMF), BG MFI and the District Office Association (DOA) for the sale of the output, the facilitation of logistics for delivery of products to the buyer, and finally they deliver/sell the products to market level and collect cash from buyer and handover to respective groups or individuals.

In addition, they also have responsibility for loan management and monitoring of their groups by:• Participating in members’ loan assessment;• Loan use of members’ utilisation of inputs;• Reporting the same to RSF manager/ PA; and • Ensuring timely repayment of loan.

If the borrower fails to repay the loan they also participate in enforcing default members, taking the case to social court and representing BG MFI. The rural finance facilities were supported by ICCO Terrafina Microfinance and the Centre International de Développement et de Recherche (CIDR).



RSFNot known 5 -7 Malt Barley

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1.2 The MFI or bank involved

Buusaa Gonofaa Microfinance SC Buusaa Gonofaa Microfinance SC (BG MFI) is incorporated as a profit making Share Company. It is a non-bank financial institution regulated by the central bank. It has a license, MFI/11/99, from the National Bank of Ethiopia with a mandate to take deposits from the public at large. It started its operation with a tiny loan size of Ethiopian Birr (ETB) 300 per borrower (or less than USD 40) and was able to build a network of 30 branches serving over 70,000 low-income households in rural areas of the Oromia region. Generally, BG MFI aims to provide flexible financial services to low-income groups, particularly women and smallholder farmers, to improve their livelihood through mobilising micro savings, microcredit and microinsurance. BG MFI’s main target groups are those low income households traditionally viewed as “un-bankable”, primarily due to socio-economic barriers and traditional loan collaterals requirements. Currently, BG MFI is one of the leading private MFIs in Ethiopia in terms of the number of the active client base.

1.3 Nature of the VCF scheme

With support of ICCO Terrafina Microfinance, BG MFI identified the Malt Barley Value Chain (MBVC) as a promising sub-sector for a pilot scheme in Value Chain Finance (VCF). It was established that AMF was interested in obtaining high quality malt barley and was willing to purchase malt barley produced by the farmer clients of the MFI and provide them with the technical support required to meet the quality standards. Starting from year 2012, BG MFI entered into agreements with actors in this value chain which included, apart from AMF, the Oromia Seed Enterprise (OSE), and the Zonal Office Administration (ZOA)/DOA office. The agreements solidified a multi-stakeholder approach in which BG MFI agreed to implement VCF for smallholder malt barley producers, OSE undertook to supply certified seeds to farmer clients of BG MFI, whereas the ZOA collaborates with OSE in supplying seeds and providing technical support to the relevant farmers.

The agreements aimed:• To ensure that the malt barley farmer involved get their certified malt barley seeds from OSE at

agreed terms and conditions;• To provide the technical advice required by farmers to meet the AMF quality standards, through

technical support services by AMF;• To provide the technical services required by farmers to enhance their productivity in malt

barley production as mandated by the Zonal and District Agricultural Offices (ZAO/DAO); and• To regulate the purchases of malt barley produced by AMF from the farmers, provided that it

meets its quality standards. The project is implemented in the Arsi area consisting two Kebeles, namely Sribo and Biftu Bira. These targeted places have easy access to the market centres, a good agri-ecological zone and adequate potential for the production of malt barley. For the last three years in-kind seed loans were provided by BG MFI through the RSF in collaboration with OSE, and subsequently credit for fertiliser was given on cash bases through the RSF for each of the smallholder barley producers.

MFI profile data

Total number of active clientsPortfolio value (in euros)% of farming clients% of portfolio in agricultureOSS

72,012 8.6 millionMore than 66% 66% (estimate)149%

Table 1.1: Seed and fertiliser credit distribution for the last four years

Year Total Producers

Total loan financed

Seed Average yield/hectare

Producer sold to AMF

Total sales to AMF

1 2011/12 124 247,200 131 47 32 250

2 2012/13 989 2,481,150 1042 48 48 6523

3 2013/14 730 1,951,600 820 30 30 2493

4 2014/15 200 420,686 177 - - -

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This year (2014), besides the high demand for seed by the smallholder producers and a proper arrangement by BG MFI, the seed-distributing actor OSE fails to provide the required quantity and kind of seed by the smallholders.


With this MBVC finance it is aimed to develop reliable and sustainable market linkages between malt barley producers and malt factory, through an inclusive financing scheme for smallholders’ malt barley producers. In line with this aim, the following chain actors and supporters were involved.

A. Chain actorsSeed suppliers (OSE and ESE). Ethiopian Seed Enterprise (ESE) at the national level and Oromia Seed Enterprise (OSE) at regional level, are responsible for adequate and timely supply of basic inputs (seeds and fertilisers) and ensure a smooth flow of inputs supply from a reliable source to the target producers. They also work on seed multiplication (Basic, C1, C2, etc.) with volunteer farmers through contractual engagement.

Smallholder Barley Producers. The smallholder barley producers are outgrowers for AMF. They accept seed on credit from OSE through the RSFs. Access to this credit is based on eligible criteria. Furthermore, the smallholders receive technical support from different parties on agronomic practice and post-harvest crop management, and accordingly improve the quality of malt barley. Such support can be given through training, experience sharing and farm coaching. ICCO Terrafina Microfinance has been instrumental in facilitating linkages between all stakeholders in the chain.

Assela Malt Factory (AMF). AMF is purchasing the malt barley produced by the farmers and gives them priority for the sale at its gates. It also collaborates with the ZOA/DOA to provide the necessary technical support to farmers to produce malt barley that meet the quality standards. AMF was the only malt barley factory in Ethiopia until this year (2014) the Gonder Malt Factory (GMF) was established in the northern part of Ethiopia. AMF has a yearly demand of 500,000 quintals of malt barley from farmers, farmers’ groups, traders and from the international market. The amount of imported barley depends on the amount of barley supplied by the local market through traders, farmers and their organisations. The remaining supply gap will be imported from abroad. For instance, in 2012/13 the barley harvest was very favourable and there was enough malt barley supplied by the local market. As a result there was no need to import malt barley by AMF. This year, 2013/14, because of bad weather conditions and the resulting bad harvest, AMF was forced to import 176,000 quintals of malt barely. AMF offered a competitive price with an incentive for large supply of malt barely. The price setting is based on the quality of the products, measured trough a quality standard measurement tool. The tool has a six-grade hierarchy where there are ETB 15-20 price-differences between two consecutive quality grades. This year, 2013/14, the maximum premium price for the highest quality was ETB 1035 per quintal of malt barley with ETB 30 per quintal incentive for big bulk supply. The smallholder farmers who have access to finance from BG MFI supplied around 6,000 and 4,000 quintals of barley in 2012/13 and 2013/14, respectively. Compared to the total capacity of the malt barley input uptake of AMF, the supply from BG MFI’s financed smallholder farmers was very limited. Despite the size of the supply, this VCF showed that there is a big potential for smallholder

Table 1.2: Buusaa Gonofaa MFI Malt Barley Variety Seed Request- 2014 Cropping Season

BG RSF District Name # PA # farmers Total land size (0.9 hectare/ farmer)

Quantity of Seed (125 Kg/hectare)

Variety

Limu Kara Inkolo Wabe 5 700 630 78,750 Holker

Sirbo Limu & Bilbilo 3 300 270 33,750 Holker

Total demand 8 1,000 900 112,500

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farmers to increase productivity and quality and create a platform for pooling products and benefit from the premium prices. This means that the factory, with this 360,000 quintals capacity, is able to satisfy 40% of the total malt demand of the countries’ beer industry. In the future this percentage of coverage may even become minimised as Heineken is building and soon starting its new brewery factory.

Heineken/Eucor. Heineken is a multinational brewery that ensures the market for the malt barley produced by farmers through AMF. It facilitates the setting of quality standards and grading mechanisms for the input materials of the malt production, and provides technical and material support for this purpose to AMF. Furthermore, it also provides technical expertise on varieties and crop husbandry for the malt barley farmers. Other functions of Heineken in the value chain are: • Ensure overall chain coordination and support to the malt factory;• Support to AMF and HUNDEE (mother NGO of BG MFI) on quality issues;• Provision of technical expertise on varieties and crop husbandry development;• Facilitate input and output pre-finance;• Test the adaptation of the new varieties in the target agri-ecologies;• Ensure the supply and use of good quality seeds of the new varieties for the upcoming crop

season;• Ensure there is effective barley marketing and system, and flexible market price setting

system for the target farmers;• Provide training and field course to enhance the production capacity of smallholder farmers;• Facilitate the formation of producer groups, either in cooperatives or in producer groups; and• Capacitate producer groups to become strong producer and marketing groups.

While farmers do not often directly interact with Heineken, it is the leading actor in the chain, with a dominant position in directing its development.

B. Chain supporters Zonal and Woreda Agriculture and CPA. The agricultural officers, who aim to provide agricultural extension support to barley smallholder farmers and ensure the continuous use of seeds for reasonable years.

Zonal/District Agricultural Offices (ZAO/DAO). They assist the MFIs to assess the seed requirements in their area of operation when such assistance is sought by the MFIs. Based on the requirements provided by the MFIs, they also issue a timely “Letter of Support” to the seed supplier OSE, certifying that clients operate in their area and their seed requirements are considered to be relevant and genuine. In addition, they collaborate with AMF’s agriculture department to provide the necessary technical support services to clients to produce malt barley that meet the quality standards of AMF. Furthermore they facilitate the acquisition by farmers of other critical inputs such as fertilisers, pesticides, etc. within their mandate.

ICCO Terrafina Microfinance is a joint initiative in the Netherlands of Rabobank, Oikocredit and ICCO. It aims to contribute to rural development and poverty alleviation through improved access to microfinance and the facilitation of expanded rural outreach by sustainable microfinance providers for rural producers and entrepreneurs in selected African countries in general, and in Ethiopia in particular. With respect to this value chain finance, ICCO Terrafina Microfinance has been an important catalyser in the chain. It facilitated the stakeholders to come together and provided capacity building trough training, technical advice and institutional support. It also supports the contract farming process (finance-related aspects) and is involved in the monitoring and follow-up of the projects. Furthermore, it has facilitated MFIs to receive loan funds for lending to farmers.

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1.5. Nature of the financial transaction

BG MFI, as a financial institution, has a direct relation with the producers and BG MFI mainly provides/facilitates financial loans to individual smallholders, depending on their needs through the RSF modality. It tries to ensure adequate and timely supply of basic inputs (seeds, fertilisers, finance) and a smooth flow of supply from reliable sources to the target producers. It also provides support in developing simple and agreed upon accounting and financial reporting systems at RSF level. The operation and management of this VCF scheme is implemented through the RSF operations modality. An individual lending approach is applied through these RSFs.

Loan Size. The size of the loan offered to the barley smallholder farmer depends on the size of the land, the input cost for seeds and fertilisers, and the own capital of the client. BG MFI offers loans that are estimated to cover the cost of seeds and fertilisers needed, with a minimum and maximum limit per applicant. As a result the loan size varies, between a minimum size of ETB 1,200 (which is equivalent to 0.5 hectare of land in the investment plan) and a maximum loan size of ETB 5,000 (which is equivalent to 2.5 cultivated hectares). Based on this, the loan size is determined (see the calculations with an example in the text box aside).

Lending terms and conditions. Considering a yearly agricultural cycle, the loan will mature within a maximum term of one year. To avoid costly loan management and transaction costs, the minimum time duration for the loan is fixed to be 4 months. Therefore, the term for this individual loan may vary from 4-12 months, based on the individual applicant’s need and approval from the credit committee of the RSF. The standard interest rates for different loan products offered by RSF are applied, i.e. 24 %, 21 % and 18 % per annum for bullet repayment, big instalments loan and regular repayment loan, respectively. The loan disbursement time schedule could vary, depending on the number of input items financed. If the loan involves both a malt barely seeds and fertilisers loan, the disbursement might be two times; one for seeds and one for fertilisers. Seed loan disbursement is done “in-kind” by OSE in presence of the producer representative, and the fertiliser loan disbursement is made through the RSF in cash.

Bullet loans are usually used with repayment at once at the end of the loan period (scheduled to coincide with the harvesting period). However, for some clients, an instalment loan with regular repayment is also possible, based on the applicant’s need and nature of cash flow. Repayment is made in cash at the lending RSF office with respect to the agreed prepayment schedule date, or before. Repayment should be made irrespective of the failure in agriculture and marketing link to the agreed actors AMF. Late payment leads to 1 % per-week cash penalty as a fine, calculated on the principal outstanding. In addition, this leads to bad credit repayment history; jeopardising eligibility for consecutive loans. In case the client failed to comply with the AMF supply contract, due to reasons attributed to the borrowers’ own internal weakness, BG MFI will not offer him/her any other loan again for similar purposes. The usual loan recovery process is followed in case of delinquency. Social pressure will be exerted on the borrower, his family and personal guarantor. Savings and Credit Committees’ (SCC)/RSF managers are involved in the activity. The last option for BG MFI is taking the case to court.

Calculations of the loan size

Assumptions • 1.5 quintal of seed and 1 quintal of fertiliser

is adequate for 1 hectare of land• The cost of 1 quintal of seed and fertiliser

is estimated to be Ethiopian Birr (ETB) 800 and 1,200, respectively (price might be adjustment as needed)

Based on this assumptions Seed loan= land size* seed size*seed priceFertliser loan= Land size* fertZ size*fertZpriceTotal loan= Seed loan + fertiliser loanFor example: loan to 1 hectare of land

Seed Loan 1 hectare*1.5 quintals* ETB 800 = ETB 1,200

Fertiliser Loan 1 hectare *1 quintal* ETB 1200 = ETB 1,200

Total Loan =ETB 1400

N.B: To process the seed loan, first OSE seed price set information is collected and multiplied against amount of seed requested and approved for each client.

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Seasonal cash flow pattern for farmer and buyer. ICCO Terrafina Microfinance, as a long-time partner and financier of BG MFI, facilitated the malt barley VCF through product development support for specific financial products in the chain. As part of the design and development process, it studied the seasonal cash flow pattern over the year, both for BG MFI (financing the farmers) and for the AMF (buying from the farmers). This analysis is graphically presented in diagram 1.3 below. It shows that, in accordance with the growing season for malt barley, disbursements to farmers start in the first quarter of the year and loans outstanding to farmers reach a maximum by the end of June. In September the first farmers start harvesting and selling the crop to AMF, and subsequently repay their loans to BG MFI. During the fourth quarter, all malt barley is harvested and sold, and so BG MFI is fully repaid. For AMF the liquidity pattern shows a mirror image. While BG MFI is building up liquidity, AMF has to buy the crop and pay the farmers in cash. This phenomenon shows the potential for a lender applying a VCF approach, to better exploit existing cash flow throughout the year, if both the farmers and the processor can subsequently be financed.

Diagram 1.3: Seasonal cash flow pattern for farmer and buyer in the malt barley value chain

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2. Risk Management


Due diligence by the financier Before loans are approved to the smallholder barley producers, the following due diligence process and requirements are applied by Buusaa Gonofaa Microfinance Institution (BG MFI).

A. Appraisal and approval procedure: BG MFI has a rural branch at Assala town. This rural branch undertakes the pre-assessment and verifies the reliability of client reference decision. BG MFI’s Rural Unit (RU) coordinator/delegate is part of the loan application decision of the rural facility management committee and is a signatory for loan approval. In addition, this coordinator is responsible for:• Giving orientation and loan negotiation activity; • Timely and proper flow of information;• Delivery of seed request to producers; • Loan disbursement and repayment process; and• Other communication to be made with all BVC actors. The loan contract is then approved jointly by the Rural Service Facility (RSF) manager and the RU Finance Committee.

B. Eligibility check: In the due diligence process the RSF loan eligibility criteria policy is the primary factor to access the loan. The prospect borrower should be a permanent legal residence in the Peasant Association (PA), with farm land suitable to cultivate for barley. This will be confirmed by the District Office Association (DOA) of the PA. The credit eligibility recommendation from the DOA is a necessary condition for the eligibility assessment of the loan product. However, application can be rejected by the RSF loan eligibility criteria. Further, the prospect borrower needs to submit a signed contract agreeing to respect, and comply with and sustain the success and sustainability of the value chain.

C. Securities: For loan security purposes, permanent assets such as land and other properties of the applicant are required. Additionally, the applicant needs a personal guarantor with adequate assets, who is a permanent legal member of the PA and a trustworthy person willing to co-sign with his/her spouse acceptance to cover the debt in case of the borrower’s default. Furthermore, mandatory saving of 10% of the gross loan is required, deposited in advance by the borrower. This mandatory saving shall not be accessed until the loan has been fully repaid.


In the design and development of the programme, the lead actors have jointly assessed the risks for farmers and the Producer Organisations (POs), and identified means to mitigate these risks. For the purpose of the case study, a distinction is made between the six crucial aspects of smallholder production, i.e. risks related to:• The specific crop, i.e. malt barley;• The farming system and farm production;• The strength of the farmer organisation / PO;• The market for malt barley and food crops;• The viability of the farming system promoted; and• The financing of farmers.

These risks and the way they were mitigated and managed have been tabulated in a risk catalogue (see table 2.1 and 2.2) and are briefly summarised below.

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Table 2.1 Elements risk management (score 0 – 5)

Aspect Appraisal by MFI/bank Risk mitigation measures

Risk monitoring

Product 4 4 4

Production 4 4 3

Partner/client 3 4 3

Market 3 4 4

Financial 4 4 4

Product-related risks With respect to the barley product, the foremost risk is the unreliable source of seed supply, both in terms of quality and timing of seed arrival. In order to mitigate this risk, BG MFI has entered into a Memorandum of Understanding (MoU) with the Oromia Seed Enterprise (OSE). The agreement comprises that OSE will supply certified seeds to smallholder malt barley producers receiving finance from BG MFI. The Zonal Office Administration (ZOA) collaborates with OSE in the delivery of these seeds to the farmers. Even though this has been working well for the last three years, this year (2014) OSE could not comply with the quantity and quality of seed demanded by the clients. Moreover, the seed price setting is done at the central (federal level) and usually made very late. This creates inconsistency in seed distributions and affects the smallholder farmer’s agronomic practice.

The second main risk is the risk of poor quality barley produced by the smallholder farmers. Quality may be impaired as a result of (a) infection by insects, (b) being mixed with food barley, and (c) insufficient growth of the produce resulting in undersized barley. In order to mitigate these risks extension services are offered, as well as education about post-harvest handling. Furthermore, a competitive price setting mechanism has been applied, based on a standard quality measurement (at Assela Malt Factory - AMF) to give an incentive for quality products. In addition to follow-up by the producer group and centre representative to insure quality products, were also the other mechanisms to mitigate these quality-related risks.

Side selling by the producers is the other risk with respect to this Value Chain Finance (VCF) agreement. When producers are attracted with a premium price at the local spot market or discouraged with the process of bulking and selling for AMF, they are tempted to sell to the local traders, which is against the contract made among the actors of this vale chain. To mitigate this risk there is an agreement (at least between BG MFI and the farmer producers), stating that if a client failed to comply with BVC actor’s contract due to reasons attributed to the borrowers own internal weakness, BG MFI will not offer him/her any other loan again for a similar purpose. Despite the agreement there is still side selling by the farmers.

Production-related risks Several production-related risks were experienced in the programme: • Poor weather conditions resulting in reduced harvest volume;• Pest and diseases resulting in poor quality;• Barley seed germination failure, affecting production volume; and• Lack of farmers’ good agricultural practices, affecting yield and quality.

In order to mitigate these risks, agricultural experts of AMF and the ZOA provided education on good agronomic practice, integrated farm management and post-harvest handling mechanisms. These measures are rather limited however, and only provide partial mitigation of the risks observed.

Farmers’ organisation-related risksWith respect to farmer organisation, the risks observed related primarily to the level of farmer organisation and difficulty to make their needs heard. The RSF, although not specifically created as PO, provided BG MFI with a platform for communicating with smallholder clients

(Note: 0 = opportunity not used; 5 = opportunity optimally used)

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and for facilitation of farm services. The human resources available at the RSF level are very limited however, due to the self-help nature of the RSF (rudimentary payment structures, office facilities and transport). As a result, RSF staff is usually only working one day in a week. As a consequence, the level of farmer organisation remains rather weak. This is felt when it comes to negotiations, and as a consequence the support of BG MFI was quite essential. Nevertheless, the seed suppliers tend to give priority to the governmental organisations, resulting in negligence to comply with the MoU between the chain actors. In addition, farmers were not explicitly included in the MoU of the actors, which led to a limited sense of commitment and persistent side selling. This does not only lead to inability to meet the marketing arrangement with the buyer (AMF), but also to a weakening of the finance strategy of BG MFI. Inadequate availability of extension officers results in sub-optimal yields and inability to meet the targets of the farm investment plans.

Marketing-related risks The main marketing-related risks for smallholder producers are the lack of stable and attractive prices, poor infrastructure and lack of storage and transportation. The VCF approach by itself mitigates market insecurity by selecting more attractive crops and by incorporating buyers in the arrangement. This was achieved through an agreement (MoU), in which AMF will purchase the malt barley produced by the farmers, and give them priority for the purchase at its gates. Another vital component was the collaboration with the ZOA/DOA to provide the necessary technical support to clients to produce malt barley that meets the quality standards of AMF. Despite the agreement and efforts made, access to easy and economical transportation to AMF proved a persistent problem. The RSF’s centres and group representatives played a good role in mitigating marketing-related risks by a number of activities, which include:• Collecting and managing storage of output at PA level; • Ensuring members deliver quality produce; • Searching and availing temporary produce storage and weighing scales;• Communicating with AMF, BG MFI and the DOA for sale of the output; • Facilitating the logistics for delivery of produce to buyer; and• Delivering/selling the products on market level and collecting cash from buyer and handover

to respective groups or individuals.

With these measures the market risks appear to be very well managed. What remains is the unwillingness of some farmers to supply AMF. It could be that the phenomena of side selling is caused partially by a lack of faith of the farmers in the quality grading system, and by the need for cash payment (the AMF pays with a delay). This risk may well be mitigated in the future by creating even more transparency of the grading system and by facilitation of cash payment to farmers by AMF, e.g. by financing AMF for this purpose.

Finance-related risksThere is a risk of loan diversion at borrower level due to unintended purposes, for instance by reselling the seed provided on credit even before they start farming. A responsive measure to mitigate this risk was the close follow-up by agricultural experts, RSF staff, group and centre level representatives. A limiting factor is the quality of employees working at the RSF; they are not well skilled, and poorly paid. They would need further capacity building by giving them training and motivation would be strengthened by paying a better salary with more working days.

There is also a risk of delay in repayment of loan by the borrower. A close follow-up on loan repayment will be done by RSF staff, centre and group representatives and committees. Repayment should be made irrespective of the failure in agriculture and marketing link to the agreed actors (AMF). A monitoring mechanism of late repayment will lead to 1 % per-week cash penalty as a fine calculating on the principal outstanding loan, and it will be considered as bad credit repayment history after which a consecutive loan will not be given. Finally, there may even be a default by the borrower. As a mitigation measure, the usual loan repayment follow-up by the RSF credit committee will be done when social pressure is exerted on the borrower, his family and personal guarantor. Finally, the last resort option is taking the case to court. This will also be considered as a bad credit repayment history and any further or consecutive loan will not be given for such a borrower.

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Table 2.2. Overview of the risk assessment and risk mitigation measures


Product Timely seed pricing Seed pricing at Ethiopian Seed Enterprise (ESE) level

Always late price setting

Unreliable source of seed (absence of required verity, and quantity of seed on time)

Collaboration with OSE in the MoU Worked well for the last three years. This year OSE could not fulfill the demand

Product quality-related risks (infection of insects, being mixed with food barley, and very thin in size)

• Education on G.A.P and post-harvest handling to ensure quality • Competitive price setting mechanism to give attractive incentive for quality products • Follow-up by group & centre representative

• Compliance with the required standard • High price margin between good and poor quality

Side selling by producer • BVC actors contract to comply with the sustainability of the vale chain • Pooling by the centre and group representative facilitation

Failure to comply with BVC actor’s contract due to reasons attributed to the borrowers’ own weakness, will not offer him/her any other loan again

Production Bad weather condition Agricultural expert follow-up -

Pests and diseases - -

Germination failure • OSE assumes non-germination risk • Producers’ production compliance follow-up

Compensation to smallholder evaluation on poor quality seed

Lack of good agronomic practice Extension service by agricultural extension servants

Limited extension service

Lack of wall furnished storage facility Farmers sometimes store it at schools

Poor know how and literacy of farmers Education and training, follow-up Still the big problem

Farmer organisation

OSE government mission and programmes priority

Proper follow-up towards the MoU Actors meeting to review on MoU

Negligence of actors to comply with MoU MoU Follow-up needed, as still there is failure to comply such as OSE

Failure to include the producers in chain contract

There is an alternative farmers’ supplier compliance contract with BG MFI

• Number of compliance of producers supplied to AMF • There is still a side selling

Inadequate extension service officers Full time extension service Extension service is still limited

Lack of qualified workers at RSF • Working and training RSF employees • Doing a well-organised multipurpose committee

This remains a gap

Market AMF unattractive price Including AMF in the MoU Agreement with AMF and farmers to comply with the MBVC aim

Lack of reliable price for malt barley products

• AMF Competitive price setting mechanism at the factory gate • Only bulk purchase (more than 2,000 quintals) would be purchased at field

Price based on 5 standard scales with a difference in price at AMF

Side selling • Including AMF in the MoU • Farmers’ contractual agreement to the MBVC

Need for constant follow-up, as still not all producers are selling to AMF

Lack of good transportation to the market (AMF)

AMF provide discount for bulk selling and transportation

This remains a problem

Absence of adequate local malt barley supply to AMF

AMF Partly import from abroad

Absence malt-barely regular quality supply that ensure sustainability of the input for AMF

MoU with BG MFI and OSE The % contribution of these farmers is very limited less that 10-5%

Financial Seasonal cash flow and liquidity problem Request for a bigger loan Timely financial need assessment and distribution of cash and seed credit required

Diversion of loan Proper follow-up by the RSF and RU coordinator

Need for better employee salary Close follow-up loan repayment by the RSF credit committee

Delay in repayment by borrowers • Late payment leads to 1 % per week cash penalty as a fine calculating on the principal outstanding loan • In addition, this leads to bad credit repayment history and consecutive loan will not be given for the borrower

Default risk • Close follow-up loan repayment by the RSF credit committee • Social pressure is exerted on borrower, his family and personal guarantor. The Savings and Credit Committee (SCC)/RSF manager involve in the activity

• This leads to bad credit repayment history and consecutive loan will not be given to the borrower • The last resort option is taking the case to court

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Financial appraisal. The financial appraisal in terms of viability of smallholder barley production and the risks associated with it, is not done on the level of the individual farmer, as this was part of the programme design and development phase. The MoUs are agreed upon with the value chain partners and renewed annually. For the individual farmer the appraisal is based on a standard set of credit eligibility criteria and related screening process. During this process the RSF applies these loan eligibility criteria to decide on access and size of the loan. The prospective borrower should be a permanent legal resident with a farm suitable to cultivate barley. Permanent assets, such as land and other properties of the applicant, and a personal guarantor will also be considered while appraising the loan. The personal guarantor should have adequate assets, be a permanent legal member of the PA and a trustworthy person who is willing to cover the debt in case the borrower fails to repay. In addition, the prospective borrower should have 10% of the gross loan deposited in advance as a mandatory saving in BG MFI, which will not be accessed until the loan is fully repaid. The credit eligibility and feasibility of the applicant’s business plan will be confirmed with a letter of support from the PA authority and the DOA as a necessary condition. The prospective borrower should also be willing to respect, comply with and sustain the success of the value chain by selling the products to AMF.

Finance needs assessment. The credit needs of smallholder farmers are assessed every year well before the seeding season. The assessment is made based on a bottom- up approach where the RSF gives orientation and lists out the producers after having all the confirmations from PAs and the DA, and screening against the eligibility criteria. The total demand for eligible credit will be pooled together by the RSF and the RU and will be reported up to the head office. Based on this demand, BG MFI will instruct OSE to facilitate seed distribution for the approved list of smallholder barley farmers and ensure timely distribution.

Financial products / instruments. There are three different products that are provided to smallholder farmers (see table 2.4 above). The products mainly differ in terms of repayment and the interest rate charged. A borrower can repay at once after harvest (bullet loan), opt for a few instalments in the harvest season or choose for regular monthly/weekly repayment. The loan is assumed to cover the costs of seed and fertiliser, with a minimum and maximum limit per applicant. The minimum loan size is limited to 1,200 and the maximum to Ethiopian Birr

1 It is assumed that an average land per household head is 1 hectare. The need for fertilisers and seed per hectare is 125kg

and 100 kg respectively. The price for the seed and fertiliser per kg was estimated (with the current price) to be ETB 9.

Table 2.3 Barley producers’ demand for seed and fertiliser for the year 2014 harvest1

Malt Barley Credit Need Assessment in Ethiopian Birr (ETB)

Input Credit# May June July Aug. Sept. Oct. Nov. Total

# of Clients 250 750 0 0 0 0 0 1,000

Seed 239,063 717,188 0 0 0 0 0 956,250

Fertiliser 318,750 956,250 0 0 0 0 0 1,275,000

Malt Cash Need 557,813 1,673,438 0 0 0 0 0 2,231,250

Table 2.4 Credit product(s) for agriculture

Name Amount Interest % Interest mode

Repayment Mode

Security mode

1. Balloon Loan ETB 1200-5000 24% Flat Bullet Land

2. Big instalment loan ETB 1200-5000 21% Flat Big installation Land

3. Regular repayment loans ETB 1200-5000 18% Flat Regular Land

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(ETB) 5,000, which is meant for 0.5 and 2.5 hectare(s) of land investment plans, respectively. The loan disbursement is usually made in two instalments. The first disbursement is an in-kind input loan (barley seed) and will be made by OSE or indirectly through the RSF. The second installation is meant for fertilisers, and is usually given on cash at the RSF in the presence of authorised parties.


Since its establishment, BG MFI has been expanding its service and product coverage in Oromia region, where this VCF is implemented. Currently, BG MFI has built a network of 30 branches serving low-income households in rural areas of Oromia region. One of the branches is Haasasa rural union, which is a nearby office of BG MFI to these smallholder farmers and RSFs. This shows that BG MFI already had experience of working with farmers in the region, even though the VCF scheme for malt barley was new. In the Arsi zone, there are 12 RSFs. Each facility has its own manager, casher and credit appraisal committee ranging from 5-7 members. Furthermore, BG MFI’s RU) and its coordinator are authorised to follow up the whole process of this scheme. BG MFI RU coordinator takes part in the loan approval process of the RSF management committee and is a signatory on loan application. In addition, this coordinator is responsible for communication with farmer groups and other BVC actors, which includes loan orientation, timely credit needs information, delivery of seed request to supplier, loan disbursement timing etc. At RSF level, even though they are not well educated and skilled, there are employees who are responsible to follow-up these steps in the finance process. At this level the RSF committees are responsible for credit appraisal and farmer screening, as well as for a follow-up on loan disbursement and repayment. In addition, at the head office level there is an employee, operation manager, who is looking after the whole progresses and responsible for reporting on the scheme. It is noted that the rural service modality was an already existing platform, organised and supported by BG MFI. It greatly facilitated the implementation of the Malt Barley Value Chain (MBVC) process. ICCO Terrafina Microfinance supported BG MFI’s rural interventions through technical assistance for product development; small grants and linking to investments for expansion of the loan portfolio.

2.5 What connections were entertained by the MFI with other stakeholders in the sector? Who was the lead actor in orchestrating the chain? To develop reliable and sustainable market linkages over the malt value chain, BG MFI, with strong support of ICCO Terrafina Microfinance, created collaboration and linkage with other main chain actors and chain supporters. In line with this aim, agreements were concluded with the following chain actors and supporters in this MBVC finance scheme.

• Oromia Seed Enterprise: OSE is charged by the government with the responsibility to multiply and distribute barley seed all over Oromia. It was therefore necessary to have a proper linkage to and collaboration with OSE. An agreement between BG MFI and OSE was made to ensure that clients receive their certified malt barley seeds from OSE at agreed terms and conditions. The agreement also stipulates that OSE will supply certified seeds to farmers at a determined price and get fully paid by the MFI for the seeds supplied through the credit arrangements set forth.

• Zonal and District Office Association: ZOA/DOA and the concerned District Agricultural Offices (DAO) agreed to provide the technical services required by farmers to enhance their productivity in malt barley production as per its mandate.

• Assela Malt factory: AMF agreed to purchase the malt barley produced by the farmers, under the condition that it meets its quality standards. It also agreed to provide relevant technical support to these farmers, including transportation discount, training and extension services.

The negotiation and formulation of these agreements was part of the design and development of the scheme. It was quite intensive labour, and BG MFI CEO indicated that the expenses could not be recovered from the credit services provided to these farmers. Hence success of this programme depended critically on the availability of grant support and technical assistance from ICCO Terrafina Microfinance.

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The investment in staff time of Buusaa Gonofaa Microfinance Institution (BG MFI), its Rural Services Facilities (RSFs) and ICCO Terrafina Microfinance in the design and development of smallholder inclusion in the Malt Barley Value Chain (MBVC) have paid off. The smallholder farmers were able to significantly increase their yields (land productivity) and product quality and as a result they enjoyed better prices, not only by Assela Malt Factory (AMF) but also by the local market of barley traders. Even those farmers with marginalised farming plots were able to improve their incomes through higher yield and better quality. Without the collaboration of chain actors and the investment in contract formulation, this would not have been possible. The RSF modality of BG MFI served as a useful platform for contact with participating farm-ers. Hence the operation and management of the MBVC finance scheme were integrated with the RSFs in the area. It greatly facilitates the implementation of a Value Chain Finance (VCF) scheme like this, as a degree of farmer organisation is essential to meet buyer requirements and to communicate related agricultural advice. The RSF also played an important role in credit screening and appraisal of farmers, financial need assessment, seed and fertiliser distribution and follow-up, marketing and logistics, and loan repayment activities. The RSF’s joint accounta-bility and responsibility in terms of serving both the MFI and the farming community is a re-markable characteristic, which made this value chain finance work well, despite the problems observed. The close collaboration of BG MFI, AMF, and Oromia Seed Enterprise (OSE) in this value chain finance was quite essential, despite the fact that implementation has not always been going as agreed in the Memorandum Of Understanding (MoU). Many of the risks involved in this value chain finance scheme were effectively mitigated through an MoU, and in time stake-holders may move towards a higher degree of compliance and closer collaboration, as success of the scheme is clearly a common interest.


Apart from the success in this value chain finance scheme there are a number of problems still existing. Among the remaining problems in this value chain the uncertainty and sometimes lack of the required quantity and quality seed at the right time, remains the main problem. Secondly, the MoU is not always strictly followed by all the actors involved. This may partly be attributed to the fact that for some of the actors (like AMF and OSE) this smallholder scheme is small in comparison to their commercial business operation. AMF is mostly buying malt barley from traders and sometimes from Producer Organisations (POs), such as cooperatives. As about 90-95% of the local malt barley supply is from traders, the VCF scheme of BG MFI is of limited importance. On the other hand, AMF is still importing some 60% of its malt barley from outside the country. As a result there is good prospect for import substitution when smallholder barley production can be scaled up. OSE has a governmental mission and hence they give less priority to a relatively small private sector initiative like this. The process of setting seed prices has been done at the central government level and the decision is always slow and late. This led to late distribution of seed to the farmers, often defeating the advocated good agronomic practices. The third remaining weaknesses are the human resources and facilities available at RSF level. It is envisaged however, that a scheme like this will boost farmer confidence in the RSF, thus creating a stronger support basis and increasing willingness to contribute to their proper functioning.

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Based on the current performance of the malt barely value chain scheme, the following views, suggestions and recommendations are given by the stakeholders.• Farmers claim that the loan with a maximum amount of Ethiopian Birr (ETB) 5,000 is very

limited and rather small. They propose that BG MFI reviews the loan maximum limit and adjusts the loan amount based on good credit history and relationship with the RSF, and the traditional requirements of collateral.

• The current seed supplier is not reliable and there is a need for an alternative or additional seed supplier. This alternative supplier will reduce the bargaining power of the OSE and min-imise the risk of depending on a sole and uncertain source. This might also solve the prob-lems related to late pricing decisions and seed distribution times for the end users.

• Low level of financial education and knowhow about good agronomic practice by barley farm-ers is one of the biggest problems. Farmers are insufficiently aware of BG MFI‘s basic prod-ucts, procedures and requirements. This, as a result, needs a continuous sensitisation trough training, education and follow-up.

• The human resources of RSF staff and representatives of the centre and group include elected farmer representatives whom have no better knowhow of financial education than the member farmers. They are not well educated and skilled with leadership, accounting re-cording and better financial management. These, therefore, need common capacity building through training and education on the gaps observed, as they are very basic for the day-to-day operations of the RSF, centres and groups.


There is a need for continued capacity building at RSF level which is playing a key role, being jointly responsible for both the smallholder farmers’ community and BG MFI. The better the RSF’s operations and management, the stronger the link facilitation and smooth flow of ac-tivities between the producers and financers. Access to better training and education to the RFS, Rural Unit (RU) and all the other chain actors in this value chain is important in order to strengthen the efficiency and link of this value chain finance.

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SourcesDocuments used: 1. BG MFI Seed Value Chain Financing Workshop, Pilot Malt Barely Value Chain Financing Im-

plementation process, Status and Its Challenges 2012 (PowerPoint document).2. BG MFI Barely Value Chain Pilot Loan Product Operation Guideline (draft doc, 2012).3. Buusaa Gonofaa MFI Malt Barley Value Chain Pilot Project Financing Implementation and Its

Challenges 20 November, 2012 Derartu Hotel Assela, Ethiopia (PowerPoint document).4. Buusaa Gonofaa MFI Malt Barley Variety Seed Request- 2014 Cropping Season.5. Buusaa Gonofaa MFI Hasasa Branch Malt Barley Financing Workplan-2014.

Persons contacted and interviewed:

Websites: www.bgmfi.com

Name Organisation Responsibility

1 Ato Aeshome Y. BG MFI General Manager

2 Ato Bula Kenea BG MFI Operation manager

3 Ato Gelgelu Tusa BG MFI Hasasa rural union coordinator

4 Ato Mekonen Abera AMF Agri-service &malt barley unit head

5 Solomon Nega Sirbo RSF Manager

6 Abiuot Argu Sirbo RSF Accountant

7 Kassim Geletele Sirbo RSF Farmer and members

8 Teshome tesfaye Sirbo RSF Farmer and members

9 Abera Tadesse Sirbo RSF Farmer and members

10 Agamn Shankie Sirbo RSF Farmer and members

11 Gemechu Tefera Biftu bira RSF Accountant

12 Kebede G. Biftu bira RSF BG Field Agent

13 Abedela kuteru Biftu bira RSF Farmer and committee

14 Aman tusse Biftu bira RSF Farmer and committee

15 Haji arr Biftu bira RSF Farmer and committee

16 Alr h. Geletu Biftu bira RSF Farmer and committee

15 Feye guta Biftu bira RSF Manager

16 Negusie belew Biftu bira RSF Farmer and committee

17 Omer haji Biftu bira RSF Producer and committee

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AbstractThe Setit-Humera Union (SHU) was established in 2002 with four primary cooperatives (PCs) and some 2000 farmer-members. Currently, the SHU includes 19 PC members with about 12,000 farmer households. With support of Cordaid and Agriterra, the SHU has been able to acquire finance for the production and export of sesame. It provides its services to smallholders through 19 PCs with a combined membership of 12,000 farmers. The finance was provided by two banks; the Commercial Bank of Ethiopia (CBE) and the Cooperative Bank. The CBE provided an export credit of Ethiopian Birr (ETB) 25 million, which was 25% of the actual finance application. The Cooperative Bank of Oromia (CBO) provided ETB 7 million for pre-harvest expenses (farm inputs) of some 400 farmers, on the basis of a 50% guarantee by Agriterra. It also provided ETB 5 million for marketing, which fell short of the need (ETB 22 million), despite collaterals offered. The SHU passes on these bank loans to PCs that are considered sufficiently creditworthy, based on standard criteria such as strength of leadership, size, landholding, trade participation and credit record.

AcronymsACDI/VOCA Agricultural Cooperative Development International / Volunteers in Overseas Cooperative AssistanceAGP Agricultural Growth ProgrammeCBE Commercial Bank of EthiopiaCBO Cooperative Bank of OromiaECX Ethiopian Commodity ExchangeETB Ethiopian BirrMFI Microfinance InstitutionPC Primary CooperativePO Producer OrganisationSBN Sesame Business NetworkSHU Setit-Humera UnionTMF Tigray Marketing Federation WFP World Food Programme

1. Main programme characteristics

1.1 Farmers and their organisation Setit-Humera Union (SHU) is a farmers’ cooperative union, which primarily finances smallholder farmers who are mainly producing sesame via their primary cooperatives (PCs). Sesame is an important agri-business sector in Ethiopia as it is one of the main export products with significant turnover and foreign exchange earnings for the country. It is also one of the six priority crops in the Agricultural Growth Programme (AGP). More importantly, the sesame agri-business sector has significant potential for further growth and development in terms of production and yield improvement, reduction of post-harvest losses, domestic value addition and in marketing higher market access and net turnover. The largest part of the Ethiopian sesame production and export originates from the Humera and Metema production zones in the northwestern part of the country, namely: the Humera, Tsegede and Wolkayit Woredas (districts) in the Tigray region and the Metema, Quara and Tach Armachiho Woredas in the Amhara Region.

Case Study E4

Setit-Humera Ltd. Farmers’ Cooperative Union

“Sesame value chain finance”

Producer Organisation (PO)/coop profile data

Type Of OrganisationNumber Of MembersNumber Of Employees Main Crops

Cooperative Union 19 Primary Cooperatives 10 Sesame And sorghum

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The area. In the northwestern part of Tigray there are three unions namely Lemlem Wolkayet, Dansha –Orera and the SHU. Unlike the other regions, unions in Tigray are structured and established on Woreda level, where there are as many PCs as the number of Kebele (peasant associations). Kafta Humera is one of the three Woredas of the West Tigray zone. Member farmers and cooperatives of the SHU are from this Woreda. There are 21 PCs in each Kebeles of this District. Among the 21 PCs in the district, 19 of them are members of the SHU. Two PCs are not members because of the fact that they do not have the financial capacity, the minimum management structure and neither the mandatory saving practices. The SHU as a Union was established in December 2002, starting with four PCs and about 2222 farmer household members. Currently, the SHU includes 19 PC members with about 12,000 farmer household heads.

Market position. The SHU has a relative strong membership base which produces approximately 30-40% of the Ethiopian sesame to the market. The SHU is privileged to directly export without passing through the Ethiopian Commodity Exchange (ECX) and have full control over the traceability & quality of sesame, especially for the high-end market. Sophisticated European standard sesame cleaning machinery is already in place, with adequate warehouse facilities. With the new manager on board, an ambitious action plan in place and better alignment of supporting partners around the SHU, it is believed that the Union can do a much better job than before.

Finance. Agriterra supported in mobilising a 7,000,000 Ethiopian Birr (ETB = 264,000 euros) trade loan at the Cooperative Bank of Oromia (CBO). An input finance scheme was also piloted successfully with the support of Agriterra and CBO. An ETB 2 million loan was distributed to the PCs, which in turn distributed it to farmers. A total of 470 smallholder farmers from two cooperatives benefited from this loan, and they fully paid back in-kind with 498 quintals of sesame seeds. Sound contractual agreements were made between the Union, the two selected cooperatives and the farmers.

Performance. The majority of the finance was released late, which meant that the SHU bought the produce at a relatively high price. The SHU channelled 6,309 quintals to the Tigray Marketing Federation (TMF). Because of unfavourable weather conditions for sesame, many farmers shifted to sorghum, which is also reflected in the purchase performance of the SHU. Around 10,000 quintals are currently in stock, and are being contracted by the World Food Programme (WFP). A stakeholder workshop was also organised to strengthen the relationship between PCs and the Union. The workshop attempted to identify and address the challenges of both the cooperatives and the Union. Recruitment of key staff was implemented with the objective of commercialising the Union to enter into competitive sesame seeds markets, both locally and internationally. A marketing officer was hired and is posted in Addis Ababa, and an accountant with a good understanding of Peachtree accounting was also recruited. Main services provided by the SHU to the PCs. The SHU aimed to address the social economic challenges of smallholders through creating market linkages as well as achieving better prices. The Union is primary providing the following services:A. Input supply such as fertiliser (Urea, Dap and NPS a new variety), Agri-chemicals,

Agricultural implements;B. Capacity building of PCs which closely collaborate with other development organisations such

as VCDI/VOCA, USAID, Agriterra, CORDAID and Sesame Business Network (SBN)/NP; C. Output marketing mainly sesame and sometimes sorghum;D. Sesame supply to local and export markets, exploiting its high end-market standing since

2008;E. Providing adequate storage facility services; andF. Credit provision to the PC members.

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1.2 The financial institutions involved A.Cooperative Bank of Oromia (CBO)Range of services. The CBO is established to provide a wide range of banking services and products within the cooperative sector. It was registered in 2004 and was licensed by the National Bank of Ethiopia. The bank aimed to provide full-fledged and customer responsive banking services for Ethiopian cooperative societies, other entities and individuals, with special emphasis to agricultural and agri-based business financing. The bank is by far the most agriculture-oriented private bank in the country with 7,000 shareholders, out of which 1400 are cooperative societies and unions. It currently operates 53 branches nationwide. The CBO has launched the idea to establish a specialised Cooperative Business Department, offering advisory services to their cooperative clients. The CBO is interested in receiving support services from Rabobank Development and Agriterra in establishing this unit. The key services the CBO wants to focus on are business planning and financial management. This coaching track also aims to increase CBO’s competence in providing those services to its cooperative clients by training & coaching CBO professionals.

Finance to the SHU. In 2012/13 Agriterra supported the SHU in mobilising a total of ETB 7 million (264,000 euros) trade loan from the CBO. It was approved and realised timely for the pre-harvest lending season. With the further support of Agriterra, the SHU was able to present a business proposal to the CBO and managed to have ETB 2 million input finance loan approved by the CBO. This input finance scheme was also piloted successfully with the support of Agriterra and the CBO. The loan was given against a 50 % guarantee from Agriterra and a 50% risk sharing with the CBO. The input loan was distributed between two PCs, namely Fana-Limat and Maebel, who in turn distributed it to farmers. The loan was meant to serve the harvesting labour cost requirements of smallholder farmers. A total of 470 smallholder farmers of the two cooperatives benefited from this loan, and they fully paid back in kind with 498 quintals of sesame seeds. Sound contractual agreements were made between the Union, the two selected cooperatives and the farmers. The objective of this financing was to gain confidence of the CBO, starting the relationship with small and relatively less risky PCs. By developing a good credit track record, the SHU aims to create better access to less costly sources of financing for the union, PCs and smallholder farmers. Reduction of the current finance gap is needed for increasing the supply of sesame seeds to the union and a precondition for strengthening the relationship among farmers, coops and the union. In this way it hopes to establish a long-lasting relationship with the CBO, so that the SHU can rely upon it for its input and export financing requirements, opening savings and current accounts and possibly even buying shares from the CBO. As a result of the good repayment history, the SHU planned to propose a business plan of ETB 8 million input credit this year. The SHU also requested a marketing loan from the CBO of about ETB 22 million against collateral. From the 22 million loan application, only ETB 5 million was approved and released timely. In total the Union was able to mobilise an ETB 7 million loan from the CBO.

B. Commercial Bank of Ethiopia (CBE)Services. The Commercial Bank of Ethiopia (CBE) is the largest commercial bank in Ethiopia as it holds approximately 63.5% of deposits and about 38% of all bank loans in the country. The bank has around 18,000 employees who staff its headquarters and its over 550 branches, positioned in the main cities and regional towns. Apart from the normal commercial credit services (Overdraft, Merchandise loans, short-term credit, medium- and long-term loans), it offers a range of services in support of the agricultural sector such as:• Pre-shipment Export Credit facility;• Revolving Export Credit Facility;• Special Truck Loan Financing;• Agricultural Input Loan;• Agricultural Investment Loan;• Coffee farming Term Loan Financing; and• Microfinance Institution (MFI) Loan.

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Finance to the SHU. The SHU is the strongest and biggest client of the CBE in Humera. In 2012, the SHU first applied for loans from the CBE, with support of a guarantee by the regional governments. One of the credit proposals to the CBE was an export credit financing of ETB 100 million at an interest rate of 9.3 %. The credit approval was very slow and took almost a year for approval. It was risky for the SHU to depend on it, as it was not approved and released timely. This loan only approved ETB 25 million IC 80%. Despite this, the SHU intends to continue its relationship with the CBE, as there are few alternatives. MFIs do provide financial services to small-scale farmers that fulfil their eligibility criteria, which do not include all of the SHU members. Ethiopian banks cannot provide loans to small-scale farmers, except for commercial agricultural producers (large-scale farmers). On the other hand, the CBE believes that the Union is a promising partner. It is seen as the strongest of the unions in the district, the financial reporting is adequate and the communication with the staff and board is good. The CBE indicates it likes to work with Unions such as the SHU, so as to contribute to the overall development programme of the country.

1.3 Nature of the business, crop and market

Farm production. The SHU focuses on sesame as its main crop. Sesame as a crop is characterised by the very high manpower requirements at the harvest time. It allows for a relatively short period of harvest collection with a huge amount of labour workers employed at the farm. The harvest collection cannot be handled by family labour and needs a labour force employed. In order to attract the daily labour workers, farmers need to pay in cash, and thus have a very high need for pre-harvest finance.

Export potential. With an increasing demand for the sesame seeds, international buyers are showing interest to develop a relationship directly with farmer Producer Organisations (POs), like the SHU. Some of the international buyers require specific quality, quantity and full traceability of products. These buyers are targeting high-end markets and are willing to invest into the sesame value chain to increase productivity, quality and ensure full traceability. More importantly, the SHU has a competitive advantage in better access to the highly demanded whitish sesame. It is also a trusted business partner in view of its membership base (PCs) and its capability to ensure long-term product quality and productivity. It has well established organisational facilities, including cleaning and warehouses and proven ability to export directly (i.e. outside the ECX market), unlike most other traders in Ethiopia.

The SHU has ample experience in marketing sesame seeds through the ECX system and to the TMF, of which it is an affiliated member. Finance gap. Despite the fact that the SHU is in a better position to benefit from the export marketing, it has not been performing according to the required trade volume level, mainly because of a lack of access to farm input finance (pre-harvest) and output finance (post-harvest). Consequently the members have been selling only a limited portion of their total production through the Union. To partly address this finance problem, the union has access to finance from the CBO and the CBE, with the support from development partners, mainly Agriterra. In the year 2012/13, the Union was able to have a loan from both the CBE and the CBO.

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The following development partners were involved in the SHU business operation. Agriterra was the key role player in helping with the business proposal, providing guarantees and providing a variety of capacity building activities and support. The development partners involved are briefly listed below.

A. Cordaid Cordaid funded the project “Chain empowerment of sesame producers and their organisations in Humera” and supported the Union via different capacity building activities. The project was focused on capacity building of all member cooperatives. It started with 14 and increased to 19 PC members. Under this project the core capacity building / training focus has been on business management, financial management and agronomy. Cordaid has been providing at least the following main services/ supports. • Provide management and leadership trainings;• Training on financial management systems;• Agronomy services to enable quality and productivity; and• Human resource development as it recruited employees to support the unions by working

with them and with PCs, with the aim of improving quality and productivity.

B. Agriterra Agriterra is an agri-agency; a development agency founded by Dutch farmer organisations and agricultural cooperatives focusing on supporting their colleagues in developing countries. Agriterra directly addresses farmer organisations, cooperatives and farmer-led businesses in Africa, Asia and South America. In 2013, in collaboration with the CBO and Rabobank Development, Agriterra designed the “Cooperatives for Change” programme framework - a joint programme of Agriterra and SNV Ethiopia. The programme supported a successful business planning coaching track for cooperative managers of unions, meanwhile strengthening the cooperative service delivery of the CBO. Generally, Agriterra operationalises its work in three teams (1) Agri-business: farmer-led business development; (2) Promotion of grassroots entrepreneurship; and (3) Advocacy and innovation. The services of each team are complementary. Agriterra has also been supporting the SHU with the aim of making cooperatives bankable and banks financing cooperatives. As a result, the SHU was able to develop a bankable business plan. In line with this, Agriterra has been providing the following main services for the SHU: • Support to facilitate access to finance (guarantee ETB 1 million pre-harvest loan from the

CBO);• Provide training on financial system;• Training on Peachtree accounting to improve accounting and bookkeeping; • Help in designing bankable business plans and proposal preparation;• Exposure visits to successful business cases; and• Support to staff expenses by co-financing 75% of the management employees‘ salary. C. Sesame Business NetworkThe Sesame Business Network (SBN) has a three-year support programme (2013-2015) with the aim of establishing and maintaining a stakeholder-owned innovation network for improved value chain performance and farmer benefits. The SBN has cooperated with the PCs in the following main activities:• Post-harvest loss minimisation scheme;• Training of trainers (ToT) for model farmers and development agents; and• Trainings and coaching to increase the awareness, knowledge and skills of sesame farmers

on optimal sesame production practices.

D. Agricultural Cooperative Development International / Volunteers in Overseas Cooperative Assistance (ACDI/VOCA)ACDI/VOCA is an economic development organisation that fosters broad-based economic growth, raises living standards, and creates vibrant communities. Its areas of practice are agri-business, food security, enterprise development, financial services, and community development. ACDI/VOCA began implementing the USAID-funded five-year Agricultural

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Cooperatives in Ethiopia (ACE) project. ACDI/VOCA has been helping the union more on capacity development including: • Bankable business plan development;• Training;• Access to finance;• Support storage facility buildings (about 75%); and• Support quality improvement by providing quality management standard checker both to the

unions and the PCs.


With respect to input finance loan for harvesting labour costs, the SHU was able to access an ETB 2 million loan from the CBO, with a 50% guarantee from Agriterra and a 50% risk sharing from the CBO at an annual interest rate of 9.9%. This input finance loan was distributed among two PCs in which these cooperatives received ETB 1,000,000.00 each at an annual interest rate of 12%. The Union put 2.1% interest for administering the loan, and the two PCs channelled the amount to carefully choose farmers from each cooperative to cover the harvesting labour costs at an annual interest rate of 15% (fairly below the microfinance interest rate (18%)). Each PC took 3% interest for covering the costs of administering the loan. Agriterra supported in mobilising an ETB 7,000,000 (264,000 euros) trade loan at the CBO as well.

Figure 1.1 Financial flows from and to the Setit-Humera Union (SHU)

Commercial Bank of Ethiopia (CBE)

Regional government

Primary Coops

Financial to union to coop to farmers Loan repayment from farmers to coop to union to banks

Loan guarantee by regional government or development partners

Development partners

Primary Coops

Smallholders sesame producers/farmers

Primary Coops

Cooperative Bank of Oromia (CBO)

Local and export market (ECX)

Setit-HumeraUnion

Sesame value chain

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Name # of months

Interest %

Interest mode Flat or R.B.

Repayment Bullet / instalm.

Security mode

Cooperative Bank

Input Finance 12 12 Flat Bullet Agriterra 50% & CBO 50%

Trade Loan 12 12 Flat Bullet Regional government

Commercial Bank

Export Financing 12 9.5 Flat Bullet Regional government

One of the credit proposals to the CBE was an export credit financing. The SHU managed to have ETB 25 million credit on IC 80% at an interest rate of 9.3%.

2. Risk analysis


The due diligence process can be seen from three perspectives. The first one is when the Union receives finance from the bank, either from the Commercial Bank of Ethiopia (CBE) or the Cooperative Bank of Oromia (CBO). The second one is when the Union provides loans to the primary cooperatives (PCs), and lastly when the PCs give loan to the farmers. The due diligence between the Setit-Humera Union (SHU) and the financer, such as the CBO and the CBE is based on: • Support through a development partner’s guaranty’; Ethiopian Birr (ETB) 2 million input

finance was partly guaranteed by Agriterra;• Regional government is also served as a guarantor when they borrow from the CBE. An ETB

25 million loan was approved through this mechanism; and• Based on the union’s collateral and truck record a 5 million trade loan was approved from the

CBO.

Among the services that the SHU has been providing to the PCs, financial services constitute the main type. Generally, the SHU has highly conservative credit grant procedures of disbursement. While providing the services to these member PCs as a due diligence process, the following criteria were taken into consideration to minimise the risk and determine the amount of loan that is going to be provided: • Leadership quality and the financial strength of the PCs; • The size of the PC and the number of household heads included per member of the PCs;• Total land holdings by member household heads; • The credit repayment history of the PCs;• Trade activities of the PCs with the SHU. These activities can be measured in terms of volume

of input purchased from the union, and the volume of sales to the union at harvest time; and• Quality of the accountant and employee.

Based on the above criteria, the SHU has for the last two years been classifying the PCs as high, medium and low creditworthy and providing loans accordingly, as stated below.

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Elements risk management (score 0 – 5)

Aspect Appraisal by MFI/bank

Risk assessment by Producer Organisation (PO)

Risk mitigation measures

Risk monitoring

Product 3 3 3 3

Production 3 4 3 3

Partner/client 4 4 4 4

Market 4 4 4 4

Financial 4 4 4 4

Creditworthiness Characteristics of the member primary cooperatives (PCs)

Loan granted in 2012/13

Loan granted 2013/14

High • PCs which are characterised as highly credit worthy and less risky • Fulfil all or most of the due diligence criteria listed above

ETB 1-3 million ETB 1-3.5 million

Medium • PCs which have been weak but transformed to better position • Has a good progress • Becomes less risky as a result • Fulfilled many of the criteria listed above

ETB 500,000 ETB 500,000

Low • PCs which have poor performance and track record on the above criteria • Considered as highly risky

Not at all Little for some of them

Note that the union has called a meeting and clarified the criteria for all the cooperatives, and mutual agreement was reached on the credit provision and the criteria for loan grants.

Lastly, the cooperatives internally provide loans to the farmers, based on a proper loan screening and conservative criteria. Some of the selection criteria include the track record of the farmer, the number of hectares cultivated for sesame, the number of transactions the farmer has been doing with the cooperative, and the number of shares the farmer has bought in the cooperative. Once the loan is approved, the farmer and PC sign a contract, which spells out the conditions under which the farmer is lending such as interest rate, payback period, pay back in kind, the implications of default. Mostly, the farmers will repay the loan to the cooperative in the form of sesame seeds, which in turn comes to the union mid to late December and then it can be directly traded for export.

Product-related risksThe SHU focuses on sesame as a main crop. It needs a short period of harvest collection with a huge amount of labour workers employed at the farm; otherwise the crop will be at a very high risk. The harvest collection cannot be handled by family labour and needs a labour force employed by the labour workers who seasonally go to this area. To employ the daily labour workers, farmers have a very high need of finance. Last year’s season became quite troublesome as a result of volatile prices, insufficient risk-reducing strategies in relation to the contracts and late disbursement of the loan from the commercial bank. All these factors led to major default on the export contracts of the SHU. An input finance loan of ETB 2 million was distributed to two PCs. Since the financial access from the union is very limited, farmers are forced to have credit from the traders and local money lenders at a very high interest rate, and they directly hand over the produce after harvesting. This leads the farmers to lose all the benefits that they would have gotten if they had sold to the union, the Ethiopian Commodity Exchange (ECX) or the Tigray Marketing Federation (TMF). As an evaluation strategy with Agriterra’s support, the Union set up a stakeholder meeting involving the Regional Cooperative Agency, the Zonal and District Cooperatives Agencies, the CBE and the CBO in order to gain support for the coming export season and for evaluation of the previous year’s performance.


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Table 2.1. Overview of the risk assessment and risk mitigation measures


Product risks Post-harvest loss • Training about post-harvest management

and testament

• Providing finance for labour needed to collect

harvest

Financial need is still not sufficiently

provided by the union through the PCs

Side-selling Contract farming through input financing Farmers will repay in kind, but the

percentage of sales to the union is very

minimal

Very sensitive harvesting • Input loan meant to serve the harvesting

labour cost requirements of smallholder

farmers

• Employing enough human resources at the

right time

• A total of 470 smallholder farmers from

two cooperatives benefited from this loan.

• Only ETB 2 million for only two PCs

• There is mostly a shortage of finance as a

result of shortage of labour

Pre-harvest (early ) selling of sesame to

traders and many lenders

• Providing input loan

• Contract farming contract

The percentage sold to the union is still

minimal (about 10% of the total production

by the farmers

Production Risk Bad weather conditions Shifting to sorghum as an alternative crop -

Shortage of finance and manpower at the

harvest time

Financing farmers to finance their harvest

manpower need

Good start but it is still limited in scope and

coverage (loan was given only for two PCs)

Very sensitive, perishable nature of sesame

harvesting

Right man power employment at the right time Financing needed to employ manpower is

always a problem

Farmer & PO Risk Late disbursement by commercial bank - -

Poor managerial and human resources at

the union level

• Recruitment of key staff at the union level

such as general manager

• In addition, with the objective of

commercialising the union to enter into

competitive sesame seeds markets, both

locally and internationally, a marketing

officer was hired and is posted in Addis

Ababa. In addition, an accountant with a good

understanding of Peachtree accounting was

recruited

There is still a need for better capacity

building at the union and PC level

Poor awareness of the farmers and the PCs A stakeholder workshop Still much has to be done to make

improvements

Market Risk Volatile prices The union is a member of both the ECX and

the TMF

Lack of market • Union is privileged to directly export with

full control over the traceability & quality of

sesame

• The union is a member of both the ECX and

the TMF

Around 10,000 quintals are currently in

stock, and are being contracted by the

World Food Programme (WFP). Setit

channelled 6,309 quintals to the TMF

Financial risks Default by the union • Guaranteed by regional government

• Guaranteed partially by Agriterra

• Default as a result of delay of loan

disbursement

• Successful repayment of input loan

Delay of loan by farmers Strict follow-up

Default by the borrower on input loan Strict criteria and loan appraisal by the unions Farmers fully paid back to the PC

Default of PCs for the input finance Sound contractual agreements were made

between the Union and cooperatives, and the

farmers

They fully paid back in kind with 498

quintals of sesame seeds

Default for the export loan from the CBE by

the borrower

Strict follow-up As a result of unfavourable weather

conditions, price fluctuation and delay of

disbursement, there was a considerable

default with respect to this loan

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Production-related risksFor sesame harvest, one of the main production risks is bad weather conditions. Last year there was a bad weather condition and as a result the harvest was not as good as expected. Because of unfavourable weather conditions for sesame, many farmers shifted to sorghum, which is also reflected in the purchase performance of the SHU. In addition, the majority of the finance coming from the CBE was released late, which meant that the SHU bought at a relatively high price. Loan repayment, especially for loans from the CBE, was not successful as a result of price volatility, bad weather conditions and late disbursement of loan. A stakeholder workshop was also organised to strengthen PC and Union linkage. The workshop attempted to identify and address the challenges of the cooperatives and the unions, and forward a possible solution for the future.

Farmers’ & Producer Organisation (PO)-related risksWith respect to partner-related risks, we can mention the following main risks: • Poor coordination and timely disbursement between commercial bank and the union;• Poor awareness of the farmers and the PCs on collective bargaining and selling through the

union, the ECX or the TMF; and• Poor managerial and human resources, both at the union and the PC level. Even though financial access from the commercial bank is indispensable for the desperate farmers’ financial needs at harvest time, the timing of disbursement is still a bottleneck. As a result, farmers shifted to a risky credit access from traders and local lenders at a very high cost. The human resources at the union and PC level are not of a high quality in the key positions. As a mitigation measure, recruitment of key staff including a general manager was implemented. Furthermore, with the objective of commercialising the Union to enter into competitive sesame seeds markets, both locally and internationally, a marketing officer was hired and is posted in Addis Ababa. In addition, an accountant with a good understanding of Peachtree accounting was recruited.

Marketing-related risksPrice volatility at the international price level was the main risk related to sesame marketing. The product is mainly cultivated for the export market. The price volatility was a big risk for the Union and for the PCs. As a mitigation measure the farmers had contract finance for which the repayment is made in-kind to the union. The Union is a member of both the ECX and the TMF. However, the Union is privileged to directly export, without passing through the ECX, and have full control over the traceability and quality of sesame. In addition, the Union is able to link and close contracts with buyers, like the World Food Programme (WFP).

Finance-related risksWith respect to the financial risks involved, default risk of the Union for loans granted through the CBO and the CBE is one of the main risks. Since unions have a limited collateral guarantee for some of the loans - such as the loans granted by commercial banks - the regional government provides a guarantee for the bank in case the Union is unable to pay back the loan. Regarding the loan granted from the commercial bank, there are two methods of risk mitigation with respect to the type of loan granted. The first one is for an input finance pilot loan and Agriterra gives a 50% guarantee. The remaining 50% risk is shared by the CBO itself. The other part of the loan from the CBE is the marketing loan against collateral of the Union. The bank granted ETB 5 million against the Union’s collateral and track record. The other level of financial risk is the risk involved between the SHU and the PC. The possible default risk of PCs to pay back the loan was mitigated by having a strict scrutiny of the PCs and selecting and providing only for the strong PCs with a better financial position, track record, and with a good leadership.

For the financial risks such as delay and default of the final farmers to repay the loan back to the PC, the cooperatives also raised strict criteria of eligibility to provide loans. For instance, for the input finance, two cooperatives were selected and granted the loan and this PC put criteria for the farmers to access the loan. The criteria include the track record of farmers, the number of hectares cultivated for sesame, the number of transactions the farmer has been doing with the cooperative, and the number of shares the farmer has bought in the cooperatives. In the end, a contract will be signed by both parties spelling out the terms and conditions such as interest rate, payback period, options for paying back in kind, and the implications for default.

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The need for finance for sesame producing regions in general, and for the Setit-Humera region in particular, is very high at harvest time. At harvest time, there is a need for huge manpower since the harvest and family labour is way less than the need for harvesting the sesame. This therefore demands daily labour, seasonal and manpower recruitment (specifically at harvest time) in order to avoid a huge post-harvest loss.

Despite the huge demand for post-harvest loan, there is no collateral to be for land. Even regional government loan guarantees were less than the actual need for finance. Furthermore, unions have a very small or limited collateral to be used to have loans and reimburse to each cooperative and finally to reach the smallholder sesame farmers at the post-harvest period. Therefore, the gap between the demand and supply for loans is huge at this point in time. The smallholder farmers are able to get financing from various sources to cope with their financial need at this disparate time period, and each source requires different criteria. The easiest and most readily available source for input finance is normally financing from loan traders and money lenders, which are by far more expensive than the loans from microfinance and banks, but easier sources to obtain. As a result of absence or limited coverage of formal and semiformal financial services and support in this region, buyers and informal money lenders have absolute control over the farmers as they lack input finance and rely on traders for their finance. Thus, these traders and money lenders demand unreasonable interest rates and as a result the farmer loses profit which could have been obtained from selling the sesame in the right time and to the right buyer. Interest rates required from loan traders usually range between 200-400% per annum. The traders offer a lower price than what the farmers can get from selling their sesame to their union, the TMF or the ECX. The problem is that the farmers are in desperate need of cash advance, which the traders are willing to supply at a very high interest rate. The financial institutions located in this region are either not willing to provide loans or require conservative criteria to be fulfilled. Having access to input finance at the right time with the right financier would have alleviated this problem of the farmers being controlled by the buyer.

Local private banks are willing to engage in the farming sector and support smallholder farmers for their cropping requirements, but they require collateral which farmers are not able to supply. With the support of development partners, banks are willing to provide input finance through the concept of contract farming for traceable sesame. Through contract farming arrangements, four member PCs of the SHU (Fana, Shewit, Maebel and Miebale) get access to input and output finance from processors. Despite this effort, the amount of financing through this contract farming is very limited as compared to the volume of sesame seeds these processors source from the member PC. In termers of coverage, this contract farming only covers 4 PCs of the total 19 PC members that fall under this union, which is very limited.

2.3 What capacity for agri-finance has The Union?

Setit-Humera Union (SHU)As shown in figure 2.2, the SHU has a total of 10 employees, including the general manager, accountants, secretary and casher, marketing officer, machine operator, store operator and guards.

Two accounts Three guards Secretary and casher Store operator Machine

operator Marketing officer A.A

Union Manager

Figure 2.2 Staff composition and organisational structure of the Setit-Humera Union (SHU), author’s competition

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According to the manager, there is still a need for more skilled manpower requirements beside the need for skill and knowledge improvement of the existing human capital. The human resources at the union and PC level are not of a high quality in the key positions. Efforts have been made to strengthen the human resources by means of recruitment of key staff, including a new general manager. Furthermore, with the objective of commercialising the Union to enter into competitive sesame seeds markets, both locally and internationally, a marketing officer was hired and is posted in Addis Ababa. In addition, an accountant with a good understanding of Peachtree accounting was recruited.

Cooperative Bank of Oromia (CBO)The bank aimed to provide full-fledged and customer-responsive banking services for Ethiopian cooperative societies, other entities and individuals with special emphasis on agricultural and agri-based business financing. The bank mainly focuses on agricultural finance and is by far the most agriculture-oriented private bank in the country, with 7,000 shareholders out of which 1400 are cooperative societies and unions. It currently operates 53 branches nationwide. The CBO has launched the idea of establishing a cooperative department offering advisory services to their cooperative clients. Key services the CBO wants to focus on are business planning and financial management. This coaching track also aims to increase the CBO’s competence in providing those services to its cooperative clients by training and coaching CBO professionals.

2.4 What connections were entertained by The Union with other stakeholders in the sector? Who was the lead actor in orchestrating the chain?

The leading role so far was realised by the development agent, Agriterra, which initiated a bankable business planning and support through an innovative way of having credit, other than the credit against government guarantee. Unions learned how to access credit grants without the traditional regional government guarantee. The bankable business plan development was a good initiation to show how creditworthy unions are and that will create a good opportunity to request a clan loan from banks.

Agriterra supported the SHU in mobilising a total of ETB 7 million trade loan at the CBO. This support and linkage was done in two phases. The first is that, through support of Agriterra, the SHU was able to propose a bankable business proposal and managed to have ETB 2 million input finance loan. This input finance scheme was also piloted successfully with the support of Agriterra and the CBO. The loan was given against a 50 % guarantee from Agriterra and a 50% risk sharing with the CBO. A total of 470 smallholder farmers from two cooperatives benefited from this loan, and they fully paid back in kind with 498 quintals of sesame seeds. Sound contractual agreements were made between the Union, the two selected cooperatives and the farmers. As a result of this good repayment history, the SHU planned to propose a bankable business plan of ETB 8 million input credit this year. The SHU also requested a marketing loan from the CBO and was able to have an ETB 5 million loan grant. With Agriterra support, the Union set up a stakeholder meeting involving the Regional Cooperative Agency, the Zonal and District Cooperatives Agencies, the CBE and the CBO, in order to gain support for the coming export season and for evaluation of the previous year’s performance. The support of stakeholders from government offices enabled continuous pressure and follow-up in getting an ETB 40 million (1.5 million euros) loan from the CBE against a government guarantee.

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• The Ethiopian Birr (ETB) 2 million pre-harvest loan from the Cooperative Bank of Oromia (CBO) was a good initiation as an alternative to the loan from the commercial bank via government guarantees and unions-owned collaterals. The successful loan repayment history of the same loan from the CBO makes the union proud, and that will create a good base for the future creditworthiness and track record of the union, the primary cooperatives (PCs) and member smallholder farmers.

• The union was successful in developing a bankable business plan which was approved by the financier; the CBO. The assistance of development agents was very crucial in guiding how to create a bankable business plan development and becoming guarantee for the loan provided by the CBO.

• With the increasing demand for the “Humera type” of sesame seed, international buyers are showing interest to develop a direct relationship with farmer Producer Organisations (POs), like the Setit-Humera Union (SHU). Some of the international buyers require specific quality, quantity and full traceability of products. These buyers are targeting high-end markets and are willing to invest into the sesame value chain to increase productivity, quality and ensure full traceability.

• The SHU has a relatively strong membership base and produces approximately 30-40% of the Ethiopian sesame to the market. A sophisticated European-standard sesame cleaning machine is already in place with adequate warehouse facility. With the new manager on board, a supportive action plan in place and better alignment of supporters around the SHU, it is believed that the union can do a much better job than before.

• The SHU has a strong competitive advantage in having better access to the highly demanded whitish sesame, membership bases, better capability in terms of ensuring long-term product quality and productivity, and well established organisational facilities, including cleaning and warehouses. The SHU has also excellent experience in marketing of sesame seeds through the Ethiopian Commodity Exchange (ECX) system and to the Tigray Marketing Federation (TMF, from which it is a member as well. However, members have been selling less than 10% of their total production through The Union, due to scarcity of finance.


Despite the fact that the SHU is in a better position to benefit from the export marketing, it was not performing according to the required level, mainly because of a lack of access to input and output finance. Currently, the buyers and informal money lenders have control over the farmers as they lack input finance and rely on traders for their finance. The traders demand unreasonable interest rates and the result is that the farmer loses profit that could have been obtained from selling the sesame in the right time and to the right buyer (interest rates to loan traders are between 200-400% per annum). The traders offer a lower price than what the farmers can get from selling their sesame to their union, the TMF or the ECX. The problem is that the farmers are in desperate need of cash advance, which the traders are able to supply and other financial organisations are not. Having access to input finance at the time they require it, will alleviate the problem of farmers being controlled by the buyer. Despite the effort made at the union level, there is still a huge human capital requirement. Farmers themselves manage the whole administrative, financial and accountancy services. This, therefore, leads the PCs not to be strong in keeping financial accounting and bookings. They consequently need a fulltime employee who will take over the management, accountancy, marketing, purchasing and sales operations of the PCs.

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• The link between PCs and unions are very limited; it concerns mainly financial service provisions. A more intense trade relationship should be devised. Furthermore, training and capacity building through training, experience sharing and the like, should be continued as it helps the unions, cooperatives and their relationship with the financiers. The support provided by development partners on capacity building schemes through training, experience sharing, staff co-financing should continue as well.

• Sesame is more expensive than most crops. The Union has a shortage of finance and the government is urging it to gain independence by securing its own finance. Internal capitalisation should thus be emphasised for the coming years. Instigating internal capitalisation in kind could easily bring an impact if farmers are willing to contribute their sesame and if the Union could convert the product into cash by exporting it.

• A strategy should also be developed for alternative crops, such as sorghum, in order to create market linkage and value addition. Peachtree accounting training would also add to the efficiency of the Union’s accounting department.

3.4 How can linkage between financier (The Union) and Producer Organisation (PO) be strengthened?

• PC level access to finance from the bankers.• Unions and PCs should have a strong and skilled recourse and good leadership. This will be

a good base for creditworthiness for both the unions and PCs. This, as a result, will create better and greater access to credit from the financial institutions, including clean loans or with conditions for loan guarantees and collateral.

• A clean loan to unions and PCs should be given based on the credit history, management and organisational structure and with a minimal collateral requirement. Alternative financial schemes are needed, such as trade finance, merchandise loan against the harvest stored, and union level stores should be devised in the future.

Sources

Documents used: • Business planning coaching track. A Cooperative Bank of Oromia, Rabobank Development,

Agriterra and SNV Ethiopia co-production.• Setit-Humera Ltd Farmers’ Cooperative Union, Innovative Input Financing Pilot Project (Seti-

Agrittera/CBO), September 16, 2013.

Persons interviewed: • Ato Abereham Geberemedehin, Setit-Humera Union General manager. • Ato Getachere, Cooperative Bank of Oromia (CBO) branch manager (contacted but not

interviewed).

Websites: www.agro-info.net/?menu=projects&view=project&project_id=25092#

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AbstractThe “Fondation Mali Biocarburant” (FMB), or Mali Biocarburant Foudation (MBF), is a farmers association created in June 2010 by the Mali Biocarburant Enterprise (MBE); a company that produces biodiesel from the Jatropha nut. Guided by the principles of the Triple bottom line (Population, Planet, Profit), the MBE created the MBF to develop Jatropha cultivation by smallholder farmers and to diversify their activities in order to improve farmers’ livelihoods and ensure the protection of the environment. Over the past three years, a Jatropha nut value chain was developed in Mali for the extraction of oil and the production of biodiesel. The described project involves a private biocarburant enterprise (MBE), several farmer cooperatives, the MBF supporting the farmers, and PASECA OSK Microfinance Institution (MFI), financing the participating farmers. The financial services of PASECA OSK MFI were facilitated by ICCO through a guarantee fund, while ICCO Terrafina Microfinance supported the linking of Producer Organisations (POs) involved in the pilot with PASECA OSK MFI.

AcronymsCVECA OSK Caisse Villageoise d’Epargne et de Crédit Autogérée – CVECA (Self-reliant Village Savings and Credit Bank – Operating in the regions of Ouélessébougou-Siby-Kangaba (OSK) FCFA Franc des Communautés Financières d’Afrique (“Franc of the French Community of Africa”)MBE Mali Biocarburant EnterpriseMBF Mali Biocarburant Foundation (Fondation Mali Biocarburant – FMB)MFI Microfinance InstitutionPASECA OSK Programme d’Appui à la mise en place d’un Système d’Epargne et de Crédit Autogéré - PASECA (Self-reliant Support Programme for the establishment of a Savings and Loan System) – Operating in the regions of Ouélessébougou-Siby-Kangaba (OSK)PO Producer OrganisationTA Technical Assistance

Case Study M1

Mali Biocarburant


1.1. Farmers and their organisation

Mali Biocarburant Foundation The “Fondation Mali Biocarburant” (FMB), or the Mali Biocarburant Foundation (MBF), is a Malian farmers association, created in June 2010 by the Mali Biocarburant Enterprise (MBE); a company that produces biodiesel from the Jatropha nut. Guided by the principles of the Triple bottom line (Population, Planet, Profit), the MBE created the MBF to develop Jatropha cultivation by smallholder farmers, to diversify their activities in order to improve their livelihoods and to ensure the protection of the environment.

Figure 1.1: Farmer Field School (FFS) and preparation of nursery for Jatropha seeds

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Foundation Mali biocarburant profile data

Type of organisationNumber of membersExploitation areaNumber of employeesNumber of cooperatives Field schoolsMain cropsOther cropsDistricts of operation

Association of producers of Jatropha600600ha5 7 50JatrophaSweet sorghum, beans, soya and maizeOuélessébougou, Koumantou and Bougouni

The main objective of the MBF is to promote agri-forestry systems and increase the biofuel products in Western African Countries. To achieve this objective, the MBF has developed an economically sustainable business model to assist farmers to plant trees of Jatropha, mixed with food crops, in a system of intercropping. Thus, the objective of larger self-reliance for energy is achieved, without threatening the food security of participating farmers.

The cropJatropha is an oil-producing plant; very suitable for cultivation in arid and semi-arid lands in high-temperature zones with extended periods of drought. It can be grown on abandoned or sandy soils. A dried cutting pushed into the soil will take just two days to take root and can produce seeds after two years. Based on these characteristics, Jatropha requires little care and is suitable to complement food crops (rather than competing with them). Due to its natural production of insecticides and fungicides, Jatropha is also a plant that does not require pesticides or other chemicals. In Mali this plant is traditionally cultivated in hedges, usually around gardens, to protect the soil and surrounding crops from wind and erosion. In this way, it actually contributes to environment protection. In the harvest period, an individual tree of Jatropha yields from 0.2 to 2 kg of seeds (Francis et al., 2005).

Use and Processing Since Jatropha production has opened the door to local production of carburant, the government of Mali has offered private companies the right to develop the Jatropha industry with the aim to increase biofuel, so as to meet the country’s domestic energy needs and electricity production. The nuts of Jatropha contain 27-40% of oil and present a good return for the producers. The farmers produce and sell the decorticated nuts of Jatropha to the MBF. The Jatropha nuts are pressed and, together with other inputs added, used to produce oil (glycerine), shea nut butter, soap and biodiesel (diesel). The production of biofuel from Jatropha is a solution to reduce the cost of diesel in Mali, as imported fuels are costly to transport. As a consequence, diesel is affordable for much of the population in remote areas. Its production also offers great potential for import-substitution, as currently around USD 89 million is paid for around 904,100 TEP.m3 of fuel imported every year (INFORSE, 2013). The Jatropha nuts can be harvested two years after plantation.

Figure 1.2: Plant, Fruits and Nuts of Jatropha

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Farmers’ – beneficiariesThe MBF currently collaborates with seven cooperatives in three regions: Ouélessébougou, Koumantou and Bougouni. These cooperatives have agreed to participate in a programme to grow Jatropha mixed with food crops, such as sweet sorghum, beans, soya and maize. The project enables farmers not only to increase income from the sale of the nuts of Jatropha, but also from increased production of these associated food crops. In the pilot phase, 276 farmers, grouped into 3 cooperatives, have participated in the project and each farmer was authorised to exploit one hectare. Thus, a total of 276 hectares has been exploited in the three villages: • Ouélessébougou: 96 farmers (Jatropha/sweet sorghum);• Bougouni: 99 farmers (Jatropha/maize); and • Koumantou: 81 farmers (Jatropha/maize).

The project was able to guarantee the planned available supply of Jatropha nuts for producing biodiesel by the Mali Biocarburant industry and succeeded in contributing to food security. It also increased farmers’ incomes, because of mixed crop cultivation (maize and sweet sorghum combined with Jatropha).

Cooperatives of Jatropha producersThree cooperatives participated in the first pilot phase of financing Jatropha and food crops production: Cooperative of Ouélessébougou, Cooperative of Koumantou and Cooperative of Bougouni. They have been provided with a total loan of 38,420 euros for farmers to access farm inputs (seeds, fertilisers and others) for the crops intercropped with Jatropha.• The Cooperative of Ouélessébou Mali Biocarburant gou is growing Jatropha intercropped with

sweet sorghum since 2012. For the first pilot phase of campaigning the production sorghum with Jatropha, this cooperative has obtained a loan of 8,784 euros from the “Programme d’Appui à la mise en place d’un Système d’Epargne et de Crédit Autogéré”, operating in the regions of “Ouélessébougou-Siby-Kangaba” (PASECA OSK).

• The Cooperative of Koumantou is composed of 99 members growing Jatropha associated with maize since 2012. The cooperative has received a loan of 13,336 euros to grow maize with Jatropha.

• The Cooperative of Bougouni is composed of 81 members growing Jatropha associated with maize or beans. The cooperative has received a loan of 16,300 euros to grow maize associated with Jatropha.

However, the 2012 security crisis in Mali has put the MBF into financial problems after the withdrawal of their main donor, because of the country’s political instability. In 2013, the labour contract of the Director has been interrupted and no more money was available to cover the training needs of farmers. In addition to that, the MBF could not fulfil some of its promises to farmers, such as the creation of a unit that can transform sweet sorghum sticks into juice and providing 4,575 euros to each cooperative as financial incentives. This had a negative effect on the members of the cooperatives that participate in this project. For example, the members of the cooperative of Ouélessébougou reduced from 96 farmers in 2012 to 42 members in 2014.

Actors and supporting partners in production of Jatropha The main stakeholders in the programme are the MBF, the MBE, Trees for All and KIAK Motors. The other two main partners, ICCO and ICCO Terrafina Microfinance, support the financial services component (see paragraph 1.3 below).

The four stakeholders in the programme have different functions:

Mali Biocarburant Foundation (MBF)• Assisting farmers in producing jatropha, mixed with food crops;• Providing seeds and fertilisers, technical support to farmers;• Assisting farmers to find market for the food crops;• Organising the training on modern agriculture techniques, for farmers;• Supervising the daily activities of farmers; and• Assisting farmers to sell the grains of Jatropha to the Mali Biocarburant Enterprise (MBE).

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Mali Biocarburant Enterprise (MBE)• Organisational support to the MBF;• Buying the grains of Jatropha from the MBF;• Transforming the grains of Jatropha into bio diesel and glycerine; and• Marketing and selling Jatropha products.

Trees for All • Providing technical assistance (TA) in the production of Jatropha seeds.

KIAK Motors• Providing financial support to add value to Jatropha products, like the carbon sequestration; • Supporting the daily operations of the foundation.

1.2 The financial institution

In order to enable farmers to produce Jatropha associated with food crops, the farmers receive loans from PASECA OSK at an 18% interest rate. PASECA OSK, a microfinance institution (MFI), is an autonomous savings and credit organisation, created with the mission of developing microfinance for marginalised people in the Ouélessébougou-Siby-Kangaba regions, through the provision of savings and credit services.

Currently, PASECA OSK has 11,202 active clients. Some 1,120 borrowers are farmers (10%). Other clients consist of retailers (8,513 customers) and artisans (1,568 clients). The MFI’s credit portfolio is 451,303 euros, and credit allocated to agriculture varies between 73,452 euros and 114,337 euros (16% - 25%). This shows that the average agricultural credit (102 euros) is much larger then the average credit in the other sectors (30 euros). However, it is difficult to make a clear separation of the financing of agriculture from other credits, as many granted credits are sometimes related to agriculture activities. PASECA OSK is financed by deposits of its members.

Products and services delivered to membersPASECA OSK offers a diversity of services to its members. The major services are:• Loans; PASECA OSK provides loans to its clients at a negotiated rate, ranging between

18% and 24% per annum. The interest is linearly calculated over a maximum duration of 12 months. The types of guarantees accepted are small equipment, animals and the joint guarantee of the farmers group. Moreover, there is a 50% cover from a guarantee fund established with financial assistance of ICCO. For agriculture loans, the repayment is made after harvest (i.e. bullet loan) and maturity is determined according to the type of funded agricultural activity. The overall repayment rate is reportedly 92%.

• Voluntary saving; just like other MFIs, PASECA OSK uses the deposits and savings of its clients as a source of finance for its credit portfolio, and partly uses it as collateral (the mandatory savings component).

• Training; PASECA OSK organises training sessions on financial literacy for its clients, in order to ensure proper use and repayment of the credit.

PASECA OSK is looking for additional resources to increase its capital, so as to meet the increased demand for loans.

PASECA OSK profile data

Type of organisation#Active clients#EmployeesPortfolio value (in euros)# of farming clients% of portfolio in agriculture

Credit Union/Cooperative1120217€4513021120 10%

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The MBF and PASECA OSK MFI are supported by two Dutch development agencies;• ICCO Terrafina Microfinance supported the institutionalisation process of the “Caisse

Villageoise d’Epargne et de Crédit Autogérée” (CVECA), operating in the regions of “Ouélessébougou-Siby-Kangaba” (OSK), and PASECA Kayes. In the meantime, the 2 networks decided to merge. This process was facilitated by Pamiga. PASECA OSK is also involved in other CVECA associations; in a 3 year comprehensive capacity building programme aiming at professionalisation according to the new microfinance regulation. This programme is implemented thanks to ICCO Terrafina Microfinance support. Finally, ICCO Terrafina Microfinance offered a small grant to facilitate the linking of producers involved in Jatropha, with the PASECA OSK. This grant has been used for training of farmers on financial education.

• ICCO has granted financial support to the MBF, which was deposited into the PASECA OSK as a guarantee fund to facilitate farmers with access to loans. The total loan could be the double of the guarantee fund (i.e. a 50% guarantee).


The financial support of 17,154 euros offered by ICCO to the MBF has been deposited in the PASECA OSK as a guarantee fund to facilitate farmers to receive loans from that MFI. The following tables show the loan requirements from the PASECA OSK and the amount of loans received by cooperatives of the producers of Jatropha associated with food crops.

PASECA OSK gives the loan to its clients for buying the agriculture inputs. Interest rates vary between 18-24% and loans payable within 10-12 months. The repayment mode and the repayment time are based on the type of agriculture activities financed, and are subject to negotiation between PASECA OSK and their clients.

A training session on financial literacy was organised for each Producer Organisation (PO) involved in the programme. In total, 80 farmers were trained on several modules such as budget elaboration, importance of saving, and debt management.Farmers involved in the production of Jatropha intercropped with food crops, have received a loan to purchase chemicals, fertilisers and seeds for their food crops. The PO is in charge of collecting individual credit needs of their members, submitted to the PASECA OSK. When approved, the loan amount is disbursed to the MBF, which is involved in inputs and seeds purchasing and supplying. This loan was given at an 18% interest rate, payable within 8 months after harvest. The loan contract is signed between the MFI and the individual farmer selected by the cooperative, but is secured by a joint guarantee and the guarantee fund deposited by the MBF to the PASECA OSK. The loan is repaid in kind by farmers that stored their production within the PO warehouse. The MBF is supporting the PO for group selling by facilitating intermediation with potential buyers, such as “les Grands Moulins du Mali”. After the marketing operation, the loan amount is repaid to the PASECA OSK and the balance is transferred to the farmers’ individual accounts.

The pilot phase revealed that the farmers are willing to maintain the Jatropha intercropped with food crops (sorghum and maize). The loan provided in 2012-2013 was 100% repaid and we can conclude that this initiative had a positive impact on food security, as only 31% of the production was sold to enable loan repayment. Nevertheless, some repayment delays were observed as one PO refused to sell the production under pressure when the prices on the market were still low.

Credit characteristics

Name # of months

Interest %

Interest mode

Repayment system Security mode

Agricultural production loan

10-12 18-24 Flat Bullet or two harvest instalments

Joint guarantee Guarantee fund for 50% cover

Other loans 10-12 18-24 Flat Two or more instalments Houses, equipment, animal livestock, etc.

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2. Risk analysis


Loan appraisal by the Microfinance Institution (MFI) - due diligence The due diligence on the level of individual (farmer) clients is done by means of a check on eligibility, based upon some standard criteria. In order to benefit from the credit of the “Programme d’Appui à la mise en place d’un Système d’Epargne et de Crédit Autogéré”, operating in the regions of “Ouélessébougou-Siby-Kangaba” (PASECA OSK), the borrowers must fulfil the following loan conditions: • Every borrower must be a resident in the range of operating areas of the PASECA OSK;• Have a current account within one of the sub-branches of the PASECA OSK;• Be a member of a cooperative;• Have own guarantee or be guaranteed by the cooperative (joint guarantee);• Be recognised by others as a practitioner of agriculture activity;• The loan is individually given to members of a cooperative and all members bear the liability

for the total payment of the loan; and• A loan agreement is signed between the individual borrower and the president of the

cooperative, and the representative of the PASECA OSK.

2.2 Risk management by the stakeholders In the design and development of the programme, the lead actors have jointly assessed the risks for farmers and the MFI, and identified means to mitigate these risks. For the purpose of this case study, a distinction is made between the six crucial aspects of smallholder production, i.e. risks related to:• The specific crop, especially Jatropha;• The farming system and crop production;• The strength of the farmer organisation / farmer cooperative;• The markets for Jatropha;• The viability of the promoted crop farming system (Jatropha and food crops); and• The financing of farmers and farmer cooperatives.

These risks and the way they were mitigated and managed, have been tabulated in a risk catalogue (see table 2.1 further on) and are briefly summarised below.

Loan received

Cooperatives FCFA Euro

Bougouni 10 692 000 16,300

Koumantou 8 748 000 13,336

Ouélessébougou 5 762 000 8,784

Total 25 202 000 38,420

1st pilot phase financing to grow food crops intercropped with Jatropha (2012-2013)

In order to make farmers able to get a better price for their food crop, it was decided to extend the loan duration to 10 months the second year.

The other issue that appeared is the lack of involvement of PASECA OSK in the recovery process, which was mainly done by the MBF.

Jatropha / Maïs Jatropha / Haricot Jatropha / Sorgho

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Product-related risksJatropha is a highly resilient species and the risk of ‘crop failure’ hardly exists. It can be grown on arid land and persists in drought. As it is intercropped with food crops, it does also not lead to the risks normally related to concentration on a commercial monoculture. About 80% of the land remains available for foods crops, while 20 % is planted with Jatropha. Based on the 6% of nitrogen contained by the seeds of Jatropha, this plant is deemed to serve as a fertiliser for the food crops (Barbee, 2012). Finally, it contributes to reduction of soil erosion. Given these characteristics, Jatropha could be characterised as a risk-mitigating crop for smallholder farmers in the semi-arid regions of Mali.

For the food crops, the risks relate particularly to seed selection. This issue came up during a discussion with the coordinator of producers of sweet sorghum. The quality of sweet sorghum seeds used in the programme was considered poor, as farmers have not been consulted in the selection of seeds. One of the problems observed with the seeds is long germination, and a poor quality product that is not easily accepted by the buyers. The seed does not fit with the properties of the soil of the region. The solutions for these risks were to look for new seeds providers who might have more appropriate seeds and involve producers in decision-making about seed selection.

Production-related risksAs the use of Jatropha was already widespread in the region for fencing, the production risks are very low in comparison to other crops. An individual tree of Jatropha yields from 0.2 to 2 kg of seeds. Jatropha does not need fertilisers to grow; farmers only use fertilisers for their food crops.

The food crops are also more dependent upon the right farming practices. Farmers have been observed not properly using fertilisers and pesticides in their food crops. They argue that only few fertilisers reach rural areas. Scarcity leads to a very high price that is generally unaffordable to smallholders. The loan offered by the PASECA OSK is insufficient to pay the quantity of fertilisers needed for their plantations. Farmers are being trained and advised to create awareness on the benefits/importance of using sufficient fertilisers to increase the production. Some mechanisms, like group purchase of fertilisers and inputs, have been adopted to facilitate farmers to have fertilisers nearby their home locations.

The dry season (and, hence, possible extended drought) is not problematic for Jatropha, but it does constitute a serious risk for the food-crops. Farmers are being trained to reserve the water in a dug, well covered with a plastic sheeting. While waiting for the rain, the water reserved in this way remains at least two to three months. It is used for watering the vegetable garden during the dry period. Farmers are also sensitised on the merit of listening to weather forecasts, in order to make proper plans for their agricultural activities. In general, farmers are still using traditional agronomic methods in their cultivation practices, which limit their yields of, and returns on their agriculture investment. More training, sensitisation and extension services are needed to improve on these practices.

Post-harvest risks are frequently disturbing the development of agriculture in Mali. For example, there are no storage facilities for maize and sorghum crops; farmers keep their crops at home until they find buyers.

Producer Organisation (PO)-related risksThe Mali Biocarburant Foundation (MBF) is closely collaborating with the three participating farmer cooperatives: Cooperative of Ouélessébougou, Cooperative of Koumantou and Cooperative of Bougouni. Thus, the success of the programme is closely monitored and, if necessary, the MBF works with the individual farmers. To facilitate farmers to have access to the loans, the MBF and PASECA OSK have agreed on the following distribution of tasks:

PASECA OSK to:• Give loan to farmers and make a follow-up of the use of loan;• Sensitise the farmers and train them on financial education; • Open the sub-branches located nearby the location of farmers if the conclusion of the

feasibility study shows good potential; and• Install recovery mechanisms of the loan offered to farmers.

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Mali Biocarburant Foundation (MBF) to:• Organise the farmers of Jatropha into cooperatives;• Select and propose the cooperatives to be financed by the PASECA OSK;• Facilitate the farmers access to farm inputs nearby their farm location; and• Supervise and provide technical assistance (TA) to farmers.

However, there are risks associated with the project set-up and field-level collaboration between actors. Although the PASECA OSK extended its services to the producers of Jatropha, it is challenging to recovering its loans. The PASECA OSK accuses the MBF of not ensuring that the loan is used for its intended purpose and that farmers correctly implement the technical advises related to production. On the other hand, the MBF feels that the PASECA OSK is not rendering good services to farmers, because their offices are not near to farmers’ locations. This illustrates the generally observed phenomenon of tension between providers of financial and non-financial services. While they need one another for effective programme implementation, they also tend to blame each another once problems come to the surface. It requires mutual trust, patience and good communication to exploit the win-win potential in these approaches.

Marketing-related risksAs a chain actor, the Mali Biocarburant Enterprise (MBE) and the MBF are orchestrating the production, demand for the product is ensured for the Jatropha crop. The collaboration between the MBF and Grands Moulins helps farmers grouping into cooperatives in order to sell their products in large quantity, limit the competition among them and thus gain more from that market. In addition, through better negotiation farmers were hoping to increase the price for Jatropha nuts (€0.11/Kg), as they consider it low compared to prices of other industrial crops, like cotton. The MBF promised to negotiate with the government and external buyers to increase the price.

The price for food crops (maize and sorghum) on local village markets barely covers the cost incurred in producing them. As farmers sell their vegetables and food crop production only individually, they do not gain from bulking in the way they do with Jatropha.

Finance-related risksTo the extent that loan delinquency occurs, it is attributed mainly to loan diversion. Some farmers were apparently thinking that the 50% guarantee fund was freely donated to them. Instead of using the loan for the project, they have covered family expenses with it. This required the PASECA OSK to regularly control/supervise the use of the loan. Also the MBF decided to control the use of inputs into the crops, in order to check the adoption of the Jatropha production campaign.

The cooperative members, who are also liable for loan delinquency of group members, must investigate if every member respects the contract specification and the purpose of the loan.On the other hand, farmers still complain about the delay in disbursing the loans since this sometimes has impact on their investment. The farmers were requested by the PASECA OSK and the MBF to submit their loan request on time, in order to finalise them and hence facilitate earlier financing. The lack of agreement between wife and husband to participate in the project is sometimes challenging. This requires continuous education and sensitising the family members about the project.

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Table 2.1: Risk catalogue - Overview of the risk assessment and riskmitigation measures

Aspect Risk assessment Risk mitigation measures Risk monitoring

Product risks Resistance of some farmer to grow Jatropha Continuous sensitisation of farmers to be involved in the project

Agriculture monitors keep sensitising farmers to grow Jatropha

Poor quality of sweet sorghum seeds • Looking for seeds providers who can supply selected seeds that fit with the soil and are accepted by the sorghum buyer • Involving farmers into seeds selection decisions

The problem of seeds was claimed to be the long germination period (find the best seeds providers)

Post-harvest risks Training of farmers about post-harvest techniques

Post-harvest handling of food crops

Production risks Weather changes (specifically drought) • Good planning of agricultural period • Digging the water wells to anticipate on the droughts periods

Good mechanism to reserve water for agriculture activities

Low use of fertilisers and pesticides to food crops (maize and sorghum)

• Training and sensitisation of farmers to use enough fertilisers • Have fertilisers and other inputs nearby the location of cooperatives • Sensitisation of the private seeds providers (individuals or cooperatives)

• Agronomist will make a follow-up on the use of fertilisers • Negotiate with inputs providers

Traditional farming practices Training the farmers on modern agricultural practices

Agronomist to assist farmers

Few agronomists to assist and guide farmers in modern agricultural practices

The MBF will recruit competent people to assist and guide farmers in their practices

Keep assisting farmers.

Partner/client risk Risks associated with the project set-up (low collaboration between actors)

Improve the contract between the MBF and the PASECA OSK. Improve the loan agreement (recovery process) between the PASECA OSK and cooperatives of farmers. Clarifying the role of each actor in the chain (MBF and PASECA OSK)

To enforce the sustainability of the project

Lack of farmers’ involvement in decision- making on Jatropha project

The MBF promised to give a flow to farmers in Jatropha project

New decision for the future of the project

Lack of leadership in the cooperative management board

• Education and training of management board members of cooperatives • Continuous training of members of cooperatives about cooperatives principles

Training is still needed

Market risk Lack of market for Jatropha nuts The MBF will negotiate the international market for Jatropha nuts

Undergoing negotiation

Lower price of Jatropha compared to food crops (Jatropha 50-75 FCFA/kg, sorghum 115-125 FCFA/kg, maize 100-110 FCFA/kg)

Continuous negotiation with the government and potential buyers in order to increase the price of Jatropha (au moins 200 FCFA/Kg)

The negotiation is still under way

Lack of market for sweet sorghum and maize production

• Look for the market of sweet sorghum• Group selling of the production in other big buyer towns (Grands Moulins du Mali)

Keep negotiating with buyers, with the purpose to sell the whole production

Finance and viability risks

Late disbursement of the loans required The PASECA OSK requested the producers to deposit their demands a bit earlier, to allow the MFI to speed-up the loan analysis

The measure worked for the 1st phase

The PASECA OSK located far from farmers’ locations

The PASEC OSK accepts to open sub-offices close to location of farmers

To be open in 2015

Loan Diversion • Close control of loan use, by the PASECA OSK • Make a follow-up on the use of inputs by agricultural staff from the MBF • Continuous training and sensitisation of farmers about effective loan use in the project • Members of cooperative will check each other on respecting the purpose of the loan

The PASECA OSK does currently not have a follow-up strategy or recovery, because it relies on the guarantee fund only

Lack of agreement between wife and husband to participate in the project

Continuous education and sensitisation of the family members about the project

Family consent still needed in this project

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The MBF and PASECA OSK have agreed to facilitate farmers, who are involved in Jatropha production intercropped with food crops, with access to credits. Reaching this agreement was facilitated by the guarantee arrangement offered by ICCO and the capacity building offered by ICCO Terrafina Microfinance. The MBF is required to select the farmer members of the cooperatives and to submit the list to the PASECA OSK. The nature of the agreement is that the recommendation of the cooperative is a necessary condition, yet not a sufficient one for loan approval; the PASECA OSK maintains the right of appraisal. In practice the outcome of the appraisal is rather predictable, however, as the PASECA OSK maintains a standard set of eligibility criteria. In order to be financed, every borrower must be a resident in the range of operating areas of the PASECA OSK, be a member of a cooperative, have a warranty and be recognised by others as a practitioner of agricultural activities (farm plan).

The beneficiaries are selected by cooperatives and all demands are submitted to the credit committee of the PASECA OSK for analysis. Once approved, a contract agreement of in average FCFA 60,000 (92 euros) is signed between the applicant and the PASECA OSK. This loan is secured for 50% by the guarantee fund granted by ICCO to the MBF, another 50% is secured through a joint guarantee (cooperative becomes guarantor of members with shared liabilities). The loan is given at 18% (out of which 3% is reserved as an intermediation fee to the cooperative) for 10 months. The loan is given to enable farmers to buy fertilisers, seeds (maize or sorghum) and pay for other exploitation expenses.

2.4 What capacity for agri-finance has the MFI installed to perform these tasks?

The PASECA OSK Headquarter is located in the region where agriculture is the main economic activity. This MFI has been operating in rural areas for 15 years, providing loans to rural farmers to buy fertilisers, seeds and to pay for the family’s first needs. ICCO Terrafina Microfinance has supported the PASECA OSK with TA and a grant, aiming at improving the overall performance of the network. It currently has 17 employees from different disciplines (including agriculture) to serve its clients.


The MBF, together with the MBE, has been the lead actor in the development of the value chain and the orchestration of the finance arrangement with the PASECA OSK. Regarding the latter, the partnership with ICCO Terrafina Microfinance has been vital (for capacity building and financial literacy).

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The Mali biocarburant case is a good example of the potential of risk mitigation to be exploited through a value chain finance approach, in which a chain actor (Mali Biocarburant Foundation - MBF/ Mali Biocarburant Enterprise - MBE) has been the driving force. First of all, the introduction of a new crop providing additional income for farmers, created a solid base for farmer participation and commitment. The fact that the Jatropha crop does not interfere with their food crops, helps to mitigate the risks for farmers. Other cases of specialisation/other crops may not have resulted in the same situation; they may have inhibited farmers’ participation. The fact that a chain actor has been orchestrating the collaboration with the financial institution and international funding agencies, is the best starting position for sustainable development of the value chain. The case also shows how a win-win situation is created for all parties concerned; the farmers and their cooperatives, the agribusiness (MBE/ MBF) and the financial institution (“Programme d’Appui à la mise en place d’un Système d’Epargne et de Crédit Autogéré” - PASECA OSK). The partnership between the MBF and the PASECA OSK appears to be a good way of widening outreach for the microfinance institution’s (MFI’s) products, increasing the number of its customers and raising more income from the loans disbursed to them. The support activities of the international organisations (ICCO, ICCO Terrafina Microfinance) has substantially contributed to mitigate risks, partly through the guarantee arrangement, and partly through capacity building and improved expertise for the PASECA OSK.


Although the PASECA OSK extended its services to the producers of Jatropha, it still wonders whether it can handle the challenges related to loan recovery. This is based upon the experience of the first phase of 2012, during which it has been dependent upon assistance by the MBF for debt collection. For the second phase, this is considered an acceptable financial risk for the PASECA OSK, as it relies on the 50% guarantee funds deposited by the MBF. Nevertheless, the guarantee mechanism set-up is not very clear and the convention between Mali Biocarburant and the PASECA OSK has to be revised in order to better clarify the use of the fund and define the procedures for the guarantee call. The MBF’s high dependency on external funding remains an important risk for the continuity of the programme and for the upscaling phase. One of the weaknesses of the approach was the lack of vision about how to sustain the offer of no financial services. The 3% interest rate promised to the cooperatives has not been deposited on the cooperatives’ accounts. This is undermining the confidence of the cooperatives, which hence constitutes a potential threat for continued collaboration between the parties. Another issue arose between the farmers and the MBF. The MBF reportedly promised farmers to purchase the sticks of sorghum which could then be transformed into juices, but this plan was not implemented which consequently discouraged the farmers.


• Based upon discussions with different stakeholders, it appears that farmers are not aware of the different products offered by the PASECA OSK. They are still dependent upon information given by the MBF. More frequent sensitisation visits by the PASECA OSK to farmers is needed, together with training and the establishment of an effective communication network (i.e. field visits by the Chiefs of Staff (COSs) of the MFI).

• Outreach for microfinance would be enhanced when the PASECA OSK would open more (sub-) branches at proximity to the farmer members in the programme, to facilitate the recovery process and improve services delivered to its clients.

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• Having permanent staff to insure the technical support to farmers, is a very expensive option. The costs could be reduced by involvement of farmer leaders that could play a more active role in training duplication on village level and dissemination of good crop-growing practices in the farm. Part of those training costs could be supported by farmers and the other part by the MBE, yet the cost-sharing mechanism has to be defined.


To strengthen the linkage with its clients, the PASECA OSK is thinking of various activities. These include the organisation of an open door day for farmers in the region so as to create more awareness about the opportunities to finance the various chains in agriculture. Other activities would relate to extended training of (potential) clients, the development of new agricultural finance products, and a more systematic investigation of market outlets for the agriculture products financed under PASECA OSK credits.

SourcesContact persons:• Abdoul Karim Sacko, Director PASECA OSK.• Djodji AKIBODE, Communication officer, MBF.• Sanou Cna, Technical Director, MBF.• Anita samake, Coordinator Producers of Jatropha.• Maximé Kulibalé, President of cooperatives/Jatropha.• Idrissa Ba, coordinator of ICCO-Mali.

References and links:1. International Network for Sustainable Energy. (2013). CASE: Jatropha Oil Production for

Local Energy Use, Mali. Warsaw, Poland. www.inforse.org/africa , www.malifolkecenter.org.2. Barbee, J.M.(2012). Preliminary Investigation of the Risks Associated with Applying

Non-composted Jatropha curcas Seed Cake as a Fertiliser.3. Francis, G., Edinger, R. and Becker, K. (2005). A concept for simultaneous wasteland

reclamation, fuel production, and socio-economic development in degraded areas in India: need, potential and perspectives of Jatropha plantations. Natural Resources Forum. 29:12–24.

4. www.malibiocarburant.com/malibioen/carbon-credits.5. www.new-ag.info/en/focus/focusItem.php?a=116

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AbstractFounded in 2000, Soro Yiriwaso is a Malian rurally oriented microfinance institution (MFI) financing mainly agricultural activities. The main objective of this MFI is to increase the productivity and production of farming activities in Mali in order to improve the economic situation of disadvantaged smallholder farmers, particularly women. To achieve its mission, the MFI has initiated various agricultural finance products to help farmers have access to credits for agricultural inputs. Soro Yiriwaso is currently serving over 59,000 farmers, growing millet, sorghum, maize, cotton (mostly grown by men), rice and peanuts (mostly grown by women) and to market their production. It carefully addresses the gender differentiation of agricultural practices by recognising the differences in needs and by serving them appropriately.

AcronymsCOPAM Centre Commercial des Produits Agricoles du Mali (Commercial Centre of Agricultural Products of Mali)FCFA Franc des Communautés Financières d’Afrique (“Franc of the French Community of Africa”)MFI Microfinance InstitutionPO Producer Organisation

Case Study M2

Soro Yiriwaso MFI

COPAM profile data

Type of organisationNumber of membersExploitation areaNumber of employeesMain cropsOther cropsTurnover Operating income

Cooperative Society20742045 hectares10MaizeSorghum, millet and sesame FCFA 2,325,000,229 (€3, 544, 440)FCFA 1,425,000,330 (€ 2,172,399)



For the purpose of this case study, three different producer organisations (POs) of farmers have been visited so as to have a fair idea of the diversity encountered in agri-finance. The POs described in this section are:A. COPAM (Commercial Centre of Agricultural Products of Mali);B. Producers’ associations of Benkadi-Bougoura - Association of Women producers of rice; andC. Producers’ Cooperative of Koumbri village Yoyoka commune.

“Increasing the productivity and production of smallholder farmers in Mali through access to finance”

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A. COPAM (Commercial Centre of Agricultural Products of Mali) The COPAM is a cooperative society founded in March 2011, to organise, support and provide a safe and profitable market for producers of food crops. The vision of the COPAM is to increase economic growth in rural areas through the promotion and diversification of cash crops, like sesame, maize, millet, sorghum and soy, in rural areas.

To achieve its mission, the COPAM offers the following services to farmers:• Organising smallholder farmers into producer cooperatives;• Organising the market for agriculture production;• Enhancing the capacity and skills of farmer members of cooperatives or cooperative unions; and• Developing the relations and partnership between farmers and the local financial institutions.

The intervention of the COPAM starts with: the provision of agricultural inputs (certified seeds, chemical fertilisers, herbicides and pesticides); technical support in the production of food crops (agricultural techniques, entrepreneurship); marketing the agricultural production; facilitate the process of negotiation, and signing contracts and partnership agreements between local and international Institutions on behalf of farmers. The COPAM is responsible for the promotion and diversification of cash crops such as sesame, soya and almond for shea butter. The cooperative is currently composed of 2,047 producers from 67 villages and it operates in 2 regions: Koutiala and Sikasso.

The main partners of COPAMThe COPAM closely collaborates with the Yiriwaso microfinance institution (MFI) for financing its member-farmers, with Planet Guarantee for crop insurance and with several other parties for the marketing of agri-products for non-financial services. Soro Yiriwaso - As both Soro Yiriwaso and the COPAM aim at improving the life of rural farmers, they concluded a collaboration agreement on financing agricultural activities. In this agreement, the COPAM is responsible for:• Making annual agricultural planning on behalf of farmers and submitting to Soro Yiriwaso for

funding;• Selecting the farmer beneficiaries for loans (pre-screening);• Joint monitoring of beneficiaries in the implementation of agricultural activities;• Contracting the company in charge of surveillance and control of agricultural stock

(UNICONTROL);• Collecting the quantity of production released for the payment of loan obtained under the

UNICONTROL procedures;• Selling the stocks under control of UNICONTROL (in collaboration with Soro Yiriwaso); and• Depositing sales revenues directly into the bank accounts held by Soro Yiriwaso, with

notification of the members.

In accordance with the agreement, Soro Yiriwaso is responsible for:• Elaborating a disbursement plan and preparing the loan contracts;• Timely loan disbursement in accordance with the agreed disbursement plan;• Joint monitoring of stocks collected from farmers;• Joint monitoring of the sales process in collaboration with the COPAM and UNICONTROL; and• Monitoring the loan repayment and depositing balances due to the account of the COPAM.

Figure 1.2: COPAM office and members of the administration committee (youth initiative)

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Association of Women of Benkadi profile data

Type of organisationNumber of membersExploitation areaNumber of employeesMain cropsTurnover (in euros)Operating margin

Association 55100 hectares0Rice FCFA 39, 690,000 (€60, 507) FCFA 13, 779,000 (€21, 006)

Association of women producers of riceThis association was created by women twenty years ago, to ensure social cohesion and to generate income for the members. It currently has 55 members individually producing peanuts and rice. The total area cultivated by the members of this association is 100 hectares. It has benefited from agricultural production campaign loans from the Soro Yiriwaso MFI. In the latter case, loans were only provided to women, at an interest rate of 25% per year for 8 months payable after the harvest. One of the achievements of this association is a storage hall with a capacity of 1000 tons to store production before decortication and sale. The production table for this association is attached (Annex 1).

Association of men producers of maizeAfter seeing the success of women organised in an association, the men decided to set up their own association with 11 members. This association is also financed by Soro Yiriwaso, yet men are not the target clients of the MFI. They are therefore only allowed to have other loans like a maize production loan (“PPM-Prêt Production Maïs”). However, the interest rate and loan conditions are the same as for women. This association has received a loan of FCFA 1,750,000 at a 25% interest rate for 8 months payable after the harvest.

UNICONTROL - UNICONTROL is a private warehouse company, managing third party holdings of the cereal stocks of agriculture products (maize, millet and sorghum), collected from farmers. The company’s aim is to create buffer stocks of cereals so as to safeguard continuous supply in case of unexpected food problems in Mali. Each farmer receives a notification certificate of the quantity of crops kept in stock. These stocks are supervised by UNICONTROL, in collaboration with Soro Yiriwaso and the COPAM, and may also guarantee all loans received by farmers.

Planet guarantee - Planet Guarantee is a known insurance company in Mali that intervenes in securing weather risks. As farmers do not have sufficient funds to pay the premium, Soro Yiriwaso deposits the premiums which are deducted from the loans provided to farmers.

Marketing of agricultural products is done by PROSEMA (Society for Promotion of Sesame), ELHAQ INDUSTRY Mali, SOKL and Grands Moulins du Mali.

Other partners and donor institutions include SNV, DIGNAFRIC, SWISSCONTACT and various other NGOs for capacity building of the COPAM members.

B. Producers’ associations of Benkadi-Bougoura (Cercle of Bla, Region of Ségou)In this PO, the women and men have organised themselves separately, making it an example of how gender roles in agriculture can be distinguished. There is equal status for both sexes when it comes to income generation and access to finance.

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C. Producers’ Cooperative of Koumbri village Yoyoka communeAlso in the case of Koumbri village, separate POs for women and men have been established.

The cooperative of women was created in 2006. Membership has increased from 25 members in 2008 to 66 members in 2013. The members are mainly occupied with the production of peanuts, beans and sesame. This cooperative has recently benefited from a loan from Soro Yiriwaso worth FCFA 3,800,000 (5,793 euros) to produce peanuts on 38 hectares of land cultivated by women, at a 25% interest rate for 8 months payable after harvest. Each farmer member requests the loan according to her production area and the total of the loans is secured by a solidarity guarantee in the name of the cooperative.

The cooperative of men has started its activities in 2009, with 12 members grouped together to address food problems in the region. This cooperative focuses on the production of maize. It has grown from 17 members in 2010 to 51 members in 2014. The cooperative has benefited from a loan of FCFA 6,700,000 (10,214 euros), provided by Soro Yiriwaso, to access agricultural inputs, selected seeds and to rent agricultural machinery for the exploitation of 67 hectares., cultivated by the men. Each member sells his production at the spot market. Up until now there is no coordination for the bulking and marketing of the total production of the cooperative.

1.2 The MFI

Background - Soro Yiriwaso is a Malian rurally oriented MFI, founded in September 2000, to support mainly agricultural activities. This MFI is an affiliate of Save the Children and supported by the Grameen Crédit Agricole Foundation, with the aim to improve the economic situation of disadvantaged smallholder farmers, particularly women. Its objectives are: to facilitate disadvantaged women to have access to financial resources and income generating products; to promote solidarity and cooperation between the members; and to become a solid, autonomous and sustainable MFI in the region. Its products and services include: • Loans;• Voluntary Savings;• Insurance;• Funds Transfer Services; and• Training and Consulting

Cooperative of Women and Men of Koumbri profile data

Type of organisationNumber of membersExploitation areaNumber of employeesMain crops

Cooperative 111105 hectares0Peanuts, maize

Soro Yiriwaso profile data

Total number of active clients# Staff (credit officers)#Agricultural promotersPortfolio value (in euros) % of farming clients% of portfolio in agriculture

59,5149212,852,53442%37.3%

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Achievements of Soro Yiriwaso - From 2000 to 2013, Soro Yiriwaso has increased its geographic coverage in the district of Bamako and three other main regions: Sikasso, Koulikoro and Ségou. It currently has 59,514 active clients of which 91% are women, spread over 600 villages. This MFI finances commercial (50%), agricultural (42%) and handicrafts (8%) activities of 50,867 borrowers, of which 47,561 are female (93.5%) and 3,306 are male (6.5%). Soro Yiriwaso is a proactive and effective microfinance provider in relation to the need of smallholder farmers to increase land productivity and total production income of their agriculture initiatives. The institution has since 2009 been supported by the Grameen Crédit Agricole Foundation in order to increase its capabilities to meet the demands of its clients. The MFI offers different types of agricultural loans: agricultural production campaign loans, maize production loans and loans for the commercialisation of agricultural products.

Products and services delivered - Soro Yiriwaso prefers to collaborate with POs and farmer organisations like the COPAM; the associations of producers of Benkadi-Bougoura, and the cooperatives of producers of Koumbri-Yoyoka are examples of this finance policy. The MFI primarily focuses on women to access agricultural production campaign loans and other loans, at an interest rate of 25% payable between 8-9 months. Men are only allowed to access loans for maize production (“PPM-Prêt Production Maïs”) at the same interest rate and with the same loan conditions as for women. The partnership agreement signed between the COPAM and Soro Yiriwaso has facilitated farmers access to financial facilities and increase the production and productivity of food crops. Under this partnership, the COPAM has received a loan of more than FCFA 111,000,000 (169,218 euros) for maize production and FCFA 700,000,000 (1,067,143 euros) for the commercialisation of production at a 20% interest rate for a minimum period of 9 months paid after harvest and commercialisation.

Just as other Malian finance institutions, Soro Yiriwaso MFI has suffered from the 2011-2013 political, security and financial crises of Mali, which resulted in a decrease of its funding portfolio from FCFA 6,285,004,277 (9,586,689 euros) in 2011 to FCFA 3,503,173,000 (5,343,485 euros) in 2013 (decrease of 45%). Therefore, Soro Yiriwaso currently does not have sufficient resources to fund all the demands of its clients. The average loan amount for one farmer is limited to 115 euros. At end of June 2014, the total credit portfolio was 2,852,534 euros of which 1,062,852 euros were already allocated to agriculture. These loans provided are secured by a third holding mechanism of cereal stocks, kept with UNICONTROL and via joint liability of the members of the COPAM.

1.3 Sources of funding

Soro Yiriwaso collaborates with several banks and international financiers; for both short term and medium term (2-4 years) debt for portfolio finance. With the exception of KIVA, the costs of funding amount to 8% - 9.5% annually.

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1.4 Credit product(s) for agriculture

Soro Yiriwaso prefers to do its agricultural lending through farmer organisations, as shown in table 1.4 below. It has the advantage that, as an MFI, it can provide both microcredit and SME loans; thus being able to serve farmer organisations as an institution as well.

Table 1.3: Sources of funding in 2013

Bank and other financial institutions Borrowings 2013 Borrowings at 30 June 2013

Interest rate Period

SHORT-TERM

BNDA 175,000,000 250,000,000 8% 1 Year

OIKOCREDIT SHORT-TERM 350.000,000 9.50% 4 Years

BMS SHORT-TERM 550.000,000 550,000,000 8.25% 2 Years

KIVA 356.274,551 3,905,124 0% N/A

TOTAL SHORT-TERM LOANS 1,431.274,551 803,905,124

MIDDLE-TERM LOANS

BMS MIDDLE-TERM 2014 100,000,000 8% 2 Years

ADA/LMDF 325,000,000 8% 4 Years

AGRICULTURAL CREDIT 260.000,000 9% 4 Years

SYMBIOTIC REGMINFA 327,978,500 3 Years

TOTAL MIDDLE-TERM LOANS 260.000,000 752,978,500

TOTAL 1,691,274,000 1,556,883,624

Table 1.4: Agricultural lending through POs

Name of the borrower

Type of loan Amount received (FCFA)

# of months

Interest %

Interest mode

Repay-ment

Security mode

Association of Women Bekandi

Credit for agricultural production campaign

3,900,000 8 25% Regressive Bullet Solidarity guarantee

Cooperative of Women Koumbri

Credit for agricultural production campaign


Association of Men Bekandi

Loan for maize production


Cooperative of Men Koumbri

Loan for maize production


COPAM Loan for maize production

111,000,000 9 20% Regressive Bullet Solidarity guarantee & third holding stocks mechanism

COPAM Credit for commercialisation

700, 000,000 9 20% Regressive Bullet Solidarity guarantee & third holding stocks mechanism

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2. Risk analysis


As stipulated in its by-laws, Soro Yiriwaso’s vision is to become a solid, autonomous and permanent association that serves low-income entrepreneurs, especially women. However, before offering the loan to its clients, it has to check whether the borrowers fulfil the following loan conditions: • Every individual borrower or member of association must be aged between 18-65 years old

and have a current account within one of the branches of Soro Yiriwaso;• The borrower must be either a woman or man whose principal activity is farming;• Every association must comprise of at least 8 to 80 members living together and producing

the same type of farming crop, in order to have access to a group loan;• For associations exceeding 80 members, extra analysis is done to accept or refuse their

demands as beneficiaries of group lending;• The members of the association cannot be close family;• The loan is individually given to members of the association, yet all members are liable for

non-repayment of the total loan;• The loan cannot be used for collective farming exploitation; and• A loan agreement is signed by the individual borrower or the president and treasurer of the

association, and the representative of Soro Yiriwaso microfinance institution (MFI).


In the design and development of the programme, the lead actors have jointly assessed the risks for farmers and the producer organisations (POs), and identified means to mitigate these risks. For the purpose of the case study, a distinction is made between the six crucial aspects of smallholder production, i.e. risks related to:• The specific crops;• The farming system and production risks;• The strength of farmer organisation;• The markets for the selected crops;• The viability of the crop farming system promoted; and• The financing of farmers.

These risks and the way they are mitigated and managed, have been tabulated in a risk catalogue (see table 2.1) and are briefly summarised below.

Product-related risksThe type of crops that Soro Yiriwaso finances for women (mostly rice and peanuts) and men (mostly millet, sorghum, maize and cotton) can be stored for quite some time; the shelf life is therefore not a limiting factor. Crop-specific risks are rather associated with poor quality and low yields, due to poor farm inputs or farming practices and due to post-harvest losses. The low-use fertilisers, the lack of farm inputs and the low use of selected seeds constitute the main risks which hinder many food crops produced by client-farmers. To mitigate these risks, continuous sensitisation is done among farmers. In order to allow farmers to improve and increase their production, efforts are undertaken to link clients to reliable private seed- and input- providers.

Poor post-harvest practices remain a constant challenge and, unfortunately, a source of lost product value and farm income. To mitigate this risk, some member organisations have been able to construct their own stores; e.g. in the case of the women association in Benkadi-Bougoura.

Production-related risksThe risks of weather conditions, pest diseases, traditional farming practices and a lack of technical guidance are the main production risks encountered by the farmers. To mitigate these

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risks, farmers are continuously sensitised to use selected seeds and follow modern agricultural practices. Planet Guarantee, an insurance company, also intervenes to minimise the unexpected weather changes and death risks of farmers. However, the lack of expertise in agronomy is still a handicap for the good farming system.

Farmers’ organisation-related risks The very high degree of illiteracy in Mali among PO members (associations or cooperatives) and traditional resistance towards collaboration with other farmers, have been found as obstacles to exploit the full benefits of farmer organisation. Smallholder farmers do not tend to travel very far from their residence and hence often lack exposure to more successful and commercialised farming systems. As a consequence, the associations and cooperatives active in the area of research, seem to be rather weak. To mitigate these risks, the board members of farmers’ associations and cooperatives are continuously educating their members and organise field visits from one region to the other. Soro Yiriwaso ensures that this activity is given sufficient attention to and that the governance principles, like regular elections of the POs, are being upheld.

Marketing-related risksUnder the agri-finance scheme of Soro Yiriwaso, there is no element of value chain development facilitation with regard to marketing links. Hence, farmers continue to be exposed to the traditional marketing problems of smallholder farmers. After harvesting, prices for serials typically drop as a result of temporary excess supply. Seasonal price fluctuation regarding the food crops, lower prices at the local spot market and poor connectivity with larger markets in urban centres, are the main marketing risks that farmers are exposed to. At harvest time, farmers only sell their products to local buyers or middlemen at a lower price (maize FCFA/kg 100-110 instead of FCFA/kg 125 in urban centres). Similarly, rice is sold for FCFA/kg 90-100 instead of FCFA/kg 300 at terminal markets. The combination of poor road infrastructure, lack of warehouse facilities and weak farmer organisation, are the reasons that farmers are not connected to the more competitive and attractive markets. To mitigate these risks, farmers are being trained and sensitised by the MFI to put their production together for selling in bulk. Moreover, the farmers’ associations and cooperatives are advised to increase their bargaining power by means of opening up the collection through local centres and through the opening of rep-offices in terminal markets like Bamako (capital city of Mali). The Commercial Centre of Agricultural Products of Mali (COPAM) serves as good example in this respect.

Finance-related risks Finance-related risks can be approached both from the farmer’s point of view and that of the financier. Farmers mention the risk of delay in disbursement (too late for their agricultural calendar), the insufficient loan size for farm requirements, the high interest rate threatening net income and the lack of collaterals. Farmers revealed that it sometimes takes too long for Soro Yiriwaso to release the loan, and that the loan offered is insufficient for implementing the production budget.

Soro Yiriwaso MFI is aware of such risks and advises farmers to prepare and submit their loan requests well ahead of time. Loan sizes remain an issue for negotiation, partly based upon credit eligibility (farm budget), but also on the financial resources available to meet all finance applications. To mitigate the risk of inadequate funding resources, continuous negotiations with the Ministry of Finance are being undertaken, in order to benefit from existing programme to stimulate agricultural production through MFIs. As far as collaterals are concerned, joint guarantees and third holding mechanisms of production within UNICONTROL (i.e. warehouse receipts) have been found as mitigation measures.

Risk catalogue Table 2.1 shows the identified risks, detailed in terms of risk assessment, risk mitigation measures (mostly pre-loan) and risk monitoring (mostly post-loan).

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Aspect Risk assessment by MFI/Bank Risk mitigation measures Risk monitoring

Product risks Low access to selected seeds Sensitisation of the private seeds providers (individual or cooperatives)

Ongoing negotiation

Low access to fertilisers Enforcing the advocacy of the chamber of farmers to the government (subsidise the fertilisers for rural areas)

None

Low use of pesticides against pests Training and sensitisation of farmers to use pesticides Continuous training and sensitisation of farmers

Lack of storage facilities for agricultural products

• Direct sale of production to spot market • Make more savings to build own facilities • Some farmers have built their own store (association of women of Benkadi Bougoura)

Farmers accepted but still need support from government or NGOs

Production risks

Weather changes (droughts or floods) • Digging the water wells to prevent drought periods • Crop insurance (Planet Guarantee) against the unexpected weather problems

• Mechanism to secure the agriculture activities • In case Planet Guarantee pays inputs and seeds used

Traditional farming practices • Train farmers the modern agricultural practices • Use of tractors (hire the agricultural)

• Farmers are supported by other local farmer organisations • Members of association of men in Benkadi-Bougoura are also planning to buy one tractor

Pests and diseases • Use of pesticides • Use selected seeds resisting pest • Follow modern farming practices

None

Lack of extension services No solution found as associations are not able to pay a regular agronomist

None

Lack of technical guidance in agricultural practices

• Continuous training of farmers and capacity building • MFI has accepted to hire an agricultural expert/agent to guide farmers in their practices

None, because agricultural expert/agent has not yet been hired

PO Illiteracy of members of association or cooperative

Education and literacy training for members In progress

Poor collaboration with other farmers Field visits of farmers to other associations or cooperative

None

Marketing risk Price fluctuation of food crops (maize and rice)

• Strengthening the association or cooperative; organising them into marketing organisations • More training on marketing strategies

COPAM is helping farmers from the Koutiala region to find a good market

Lower price to farmers compared to production cost (maize FCFA/kg 100-110 instead of FCFA/kg 125 and rice FCFA/kg 90-100 instead of FCFA/kg 300 at terminal market)

• Exhaustive control of the local market • Collective marketing of the production of all the members of association or cooperative (rice or maize)

Rice producers would like to sell their production in bulk (store capacity of 1000 tons)

Lack of connectivity with the big market Local collection centres of production and opening offices in terminal markets (in Bamako and other big buyer towns)

COPAM is now connected to French, Korean and Swiss markets


Delay in disbursement of loans MFI opted for quick analysis of the demands for loans Soro Yiriwaso accepted to offer loan in May instead of June and July

The loan is too low (need for credit is only partially covered)

Negotiating with banks and other financial institutions for more money

None

Limited financial products to farmers Soro Yiriwaso intends to create new financial products adapted to the need and capacity of farmers

Short-term project being discussed with MFI members

High interest rate and low repayment period • Negotiating with governments for subsidies or grants for agricultural loans in order to reduce the interest rate • Extending the payback period from 8 to 10 months to increase credit supply to farmers

Still being discussed with MFI partners

Lack of collaterals • Joint guarantee (liability of all members for the total payment of the loan) • Keeping 1/3 of production with UNICONTROL as a guarantee for the loan

• Secure the loan received ( farmers know each other) • Soro Yiriwaso has accepted this mechanism and it works well

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Soro Yiriwaso has taken up the challenge of being lead actor in promoting livelihood improvements for the smallholder farmers in the region of operation. As a financial institution, it is prepared to go the extra mile necessary to educate and guide these farmers in their business and in their farmer organisations. To finance the members’ activities, different steps are undertaken beyond the normal client appraisal and screening practices in microfinance. This includes a market and feasibility study of the project, product concept analysis and short sensitisations of expected beneficiaries. The collaboration with farmer associations and cooperatives is not only of help to the MFI, but also a reflection of its long-term vision on agricultural development for smallholders. These processes help to define the finance strategies, product development, financial needs assessment and selection of borrowers.

Due to the financial and political crises of 2012-2013, however, Soro Yiriwaso faced a decline in available sources of funding. Hence, it had to decide to reduce its disbursements by approximately FCFA 100 million. This meant a reduction of approximately 40% of refinancing its customers and a reduction of the average loan amount: from FCFA 120,000 to FCFA 75,000. Currently, with a new Oikocredit loan, Soro Yiriwaso has improved its financial position and therefore proposes to increase agricultural lending again to satisfy to farmers’ needs.


To achieve its objectives, Soro Yiriwaso has nine credit officers in-charge of agricultural production campaigns and 21 promoters having a certain percentage of agriculture credit portfolios to finance the clients. Soro Yiriwaso has also expertise in financing agricultural activities: distribution of inputs (fertilisers), financing producers (individual, associations or cooperatives) and insuring the production and commercialisation of agricultural production. Soro Yiriwaso is in partnership with more experienced institutions, such as the Grameen Crédit Agricole Foundation and Oikocredit, which support the MFI’s human and financial capabilities to serve its farmer clients.


Soro Yiriwaso is always in connection with its partners to improve its service delivery in order to meet the clients’ needs. However, due to its achievements many POs, particularly women associations, want to become member of this MFI. They are motivated by the MFI’s strengths and opportunities, such as being in the proximity of its clients, offering credit products and services adapted to the need of clients and being supported by the government, all of which is in line with the promotion of agriculture through MFIs in Mali.

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Soro Yiriwaso has introduced a microinsurance product to minimise the risk of droughts or floods, and death risk. This allows the microfinance institution (MFI) to grant loans to many farmers and to increase access to inputs in order to improve the productivity and production.

Soro Yiriwaso and the Commercial Centre of Agricultural Products of Mali (COPAM) have signed a Memorandum of Understanding (MoU) to finance the farmers. Via this agreement the COPAM requests the loans on behalf of farmers, provides all inputs, coordinates all farming activities, and collects and sells the production at local or international markets. Together these arrangements reduce the risk of having a lack of collateral and a lack of market for farmers, and it also secures the MFI for any loan offered to an individual farmer member of the COPAM.


Mali is a big country with poor infrastructures (roads, markets, etc.). Whereas the majority of the population of Mali consists of farmers, the availability of fertilisers in rural areas remains to be a challenge, due to poor infrastructure. Farmers have generally less access to fertilisers and selected seeds.

Apart from the lack of fertilisers, the risk of poor farming systems persists which contributes to reducing the product quality. There is also a lack of agricultural extension to assist farmers in their farming activities. In addition to this, there is not yet a fully organised market for agriculture products.

Many financial institutions are concentrated in Bamako, whilst the majority of farming activities are undertaken by rural populations. This means that there is a great challenge for farmers to access financial services (only around 25% have access to credit).

Soro Yiriwaso does not satisfy all farmers’ demands, due to a limited capacity of its financial resources. Moreover, the MFI claims that the interest rate from the financial markets (both locally and internationally) is too high, especially for the target market of agricultural finance.

Another limiting factor is that farmers do not reimburse on time. Hence, some of the farmers’ demands are rejected because of the failure of others in using credits. This is the case for some farmers from Koumbri, whom could not be provided with credit for the last 2 years.

The last remaining challenge concerns the diversity of interest rates the borrowers are charged, due to negotiation between the MFI and customers. In our discussion with the director of Soro Yiriwaso, he said that the interest rate is between 16-18% while in the contracts of some customers the interest rate is set at 20% (COPAM case) and 25% (association of women and men of Benkadi).


The regional coordinator of ICCO and ICCO Terrafina Microfinance promised to meet the MFI to discuss the case of interest rates.

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To strengthen the linkage between Soro Yiriwaso and its clients, the following may be taken into account:• Soro Yiriwaso should increase its financial capabilities and create new products that are less

expensive and adapted to the needs of farmers. It should also speed up the assessment of demands and timely provide loans to farmers.

• Soro Yiriwaso should hire agriculture specialists for continuous assistance/advice about the farming systems in order to increase production and improve the quality of agricultural products.

• Strengthening the cooperation agreements between the MFI and its clients will facilitate the promotion of agri-business in Mali. Both the farmers and MFI need to acquire access to the market (local or international) to sell their products.

• The MFI should organise more trainings for farmers on savings systems, use of credit, use of agricultural inputs, insurance and marketing strategies. Education of farmers will, therefore, be a key factor to the success of the agriculture sector in Mali.

SourcesContact persons:• Adama Camara, Managing Director, Soro Yiriwaso.• Moussa Coulibaly : Director general COPAM : 79389793.• Abdoulaye Dembélé : Secretary general of COPAM : 79429888.• SORO : Karamoko Coulibaly : Credit officer Soro Yiriwasso : 66768848.• Souleymane Diarra : Credit officer COPAM.• Youssouf Coulibaly : Commercial Officer COPAM.• Presidents and all members of association of women and men Benkadi- Bougura.• Presidents and all members of Producers’ Cooperative of women and men Koumbri.

Documents:• Partnership agreement between Soro Yiriwaso and COPAM.• Interview between ADAMA CAMARA, managing director of Soro Yiriwaso and Grameen Crédit

Agricole Foundation communication officer of 23/7/2013.

Websites:www.mixmarket.org/mfi/soro-yiriwaso#ixzz3McwCew1w

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Appendix 1: Production table (for association of women of Benkadi)/Rice production

Production/Rice Quantity Unit Value (1 hectare) Value (100 hectares)

FCFA FCFA EURO FCFA EURO

1. Decorticated rice

TOTAL SALES 1323 300 396,900 605.07 39690000 60,507

Inputs

1. Seeds / hectare 2 15,000 30,000 46 3,000,000 4,573

2. DAP 2 13,500 27,000 41 2,700,000 4,116

3. Urea 2 13,500 27,000 41 2,700,000 4,116

4. Herbicide / bidon 4 6,000 24,000 37 2,400,000 3,659

5. Labour (cultivation) 30,000 46 3,000,000 4,573

6. Harvest 20,000 30 2,000,000 3,049

7. Pick up rice (collection) 2,500 4 250,000 381

8. Beating 35 sacks 45,360 69 4,536,000 6,915

9. Decortication 35 sacks 750 27,000 41 2,700,000 4,116

10. Bags (35 sacks) 35 sacks 250 8,750 13 875,000 1,334

11. Transport field-village 35 sacks 250 8,750 13 875,000 1,334

12. Transport village-market 35 sacks 250 8,750 13 875,000 1,334

TOTAL per hectare 25,911 395 25,911,000 39,501

PROFIT 137,790 21,006 21,006

PROFITABILITY RATIO 34.7%

€1= FCFA 655,957

Appendices

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AbstractmyAgro (n’gaSènè) is an award-winning social enterprise (non-profit) in Mali that uses a mobile technology platform to provide a comprehensive set of services to farmers. It sells agricultural inputs (fertilisers and seed packages) to farmers on a layaway basis, via a mobile phone (SMS) platform and a network of local village vendors. myAgro’s model aims to increase farm income and help farmers to move out of poverty. Currently, myAgro serves more than 3,500 farmers and targets to extend its services to 75,000 farmers in West Africa (Mali and Senegal) by 2017.

AcronymsMFI Microfinance InstitutionPO Producer Organisation

Case Study M3

myAgro Social Enterprise



myAgro works with individual farmers and hence does not require intermediation of a producer organisation (PO). Instead, it partners with local agri-businesses that supply farmers with farm-inputs, such as seeds and fertilisers. myAgro chose Mali for a pilot of a savings-layaway programme, giving farmers a way to save for training, seeds and fertilisers. The average Malian farmer has around 5 hectares of land (10 acres) available, which makes them well-placed to be mini agri-businesses – where small investments can make a big return. myAgro also maintains a special “baobab” women’s programme. Women who followed the myAgro method on their entire field, saw their harvest increase threefold during the pilot. One of the goals was to improve trainings in order to ensure that more women could plant, using improved planting techniques, in face of challenges like a lack of farming tools. In the 2013 growing period, improvements were made regarding the training modules, to make it easier for more women to adopt new farming techniques. For example, the planting was done in shallow furrows instead of deeps holes - which is less physically demanding - while using the broadcasting method of fertiliser application, which for this region has been proven to be more effective than micro-dosing.

“Promotion of agricultural activities through myAgro’s mobile savings layaway programme”

Figure 1.1: Fields of gombo (okra) crops exploited by a myAgro member

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Two farmers were selected for field research; Bakoroba Doumbia, from Kola village, and Abou Ballo, from Diakoloba village (Ouélessébougou). These farmers are mainly living on the farming activities and are members of the myAgro network. Bakoroba Doumbia has been a farmer for more than 20 years. He has joined the myAgro network to have access to agricultural inputs such as fertilisers, modern seeds and technical assistance for his farming. He cultivates millet (2 hectares) and maize (4 hectares), vegetables (gombo, cucumber, pepper, eggplant-aubergine and tomatoes). myAgro assists this farmer in the production of gombo spread over 0,5 hectare. Abou Ballo is also an individual farmer, experienced in the production of cucumber. This farmer has joined myAgro to obtain the selected modern seeds, fertilisers and receive technical advice on the cultivation and marketing of his products. On 0,5 hectare of land he produced cucumber, which resulted in a net income of 933 euros in 2012 and 762 euros in 2013. Through myAgro, he procured seeds, fertilisers and pesticides, specifically for this crop.

1.2 myAgro as a financial intermediary

myAgro is a social enterprise (non-profit), operating in West Africa (Mali and Senegal) and aiming to help small farmers to move out of poverty by facilitating improvement of their farming business. It combines savings mobilisation for farmers with non-financial services, such as guidance, training and the provision of appropriate farm inputs. It uses a mobile technology platform to provide a comprehensive set of services (savings, training, fertiliser and seed packages) to small-scale farmers that are mostly disconnected from agricultural inputs and financial facilities. Farmers save through the purchase of myAgro scratchcards, via which they basically acquire additional telephone credit. myAgro’s “Mobile Layaway Programme” rests upon the following elements;

Stores: Partnering with local village stores results in a network that is convenient, trustworthy and safe for farmers. Local stores are central to village life (“they are the hangout spot of the village”). Since vendors are from the community, they have gained a high level of trust and built strong community networks. Vendors sell the myAgro scratchcards to farmers when the latter come in to buy their other household goods.

Mobile Layaway: In most cases, farmers are expected to buy seeds and fertilisers via one large payment; an almost unachievable task. The Mobile Layaway plan helps small-scale farmers to pay for fertilisers, seeds and training packages on a layaway basis, using their mobile phone; a phenomenon similar to how people in developing countries buy talk-time for telephone conversations. Registered farmers can save easily when continuously topping up their myAgro accounts via the purchase of additional cards (flexible amounts: $1 – $50). The Mobile Layaway plan makes saving for these larger purchases as easy as buying a bar of soap or cup of oil.

Training: myAgro agents provide trainings in modern farming methods contextualised for the African farm, such as micro-dose fertiliser trainings, planting techniques for different seed varieties, use of animal drawn seeding equipment and guidance on off-season vegetable growing.

Income: The myAgro goal is to push farmers beyond subsistence farming and help them earn more than $4/day. With myAgro the hope is that farmers will have more income available in order to deal with economic shocks, take care of family needs and re-invest in their farms.

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For this purpose, myAgro maintains a head office in Bamako to monitor and clear all mobile savings and procurement transactions, as well as field staff in the different zones in which it operates. Field supervisors play an important role as intermediaries between the farmer-facing field agents and the field coordinators that manage myAgro’s work across five zones of operation around Bamako. myAgro maintains a high staff-to-farmer ratio during the planting season; 1 on 50 in new villages and 1 on 120 in more experienced villages. This allows the programme to reach out to farmers and provide council, advice and on-field support.

The layaway instrument: Layaway is a new financial instrument in Mali. It is in essence an agreement in which the seller reserves an item for a consumer until the consumer completes all the payments necessary to pay for that item. Rather than taking the item home and subsequently repaying the debt according to a regular schedule - as in most instalment plans or hire purchases - the layaway customer does not receive the item until it is completely paid for. There is sometimes a fee associated, since the seller must “lay” the item “away” in storage until the payments are completed.

Online layaway allows consumers to purchase items through scheduled deductions from a checking account. Online layaway simplifies layaway for both merchant and consumer by removing the costly, time-consuming storage and bookkeeping processes. In this case, the layaways remain at the distribution centre during the layaway period instead of taking up valuable retail warehouse space. Just as consumers used layaway payment plans to purchase products at stores in the past, they can also use layaway to pay for online products and services, which serves as an alternative budgeting tool and a means to avoid debt.

The Mobile Savings Layaway tool, developed by myAgro in Mali, shares some features of the online layaway, but it uses the SMS platform. Thus, farmers do not need a smartphone in order to access services. People living on $4/day or less tend to buy household items in small, incremental amounts, such as 50 dollar cents for oil or $1 for sugar. Buying fertilisers and seeds via myAgro’s savings layaway programme fits into the way households already think of and manage their money. Cards are sold at the same store as where farmers do their daily household shopping; allowing for frequent reminders, convenient access and a trustworthy sales agent (their local shopkeeper).

Farmer mobilisation To achieve its objective, myAgro has created an agricultural layaway plan to help farmers using “their own” money more effectively. Before launching its services and recruiting clients in any village, myAgro deploys its agricultural technicians to explain the village cultural committee - gathered around the village chief - and the farmers’ representative about its service packages and the advantages of working with myAgro. Once the chief of the village and its committee approve the myAgro concepts, any person from that village may become a myAgro client. They are thereby allowed to enrol for the programme, select their package goal (land size and seed choice) and receive a unique ID to use whenever they buy a card.

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1.3 Nature of the business services provided to farmers

Social business model The main challenge faced by many farmers in Mali is access to selected seeds and fertilisers. myAgro provides a comprehensive set of services to 180 villages of small-scale farmers in Southern Mali, by using a mobile saving technology: access to fertilisers and seeds packages on layaway, technical training, market access to premium buyers and access to asset loans for appropriate small-scale farm equipment. myAgro intervenes in the production of millet, maize, peanuts and vegetables (cabbage, cucumber, gombo (okra), tomato and onion).

This model intends to double farm income and help small-scale farmers to move out of poverty. myAgro sells agricultural inputs (fertilisers and seeds) through an SMS platform and a network of local vendors in the villages. It establishes partnerships with village shops to access their existing clientele. This allows myAgro to easily and efficiently expand its operations; one member-vendor may work with as much as 1000 producers, which is well above the average of 400 clients per credit officer in microfinance. The expansion of operations is further facilitated by taking advantage of available mobile technologies for selling seeds and fertilisers to farmers. Agricultural producers use the same SMS system to buy phone credit; it is a familiar and convenient way of saving. myAgro encourages small producers to save money by granting linked opportunities for the purchase of inputs and equipment that suit their needs. This allows them to manage more than two hectares and hence, move beyond subsistence production. myAgro’s objective is to lead a revolution in savings: producers can reinvest their earnings in their own fields, and to prove that a model valuing the savings can be effective, scalable, and durable.

Services and productsmyAgro now offers three agricultural products that can be purchased via SMS by gradual and flexible payment before planting:• Corn package - hybrid maize seeds, fertiliser, and training;• Sorghum package - hybrid sorghum seeds, fertiliser, and training; and• Peanuts package – hybrid peanut seeds, fertiliser and training.

Each package includes a bag of papaya seed to grow as well. Papaya is a fruit tree that grows fast and can bring significant additional annual income ($ 150). In the coming period, myAgro aims to test other agricultural packages. These tests will pursue better water management, for example by using the watering systems and drip-drip developed by IDE-I, or treadle pumps. They also aim for some high value crops for which demand exists, like chili, tomatoes and ginger.

Figure 1.2: Introduction of myAgro services to the chief of village surrounded by his advisors

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How does it work? Transactions with myAgro clients are conducted in five steps:1. Farmers register with myAgro at harvest time and plan their goals for the following season

(6-9 months ahead);2. Farmers receive a unique customer ID from myAgro;3. Farmers buy myAgro cards from their local store and send an SMS with the secret code on

the back of the card and their customer ID;4. myAgro receives their SMS via its website platform and add their data to the central database

to calculate and update the value of the cards they purchased, the total in their account and the purchases procured from local vendors; and

5. Based on the data, myAgro can monitor and inform on their progress with regard to the farming goals set.

By using the ID number of their mobile phone, farmers save money for agricultural inputs in advance by simply paying for the myAgro scratchcards (prepayment) to have access to its service packages. Each service package received by a myAgro client includes fertilisers, selected seeds, pesticides and technical training. To improve the farming system and increase production, the myAgro staff educate, train, and assist small-scale farmers in how to use the agricultural inputs received.

The partnering with local vendors of the villages where myAgro is working, resulted in a network which is convenient, trustworthy and safe. These vendors sell MyAgro scratchcards to farmers whenever they come to buy their other household goods. The registered clients (farmers) continuously top up their accounts with small flexible amounts, in order to save for the myAgro service packages. For example, a farmer planning to cultivate an area of 1/4th ha of maize is stimulated to purchase myAgro cards of 17 euros. A farmer wishing to exploit one hectare of maize, receives 20 kg of selected seeds, 100 kg of diammonium phosphate (DAP) and 100 kg of urea. For each cropping package, an appropriate mix is formulated.

As financial institutions are usually too far located and banking services too expensive for rural farmers to access, the purchase of seeds, fertilisers and other agricultural inputs via myAgro services and local village vendors, becomes as easy as buying a bar of soap. The precise formulation of the crop packages together with the training and field-coaching, assist farmers in boosting their farm productivity. However, there still is the persistent problem of finding a market for the products of farmers. The number of farmers who benefited from myAgro services has currently changed from 176 (year 2012) to 3500 farmers (year 2014). myAgro has the target to further expand its services; to 75,000 farmers in Mali and Senegal by 2017.

Figure 1.3: myAgro credit cards bought by farmers to save for future agricultural investment

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How is progress measured? Through its central database of all transactions at the headquarters, myAgro can monitor progress on the side of local vendors as well as on the side of farmers. In this way, it can monitor how much village vendors and farm businesses are growing as a result of myAgro products and services:• How much more income do village vendors earn each year?• How much more income do farmers earn each year?

An advantage of the myAgro model is that they can easily measure real income earned by means of tracking each myAgro package sold and the number of bags of maize or sorghum bought from farmers. It is envisaged that real income earned by myAgro village vendors and farmers will increase as farmers can be assisted to have better and more reliable markets to sell their increased harvests.


The myAgro funders are private financial partners: • Syngenta Foundation;• Kiva.org;• One Acre Fund Mulago Foundation; • DRK Foundation Echoing Green; • Peery Foundation;• Jasmine Social Investments;• Sall Foundation;• Planet Wheeler Foundation; • Segal Foundation; and • David Weekly Foundation.

All of these funders are organisations that focus on the promotion of agricultural activities in rural communities.

Figure 1.4: myAgro agent and administration of myAgro work hand in hand to assist farmers in their farming activities

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2. Risk analysis


Unlike most other microfinance cases, myAgro does not need to be concerned with finance risks, as no credit is provided and hence no risk of loan delinquency exists. Yet, before a farmer can access myAgro services, he/she must accomplish the following:• Register for myAgro mobile Layaway;• Buy myAgro saving cards suitable for the needed agricultural inputs packages.Overall, myAgro focuses its risk assessment mainly on the risk of the farmers and on environmental risks, as described below.


In the design and development of the programme, myAgro has assessed the risks for farmers, the farming systems and the environment and subsequently identified means to mitigate these risks. For the purpose of the case study, a distinction is made between the crucial aspects of smallholder production, i.e. risks related to:• The specific crop: millet, maize, peanuts and vegetables, like cabbage, cucumber, gombo

(okra), tomato and onion;• The farming system and sustainability of crop production. This extends to environmental

issues and climate resilience;• The markets for millet, maize, peanuts and vegetables, like cabbage, cucumber, gombo

(okra), tomato and onion;• The viability of the promoted crop farming system; and• The financing of farmers through the mobile savings layaway programme.

These risks and the way they were mitigated and managed have been tabulated in a risk catalogue (see table 2.1 below) and are briefly summarised below.

Product/crop-related risksmyAgro observed that farmers are generally ignorant of the right quantities and mix of farm inputs for specific crops. Thus, most farmers are exposed to the risk of under- or overdosing of these inputs, both of which are undesirable. These risks are mitigated via carefully designed support packages; adjusted to the crop, farming system and the land surface cultivated. Although farmers are sensitised to save for their agricultural activities, their savings do not satisfactorily cover all the inputs needed. They have limited funds to save, which results in insufficient use of fertilisers and pesticides for their farming activities. It is envisaged, however, that farmers will in time enhance their production and sales, thus eventually allowing them to save the full amount needed.

Selected seeds are very rare and expensive in rural areas. The seeds are imported from outside Mali and this becomes a serious problem for myAgro in terms of satisfying all the demands of its clients. myAgro is currently proposing projects of locally producing the seeds appropriate for the soils of Mali.

Production-related risksClimate-driven desertification is transforming once nutrient-rich savannahs into unproductive land. In Mali, desertification and land degradation pose a threat not only to the environment, but also to the farmers who rely on the land’s fertility for their livelihood. The combination of climate change and unpredictable weather change is a serious problem which hampers farming activities in Mali. The most common obstacle is the lack of water for vegetable gardens and crops in the field. Also the degenerated arable soil and traditional farming system constitute a risk vis-à-vis the performance of agricultural practices in the region. In order to mitigate these risks, myAgro is promoting conservation agriculture, crop rotation, tree planting, vegetable gardening and the use of inorganic and organic fertilisers to nourish the soil.

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• Conservation Agriculture: Farmers in the region typically remove all leftover stubble from cereal crops after harvest. A cleared field is more likely to become compacted and is susceptible to wind and water erosion. myAgro therefore encourages farmers to leave organic matter on the field, returning nutrients to the soil, holding moisture and decreasing the effects of erosion.

• Crop Rotation: Land degradation due to over-farming is a major issue in Mali. Growing the same crop in the same field for many years in a row disproportionately depletes the soil of nutrients. myAgro teaches farmers how to rotate crops each season. Peanuts (legume) and corn are good candidates for rotation and key crops in this region. This practice also helps to control erosion by guaranteeing that fields have crops and thereby eliminating the need for a fallow year.

• Tree planting: Farmer education also focuses on the benefits of planting trees to help farmers become more climate-resilient. Trees like the Moringa can be planted as natural fences that control livestock and double as natural wind breaks that fight wind erosion, a major problem during the dry season. The green matter can also be cut and fed to animals or left on the ground as additional organic material.

• The packages offered by myAgro include a vegetable programme as well. Vegetables are high-value crops on the local and regional market. myAgro supports farmers in the off-season by providing access to high-quality vegetable seeds and fertilisers as well as teaching them dry season water harvesting techniques.

Marketing-related risksThere are no special arrangements for the marketing of the farming products. Specifically for maize and millet production, farmers sell to spot markets at very low prices, which does not cover all production costs. myAgro does not buy the products, but has started negotiating with parties like Grand Moulin du Mali to buy maize and millet so as to link farmers to more commercially attractive buyers.

Finance-related risksThe main risk with respect to finance is the gap between financial needs and financial resources. For many farmers, their current savings are insufficient to meet the need of the full input package. Farmers are encouraged to increase their savings. It is envisaged that in time they will be able to bring annual savings to the level of the annual financial need for farm inputs.


Aspect Risk assessment by MFI/Bank Risk mitigation measures Risk monitoring

Product risks Limited selected seeds (maize, peanuts)

• Increasing the stocks of selected seeds • Initiating the local seeds production projects

Requires also increasing the number of farmers

Perishable products (gombo and cucumber)

• Quick sale of fresh products • Training farmers about post-harvest techniques for perishable products

Storage risk Drying gombo (okra) to facilitate storage

Limited use of fertilisers and pesticides

Continuous training and sensitisation of farmers to save more and use enough fertilisers

myAgro agronomist will make a follow-up of the use of fertilisers

Production risks

Lack of water in the areas Digging drills to be fitted with water There is a government project to drill water tower in the regions

Wells dry up earlier Traditional water tower myAgro provides training to its members

Type of arable soil degenerated Training farmers to use organic and inorganic fertilisers

Traditional farming practices • Training the farmers the modern agricultural practices • Continuous assistance to farmers

Much supervision by myAgro technicians

Farmer-related risks

Farmers have limited knowledge in agricultural systems and recording the agricultural products

Continuous training of farmers on agricultural systems and recordkeeping

myAgro is the only recognised partner accompanying farmers

Marketing-related risks

Limited market for vegetables (cucumber and gombo products)

Sell the fresh cucumber and gombo at spot market N.a.

Lower price compared to production cost for maize

• Group selling of maize production • Negotiation with Grand Moulin to buy maize production

Undergoing negotiation

Finance and financial risks

Limited resources to invest in agriculture

• Keep sensitising farmers to save much • Interesting many donors to support farmers’ activities

myAgro system helps some farmers to access financial investment (own savings)

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The “portfolio” of myAgro transaction is in principle self-financing, as the farm inputs financed equals the amounts saved. What myAgro does is only checking which farmers fulfilled the needed amount in order to receive the service packages (fertilisers, seeds and training). Up until now, myAgro is not operationally self-sufficient, however, as operating costs are not fully covered by fee income. Hence, a continued dependency on donors and partners exists to meet the shortfall.

2.4 What capacity for agri-finance has myAgro installed?

myAgro operates in 180 villages, with 45 field agents (each agent covers 4 villages) who provide training and advise farmers on their agricultural activities. The field agents are trained to deliver the specific packages that have been designed for each crop. Staff of the headquarters office also make frequent visits to its members.

2.5 What connections were entertained by myAgro with other stakeholders in the sector? Who was the lead actor in orchestrating the chain?

myAgro is connected with Syngenta Foundation, Kiva.org, One Acre Fund Mulago Foundation, DRK Foundation Echoing Green, Peery Foundation, Jasmine Social Investments, Sall Foundation, Planet Wheeler Foundation, Segal Foundation, and David Weekly Foundation to move small-scale farmers beyond subsistence farming, and out of poverty.


3.1 What are the succes factors in this case? What risk mitigation measures proved effective?

myAgro teaches farmers to have a culture of self-financing, enabling them to invest in their farms without taking the risk of using a loan. Moreover, the crop-specific packages have an in-built guidance component and farmers have quick access to the right agricultural inputs. Farmers also benefit from the training on modern techniques and advices on how to lower their costs. It helps farmers to respect the agricultural calendar and adopt Good Agricultural Practices.


Although myAgro sensitises farmers to save much in advance to access agricultural inputs for their farming activities, their financial resources are still limited with regard to satisfying all their investment needs in agriculture. There is still a problem of inadequate seeds- and fertilisers supply near to farmers, as well as a lack of access to remunerative markets. As myAgro does not publish accounts the way microfinance institutions (MFIs) do (e.g. on Mixmarket.com) it is hard to assess to what degree myAgro is operationally and financially self-sufficient (OSS and FSS). It seems that continued dependency on donor grants exists to cover operating expenses and investments.

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SourcesPersons:1. Meghan Luckett, coordinator of myAgro, Tel 71470444.2. Bakoroba Doumbia, farmer and member of myAgro, village of Kola-Ouélessébougou,

Tel 76346050.3. Abou Ballo farmer and member of myAgro, Village of Dialakoroba-Ouélessébougou,

Tel 73429510.4. myAgro agricultural animators.

Websites: www.myagro.org

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AbstractDuterimbere microfinance institution (MFI) Ltd is an MFI founded in 2004 by the NGO “Duterimbere ASBL” to support low-income entrepreneurs - particularly women - to improve their socioeconomic conditions through access to credit. Duterimbere MFI helps farmers improve their agricultural practices and with the production, processing and marketing of their products. Currently, it serves more than 62,000 clients with a portfolio of Rwandan Franc (RWF) 3,248; 8.4% of this is invested in agriculture. The visited farmers’ cooperatives are supported by Duterimbere MFI, Nyagatare branch and focus more on maize production. Through warehouse receipts, the Duterimbere MFI offers credit to the cooperatives to pay 60% of the market value of the stocks to farmers while waiting for a higher market price or buyers willing to pay better price. Duterimbere has been supported by ICCO Terrafina Microfinance since 2006, first with general capacity-building interventions and since 2010 also with loans (both Rabobank Foundation and Oikocredit) and support in product development, such as warehouse receipt lending, agri-finance, and finance for the honey value chain.

AcronymsCIP Crop Intensification ProgrammeCOAMSRU Coopérative des Maïs et Soja de RurengeCOOPAMA Coopérative des Agri-Eleveurs de MahoroCRB Credit Reference Bureau AfricaMFI Microfinance Institution PO Producer OrganisationRAB Rwanda Agriculture Board RWF Rwandan FrancWFP World Food Programme

Case Study R1

Duterimbere MFI Ltd / Nyagatare Branch



The data of this study have been collected from three cooperatives of smallholder farmers and financially supported by Duterimbere microfinance institution (MFI) Ltd, Nyagatare branch. These cooperatives are “Coopérative des Maïs et Soja de Rurenge” (COAMSRU), “Coopérative des Agri-Eleveurs de Mahoro” (COOPAMA) and “Nyagatare Seeds Production Cooperative”. These three cooperatives are located in the Nyagatare district, which is characterised by the arable soil favourable to maize. With respect to the national programme of crop intensification and regionalisation of crops, most farmers are grouped into cooperatives to benefit both quick access to such production factors as agricultural inputs and financial facilities. Duterimbere MFI Ltd is one of the well-known MFIs that help farmers improve their living conditions through access to credit.

Coopérative des Maïs et Soja de Rurenge (COAMSRU) COAMSRU is a cooperative of 23 smallholder farmers (15 men and 8 women) located in the Rurenge cell, Rukomo sector. This cooperative was created to improve the living conditions of rural farmers and add value to local agricultural products, particularly maize and soya. The total area cultivated by this cooperative is 35 hectares (25 hectares owned by the cooperative and 10 hectares owned by members themselves). To achieve its mission, the cooperative has 2 milling machine to produce the maize flour that is sold to the local market. The cooperative has also benefited from the support of the USAID Post-Harvest Handling and Storage project to build a drying and storage area to ensure food security through increased capacity and a better quality of maize grains. In addition, to increase productivity and production the farmers get access to financial loans, paid after selling their produce, either from Duterimbere MFI at 15 % or from other cooperative unions.

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COAMSRU profile data

Type of organisationNumber of membersSize of landNumber of employeesMain cropsOthers Turnover (in euros)Operating margin

Cooperative of smallholder farmers 2335 hectares2MaizeSoyaRWF 1,486, 400 (1,858 euros)

Debts (RWF):

• Duterimbere MFI• Coop unions• Others

500,000400,000500,000

COAMSRU profile data

Type of organisationNumber of membersSize of landNumber of employees (agronomist)Main cropsOther cropsTurnover (in euros) (1 euro = 800 RWF)Operating margin

Cooperative of smallholder farmers11714 hectares1MaizeBeans RWF 9,870,000 (€12,337)RWF 3,500,000 (€4,375)

Main assets: (RWF)

• Store hall • Milling machine• House • Cash in bank

45,000,00015,000,0008,000,0004,800,000

Debts:

Alliance for Green Revolution in Africa (AGRA) 2,200,000

Coopérative des Agri-Eleveurs de Mahoro (COOPAMA)COOPAMA is a cooperative of 171 smallholder farmers (88 men and 83 women) located in the Mahoro cell. This cooperative was created to develop maize production in order to improve the well-being of rural farmers in the Nyagatare District. The cooperative focuses on maize and bean production on 14 hectares of cultivated land (6 hectares owned by the cooperative and 8 hectares owned by members). From 2011, COOPAMA has been a client of Duterimbere MFI for financial help in improving the quality and increasing the quantity of maize and bean production. In addition to producing maize and beans, this cooperative looks for markets for its products.

This cooperative was designated to be the best performer of the year regarding the development of its members. Cooperatives in Nyagatare COOPAMA have broadened their investment by joining other investment groups such as UNICOPROMA (Union des Coopérative Producers du Maïs de Nyagatare), ECOAGIMU, NYAMGI (Nyagatare Investment Group) and others, with investments of more than Rwandan Franc (RWF) 2,500,00.

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Nyagatare Seeds Production cooperative profile data

Type of organisationNumber of membersSize of land

Cooperative 51200 hectares

Number of employees

• Agronomist• Casual workers

115 Workers/hectare

Main cropsTurnover (1 euro = RWF 800)Operating expenses Operating margin

MaizeRWF 120,000, 000 (€15,000)RWF 100,000,000 (€12,500)RWF 20,000,000 (€2,500)

Debts:

DUTERIMBERE MFI RWF 10,000,000 (€1,250)

Duterimbere MFI, Ltd profile data

Type of organisationTotal number of active clientsPortfolio value (in euros)Portfolio at risk (PAR)% of farming clients% of portfolio in agricultureOSS (operational self-sufficiency)

Savings and Credit limited liability company62000RWF 3, 247, 946, 47327%-8.4-20%92%

Nyagatare Seeds Production CooperativeNyagatare Seeds Production is a cooperative of 51 smallholder farmers (40 men and 11 women) growing maize on 200 hectares in the valley of Muvumba. The cooperative contracted with the Ministry of Agriculture through the Rwanda Agriculture Board (RAB) to produce maize seeds in response to the high cost of importing seeds from Kenya. The cooperative is advised by RAB experts on how to produce, store and sort better seeds. This cooperative sells the rest of its production to local markets, the World Food Programme (WFP) and post-harvest plus. However, to meet its objectives and satisfy market demands, the cooperative has loans from Duterimbere MFI.

The members of the three cooperatives face the common challenge of limited resources and lack of collateral to individually access enough loans from the MFI or other financial institutions operating in the District. They therefore request group loans, which are jointly guaranteed by all members or guaranteed through a warrantage system.


Duterimbere MFI Ltd is a registered MFI operating in Rwanda since 2004 and created by the NGO “Duterimbere ASBL”, which owns 94% of its capital shares (6% of the remaining is owned by individual shareholder members of Duterimbere ASBL). It was approved by the National Bank of Rwanda on 15 September 2005 with a registered capital of RWF 100 million with a mission to provide financial services tailored to low-income entrepreneurs, primarily women, to help them improve their socio-economic conditions.

Duterimbere MFI Ltd provides financial services (savings and credit) to solidarity groups in rural areas, female entrepreneurs, agricultural cooperatives and others. In order to continue to help people and farming cooperatives, Duterimbere MFI created new agricultural products such as “Giramata”, which helps breeders to get loans, “Ibukwa muhinzi”, which helps farmers and “Zibaye Impamo”. Currently, Duterimbere is one of the leading MFIs in terms of achieving community outreach, mostly to women. Duterimbere MFI Ltd is currently serving 62,000 clients; 55% are women. It operates at 92% self-sufficiency.

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Products and services delivered to clients• Loans; Duterimbere MFI Ltd provides loans to its clients at a rate ranging between 1.25-

2.50% per month (15-30% per annum) payable between 24 and 36 months. The maximum loan offered to individual member is 625 euros (group lending) and 12,500 euros (individual lending). The types of guarantees accepted by the MFI are small equipment, animals, the joint guarantee and warrantage for agricultural loans. For agricultural loans, the repayment is made at a single time after harvest. Although the portfolio allocated in agriculture is still low (between 8.4-20%) its repayment rate is 100%, which is the best compared to other products (consumption, production and crafts loans, service and trading loans and others).

• Voluntary saving; Duterimbere MFI Ltd keeps the deposits and savings of its clients. The income interest rate paid on this type of saving ranges between 4.5-8% depending on the total amount and the number of days kept by the MFI. The clients of Duterimbere MFI Ltd also benefit from non-financial service, including training its clients in group lending, the savings and credit system and managing micro-income generated projects.

Profile of clients

29%

71%

31%

69%

33%

100%

Previous year needed

100% 100% 100%

100% 100%

67%

42%

58%

10%

90%

8%

92%

9%

91%

10%

90%

% female clients % male clients Client retention rate

% of urban clients % rural clients

Figure 1.1: Profile of category of clients of Duterimbere MFI, Ltd

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The maize cropIn 2007 the government of Rwanda launched the Crop Intensification Programme (CIP) that aims at increasing agricultural productivity in high potential food crops and ensuring food security and self-sufficiency in farmers’ families. The CIP is implemented in conjunction with the land consolidation programme, which aims at joining farms for large-scale exploitation to increase food production. Due to its soil characteristics, the District of Nyagatare and its inhabitants have given priority to maize as the best performing crop in the region. Duterimbere MFI Ltd and other financial institutions intervene to minimise financial defaults by helping farmers to access financial loans. Duterimbere MFI Ltd offers its services to many producers and processors of maize, but also intervenes in promoting soya, beans and livestock production in this region.


• Duterimbere ASBL: promoter of the MFI and main shareholder (95%);• ICCO Terrafina Microfinance: provided technical assistance, seed capital funds, loans (through

its consortium members) and assistance to product development for warehouse receipt lending and value chain finance (maize and honey);

• Oxfam Great Britain: funding for promotion of mushrooms and pineapples;• Oikocredit: loan of RWF 400,000,000 to support loan portfolios for small entrepreneurs and

funding for solidarity group lending;• Rabobank Foundation loan (short-term for agri-finance);• Trocaire: partners; and• International alert: partners.

By sector

100%

Consumption Services & Trade

2010 2011 20120%


Duterimbere MFI Ltd offers different products and services to all categories of clients operating from different economic sectors. In the agricultural sector, Duterimbere MFI Ltd provides loans to individual and cooperative farmers from 18 of the 30 districts in Rwanda.

Figure 1.2: Products and services investment sectors of Duterimbere MFI Ltd

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1.5 Nature of the financial transactions (how much, how long, for what purpose)

The loan provided to farmers or producer organisations (POs) may be either a solidarity group loan or an individual loan that covers pre-harvest, harvest and post-harvest steps.

Guarantying the financial loans from Duterimbere MFI LtdThe main challenge for many farmers in Rwanda is the lack of collateral to guarantee financial loans. To overcome this challenge, farmers are grouped into farming associations or cooperatives to benefit from the creditability of the group members to access credit (joint guarantee). A solidarity loan is given to farmer organisations or cooperatives to acquire agricultural inputs (seeds, fertilisers and pesticides) and pay for labour expenses (pre-harvest activities). This loan is paid after sales and it is at 2.50% monthly interest rate payable within 6 months. These farmers may also get loans to harvest, store or process their products before sales (post-harvest activities); the loan is paid after sales at a 3% monthly interest rate.

Figure 1.3: Organisational structure of Duterimbere MFI Ltd

General Assembly of shareholders

Boards of directors

Director General

Commercial Director Director of Operations Director of Administration and Finance

Internal auditor

Administrative assistant

Human Resources officer

Chief accountant

Credit and recovery manager

Branch managers

Credit and recovery officersCashiers

Legal advisor

IT officer


Name # of months


Repayment Bullet / instalm.

Security mode

Solidarity group loan

6 months 2.50% per month Flat 2 instalments Joint guarantee, Land/Houses

Post- harvest/ SARURA loan

3 months 3% per month Flat Bullet Joint guarantee, Land/Houses

Warrantage 3-6 months 1.25-1.5% per month (15-18%)

Flat Bullet Stocks

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The warrantage credit systemWarrantage is an MFI product that helps farmers to sell their produce at a better price. Through warrantage, Duterimbere MFI Ltd offers credit to the cooperatives to pay 60% of the stocks to farmers at current prices while waiting for an increase in market price or buyers willing to pay a better price. The warrantage product allows farmers to meet the daily family needs and wait for the remaining 40% paid at better price after selling the stocks. However, the cooperatives and Duterimbere MFI Ltd agree to jointly manage the stock to guarantee the loan offered to farmers until the whole stock is sold. The cooperative is responsible for market negotiations and depositing the agreed amount in the farmers’ accounts opened in Duterimbere MFI Ltd. This warrantage credit system is paid at a monthly interest rate of 1.25-1.5 % (15-18 % per annum) over a period of 3 to 6 months. This system is applied mostly to cooperatives producing a great quantity of maize.

2. Risk analysis


Loan appraisal by the microfinance institution (MFI)/bank - due diligenceBefore providing a loan, the following are checked:• Deposit of 20% of the loan demanded;• Mandatory saving of 10% of the loan during the repayment period;• A profitable agricultural project approved by an expert of MFI;• Having collateral approved by the expert and signed by a local authority; and• Signing a contractual agreement to accept loan use and repayment as indicated in the project.

The loan demands are deposited and assessed by the committee at the branch level. The approved demands are submitted to the HQ for financing.

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Table 2.1: Risk assessment and risk mitigations

Risk Aspect Risk assessment by MFI/Bank Risk mitigation measures Risk monitoring

Product risks Delay availability of selected seeds and fertilisers

• Production of local seeds • Negotiations between private traders and government to import seeds

Ongoing negotiation

Delay availability and expensive fertilisers Coaching of farmers Do problems persist?

Perishability of products Use pesticides to control the pest in their production

Lack of enough storage facilities for agricultural products

• Selling production to spot market • Making more savings and loans to build more storage facilities

Some cooperatives own their storage but not appropriate for the whole production

Lack of transportation facilities Direct sell to spot market

Lack of drying facilities Building drying hall

Poor shelling and handling technology • Manual shelling machines locally made • Use of sheeting to dry the shelled production

Still inappropriate technology

Production risks Weather changes (droughts or floods) Hiring the Chinese project to irrigate the valleys

Traditional farming practices • Training the farmers in modern agricultural practices • Use of tractors

Farmers are thinking of buying their own tractors through lease process

Germination problem Use selected seeds

Pests and diseases • Use of pesticides • Use of selected seeds resistant to pest

Farmers & Producers Organisation (PO)

Illiteracy of members of association or cooperative


Poor management Continuous training of management team

Lack of qualified workers Hire trained workers (account and agronomist) Gap not yet covered

Poor collaboration with other farmers Fields visits of farmers to other associations or cooperatives

Marketing risk Low market price for maize • Strengthening the associations or cooperative to control market price • More training in marketing strategies

This remains a problem

High price fluctuation Warrantage system No fixed price for maize

Limited market • Continuous negotiation with government storage task force • Selling flour to local market

The problem remains

Finance and financial risks

Delayed disbursement of the loans required Speed analysis of the demands for loans Duterimbere opted for quick analysis of the demands using internet system

The limited loan amount (credit is partially covering agricultural project)

• Request for big amount of loan • Increase savings

Lack of collateral to guarantee agricultural loan

• Joint guarantee (liability of all members for the total payment of the loan • Warrantage system

Warrantage serves farmers to get 60% of their stocks to meet family needs

Lack of permanent accounting records • Hire qualified workers • (cashiers)

Not applied to all cooperatives

Low and delay in repayment Recovery follow-up by credit officer of Duterimbere

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Product-related risksIn Rwanda fertilisers and seeds are imported by the Ministry of Agriculture and reach the farmers through local traders contracted to distribute agricultural inputs to farmers. The availability of fertilisers and selected seeds are the risks for maize farmers. To mitigate the risk of the limited availability of seeds, local seeds are being produced by local cooperatives (like Nyagatare maize seed producers and others). However, there is no solution for getting fertilisers to farmers on time.

The lack of appropriate, drying, shelling and storage facilities is the basis for the perishability of products. The lack of proper post-harvest practices is also a challenge. To mitigate this risk, cooperatives have tried to make local shelling machines and have requested loans to build drying halls and to expand and equip the existing stores.

Production-related risksWeather conditions, pest diseases, germination problems and traditional farming practices and lack of are the main production risks encountered by the farmers. To mitigate these risks farmers are in contact with a Chinese company to irrigate the valley, and farmers are being trained in modern farming techniques including the use of tractors. Farmers are continuously encouraged to use selected seeds and follow modern agricultural practices.

Partner-related risks The illiteracy of cooperative members, poor management and lack of quailed workers are partner-risks for farming activities. A dramatic example is the case of the president of the Coopérative des Maïs et Soya de Rurenge (COOAMSRU) who withdrew Rwandan Franc (RWF) 1,700,000 and ran away to Uganda. To mitigate these risks, the board members and farmers are continuously trained in management. Farmer associations and cooperatives started using a qualified accountant and agronomist to reduce management problems.

Marketing-related risksFluctuating prices for maize, lower prices and a limited market for maize are the main marketing risks for farmers. At harvest time, farmers only sell their products to the spot market at lower prices. To mitigate these risks, farmers have initiated the warrantage system, which consist of keeping the products at cooperatives stores, presenting this stock as a guarantee for the loans requested from microfinance to meet family needs while waiting for the price to increase. Cooperatives also negotiate with agricultural government institutions, such as the Rwanda Agriculture Board (RAB), the World Food Programme (WFP), post-harvest plus and other storage task forces, to buy a big portion of their products. However, the appropriate (sustainable) solution for market organisation and price are still challenging problems for farmers.

Finance-related risks Delayed disbursement, limited loans, lack of account records, low and delay in repayment and lack of collateral are the financial risks identified. Farmers have complained about the time it takes to get funds to buy agricultural inputs. In addition, they have said that the loan is too low to finance the whole chain (from plantation to harvest). To mitigate this, there are negotiations between the cooperative and MFI about increasing the average loan given to one farmer but also proposing to increase the savings to meet their farming needs. To mitigate the risks relating to delays in repayment, MFI proposed increasing the number of credit officers who can make a regular follow-up visit to recover the loan.


The loans are provided to farmers through their associations and cooperatives. To finance the members’ activities, some requirements are checked to analyse the due diligence of borrowers. This includes being an active member of an association or cooperative (member contribution paid), being a trusted borrower by checking the credit-worthiness of members using the CRB (Credit Reference Bureau Africa) or checking whether the borrower or the cooperative has collateral certified by the local authorities. After the checking processes, the credit officer and manager visit the borrower to check whether the value of the collateral covers the total amount of the loan. Sometimes the farmers are not fully financed because of the limited lending

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capacities of MFI to meet all the credit demands.


To meet its objective to help finance lower-income farmers, Duterimbere MFI Ltd uses AD Banking software to keep its records and back-up data. But the network system with the HQ is still mediocre. The MFI also has 2 staff from the Nyagatare branch and equipment to monitor the clients. Also ICCO Terrafina Microfinance provided several training programmes in agri-finance and other products.


Duterimbere always works hand-in-hand with the cooperatives, local authorities, local NGOs and its other partners to improve services to its clients. However, it has to increase its staff to be near its clients and offer credit products and services adapted to the need of clients. ICCO Terrafina Microfinance advisors in the field also played an important role in connecting actors such as cooperatives and the loan officers in the field.



Duterimbere has introduced a warrantage system to help farmers meet their family needs after harvest. In addition it also offers loans for the production, processing and marketing of the maize products. This shows its commitment to financing the whole agricultural chain.


• Duterimbere does not supervise the farming system used by farmers; this is very risky with regard to the repayment of the loan provided to farmers. Duterimbere could link up with service providers who provide technical expertise to farmers;

• Duterimbere and its members (farmers) may work more closely to improve the quality of crop production and find new markets;

• Duterimbere would also increase the loan portfolio (which is too low) invested in in agriculture to allow members/clients to increase their income through increased crop production;

• However, there is a need to introduce an insurance system to limit unexpected risks from weather changes.

3.3 How can linkage between financier (Microfinance Institution - MFI) and Producer Organisation (PO) be strengthened?

Suggestions to strengthen the linkage between Duterimbere MFI Ltd and its clients: I. IMFs should continue to help farmers access credit but also keep thinking about new

innovations in avoiding risks of non-repayment;II. Duterimbere should speed up the analyses of credit demands to allow members to invest in

time; this will motivate the clients;III. Duterimbere should increase the average amount given to one individual client and increase

the capacity of credit officers in order to achieve the members’ demands; andIV. The role of an external facilitator such as that of ICCO Terrafina Microfinance and Oxfam

Novib has been instrumental in creating the first alliances in the field.

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Sources

Contact persons:• Delphin Ngamije, director of DUTERIMBERE MFI LTD/ Headquarters Kigali.• Michelle Ngarukiye: credit officer DUTERIMBERE MFI LTD / NYAGATARE Branch.• Manager of DUTERIMBERE MFI LTD / NYAGATARE Branch.• Patrick Birasa, ICCO Terrafina Microfinance programme advisor/Rwanda-Kigali.• Leopord Tunezerwe, president of COAMSRU.• Francois Ntihabose , secretary of COAMSRU.• JClaude Mbaraga, secretary of supervisory committee of COAMSRU.• Eugenie Mujawamariya, vice president of supervisory committee of COAMSRU.• All members of COAMSRU.• Faustin Ntawuruhunga, president of COOPAMA.• All members of COOPAMA.• Sousane, president of Nyagatare seed promotion.

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AbstractUniclecam Ejo Heza is a Microfinance Institution (MFI) founded from a union of ten local Cooperatives of Savings and Mutual Agricultural Lending (CLECAMs) and a women’s Savings and Credit Co-operative (SACCO), Ejo Heza. It is a registered MFI operating in Rwanda with a mission to help reduce poverty by mobilising savings and giving credit to farmers. This MFI serves 45,952 clients with a total portfolio of Rwandan Franc (RWF) 1.256 million; 64% of this is invested in agriculture. Currently Ejo Heza has a network of service points related to its primary societies and a union structure. ICCO Terrafina Microfinance has supported Ejo Heza in its merging process, management structure, MIS and product development.

AcronymsCCA Canadian Co-operative Association CLECAM Cooperative of Savings and Mutual Agricultural LendingCRB Credit Reference Bureau AfricaCSC Centre de Services Aux Coopératives (Service Centre Cooperatives)IABM Iterambere ry’Abahinzi Borozi ba MakeraMFI Microfinance InstitutionPO Producer OrganisationRAB Rwanda Agriculture BoardRWF Rwandan Franc SACCO Savings and Credit Co-operative UATA Ubumwe bw’Abahinzi ba Tambwe WFP World Food Programme

Case Study R2

Uniclecam Ejo Heza



For this research, two farmers’ cooperatives: Iterambere ry’Abahinzi Borozi ba Makera (IABM) and Ubumwe bw’Abahinzi ba Tambwe (UATA), were visited. Both have substantial experience in handling credits

Iterambere ry’Abahinzi Borozi ba Makera (IABM)IABM is a cooperative founded by farmers to develop farming activities in the Makera valley, where it produces more than 900 tons of corn per season. Farmers in Rwanda traditionally have their farm plots on the hillsides because the bottom of the valley is often unsuitable or not available for agriculture (e.g. swamps). Hence, the exploitation of this lower area required investments by the government and farmer cooperatives to turn it into productive farmland (e.g. by drainage or irrigation). This often allows farmers to engage in more commercial crops that add to their cash income (apart from subsistence farming). Since 2007 this cooperative of 764 farmers (499 women and 265 men) has been legally registered under the Rwandan cooperative agency as a cooperative producing and multiplying seeds of maize, beans and soya in the Muhanga district. IABM’s primary aim is to establish a sustainable processing and marketing system for maize, allowing farmers to increase the quantity of maize produced and sold commercially while fetching higher prices through bulking, processing and organised market arrangements. IABM has extended its services to more than 1011 farmers (both members and non-members), who regularly buy seeds and fertilisers and benefit from training in farming skills and knowledge. The non-members have also engaged in contracts with IABM to collect their farm produce, which reduces the costs and risk of middlemen in marketing their goods.

“Farmers’ accessibility to credits through local microfinance institutions”

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IABM and UATA profile data

Type of organisation Cooperative

Number of members:• IABM• UATA

764811

Size of land:• IABM• UATA

200 hectares40 hectares

Number of employees:• IABM• UATA

133

Main crops Maize

Other crops Beans and soya

Turnover (in euros):• IABM• UATA

RWF 195,500,000 (€ 24,437)-

Ubumwe bw’Abahinzi ba Tambwe (UATA)UATA is also a farmers’ cooperative, founded in 2007, that collects the maize, soya and bean crops from the farmers of the Ruhango district. It has 811 members: 351 men and 460 women. Apart from bulking farm production, it also engages in elementary processing through its maize drying system in a specially built drying hall. It also provides guidance and training to farmers on maize production and proper post-harvest crop treatment. The cooperative does make records of its operations but does not have a written strategy paper or business plan for its future operations.

To finance farming activities, Uniclecam Ejo Heza provides credit to IABM for farmer members. The credit is thereafter distributed to farmers depending on farm size and area cultivated for maize. IABM plays an essential role in mobilising and adding value to maize production in Muhanga and neighbouring districts. It is equipped with a big storage area for farm products, a hall for drying maize and a milling unit for maize flour. It sells the selected seeds to the Rwanda Agriculture Board (RAB) and the rest to local markets and other processors of maize flour. In its strategy for the future, IABM is planning to become a centre of seeds production in the southern provinces and a role model for effectively managing and developing cooperatives as part of the larger cooperative movements in Rwanda.

Old maize drying system (UATA)

New maize drying system (IABM)

Figure 1.1: Representatives of IABM members and their new maize flour production unit

Figure 1.2: Good governance and community outreach awards in agriculture offered to IABM

Figure 1.3: Maize drying techniques

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BackgroundUniclecam Ejo Heza is a microfinance institution (MFI) created in 2007 after merging ten (10) former local Cooperatives of Savings and Mutual Aagricultural Lending (CLECAMs) and a Women’s SACCO, Ejo Heza, which had been operating in the former administrative districts of Muhanga, Kamonyi, Kabagari, Ruhango and Ndiza. It is registered as a saving and credit cooperative aimed at promoting lending and saving among its clients in order to increase investments and reduce poverty for rural residents, especially farmers. Uniclecam Ejo Heza is spreading its operations and outreach in the southern province, particularly in the new administrative districts of Muhanga, Ruhango and Kamonyi. Its main interventions are in the increased production of maize, beans, soya, vegetables and cassava.

Services rendered to farmersUniclecam Ejo Heza works with farmers organised into cooperatives and provides the following services:

Mobilising funds. As a union, Uniclecam Ejo Heza mobilises financial resources primarily from its members’ savings but also from donors and local and international banks (e.g. Rabobank) to increase the financial capacity of CLECAMs to meet the credit requests of its clients.

Voluntary savings of its clients. Through its branches located in different districts, it also accepts and keeps the deposits and voluntary savings of its clients. In view of the limited access to banking services in the rural areas, this service is important for farmers and the rural public in general.

Compulsory savings account. The MFI encourages all clients to open up a savings account, which is considered as a cash collateral account for the credit received

Short-term loans. Through the farmers’ cooperatives, Uniclecam Ejo Heza offers short-term loans to farmers to develop and improve agricultural activities in the Muhanga, Kamonyi and Ruhango districts. Some 95% of the loans provided by Uniclecam Ejo Heza are contracted by individual farmers selected by their Producer Organisations (POs) or cooperatives for farm inputs and land preparation. The minimum loan provided to one farmer is Rwandan Franc (RWF) 350,000 (437 euros). However, Uniclecam Ejo Heza also provides 5% of its portfolio as post-harvest loans to groups of farmers or cooperatives for harvesting and marketing their produce. These post-harvest loans help the cooperatives to pay farmers in cash for the goods delivered (some 50% of the sales value), before the produce is fully sold to local traders, when farmers can be paid the outstanding balance.

Training farmers. In collaboration with CSC (Service Centre to cooperatives), Syndicat Ingabo, Ejo Heza organises the training programmes and capacity-building meetings for farmers on new agricultural techniques to improve the farming systems and farm productivity in the region. To empower women, the MFI also helps to train women on income-generating activities through both farming and non-farming activities.

UNICLECAM EJO HEZA profile data

Type of organisationTotal number of active clientsPortfolio value (in euros)% of farming clients% of portfolio in agriculture

Savings and Credit Co-operative45,952RWF 1,256,627,883 (€ 1,570,785)-64%

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Uniclecam Ejo Heza is an MFI that has positioned itself as a specialised lending institution for farmers. It finances the activities of cooperatives involved in producing maize, beans and soya. The farmers’ cooperatives selected (IABM and UATA) are a sample of the type of cooperatives financially supported by Uniclecam Ejo Heza. These cooperatives also help farmers to access inputs like fertilisers and seeds for food crops such as maize, beans and soya. Furthermore, the cooperatives link the farmers to markets by collecting the farmers’ produce, storing it for appropriate bulk selling and creating marketing arrangements on behalf of their farmer-members. The largest buyer is the RAB, which buys the maize to collect seed materials in response to the seed supply problems in the country. The rest of their produce is directly sold to local traders and consumers on spot markets. In this business, Uniclecam Ejo Heza helps these cooperatives finance working capital to cover their production costs and to pay members who supply their produce to the cooperatives while waiting for higher market prices (a kind of inventory credit).


• ICCO Terrafina Microfinance: provides technical support to the management systems, MIS, and product development for its rural clientele, as well as brokering for refinancing to Ejo Heza;

• Rabobank Foundation: provides loans to Uniclecam Ejo Heza to support its lending capacities;• UGAMA CSC: provides training, technical advice in agricultural practices to cooperatives;• Syndicat INGABO: local agricultural federation which offers training and technical support to

farmers;• Rural Sector Support Project (RSSP): provide agricultural materials to cooperatives to

maintain production;• International Fertilizer Development Center (IFDC): provides training on the use of fertilisers;• RWARI: assists cooperatives in increasing production, handling the warehouses and finding

markets for produce; and• Canadian Co-operative Association (CCA): has built the corn mill plant for IABM.

Figure 1.4: Head office of UNICLECAM EJO HEZA located in the Muhanga district

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The loan is provided to individuals, group of farmers or cooperatives, covering both pre-harvest and post-harvest stages. The minimum loan provided to one farmer is RWF 350,000 (437 euros), to cover the land preparation on the farm and access to farm inputs (seeds, fertilisers, pesticides). These loans are repaid monthly and the interest (24% annually) is calculated by the reducing balance method. Sometimes, depending on the agreements between the MFI and cooperatives or group of farmers, this loan is also repaid after the harvest (i.e. bullet loan). However, the MFI may also offer post-harvest credit to cooperatives to help the cooperatives pay for the production supplied by the members. The cooperative tends to store the produce for an extended period of time to protect the farmers from selling their production at low prices following the harvest period. Without post-harvest finance from Ejo Heza, the cooperative would be unable to pay the farmers in cash upon delivery since sales of the produce may be one or several months later. Post-harvest finance will hopefully be given more attention in the future, particularly when the financier can accept the stored crop as security in the form of a warehouse receipt finance arrangement. Post-harvest finance, which now only constitutes 5% of Ejo Heza’s credit portfolio, is in high demand by the farmer cooperatives to satisfy the needs of farmers for cash upon delivery of the crop.

2. Risk analysis


Loan appraisal by the financial institution - due diligence.The conditions that had to be met by Ejo Heza, checked before loan approval/disbursement, were:• Being a permanent resident and client of a Cooperative of Savings and Mutual Agricultural

Lending (CLECAM);• Being guaranteed by a group of farmers or a cooperative (solidarity guarantee) or having

collateral approved by the expert and signed by the local authorities (buildings, farmlands, etc.);• Integrity of the client is examined based on the records from local authority and the CRB (Credit

Reference Bureau Africa);• Having at least a deposit of 20% of the loan requested; and• The loan to any individual does not exceed 2.5% of the total loan portfolio.

The cooperatives guarantee the loans contracted by their members as follows:• Each client must sign a contractual agreement, accepting to use the loan and repay it as

indicated in the loan application form;• The client must accept being legally liable if defaulting on the loan agreement or any other part

of the contract.


Name # of months



Security mode

Solidarity group loan 6 24 Reducing Balance

Instalments Joint guarantee, Land/Houses

Post- harvest 3-6 24 Reducing Balance

Bullet Land/Houses

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In the design and development of the programme, the lead actors jointly assessed the risks for farmers and the Producer Organisations (POs) and identified means to mitigate these risks. For the purpose of the case study, we made a distinction between the six crucial aspects of smallholder production, i.e. risks related to:• The specific crop: maize, soya or beans;• The farming system and crop production;• The strength of the farmers’ organisation / farmers’ cooperative;• The markets for maize, soya or beans;• The viability of the crop-farming system promoted; and• The financing of farmers and farmers’ cooperatives.

These risks and the way they were mitigated and managed have been tabulated in a risk catalogue (see table 2.1 below) and are briefly summarised below.

Product-related risksThe risks related to the specific crops produced relate to persistability, lack of facilities to control humidity, traditional harvest systems and poor technologies to select seeds. To mitigate the risks related to maintaining product quality, some storage spaces have been built to help farmers safely keep their produce until it is ready for transportation. However, risks relating to appropriate techniques to sort out high quality seeds are still unresolved. The Rwanda Agriculture Board (RAB) and the cooperatives are still looking for ways to produce high quality food crops seeds using modern technology.

Production-related risks The risks related to farm production are primarily the influence of unpredictable and bad weather, non-germinating seeds, low land productivity due to traditional farming practices, low use of fertilisers and limited extension services to farmers. The combination of these factors still seriously hampers the production of food crops. To mitigate the weather conditions and non-germination problems, especially during the dry seasons, farmers adopted simple watering techniques and some forms of irrigation. In addition, there is a Tanzanian insurance company (KILIMA Salaam) that also insures the seeds and fertilisers used by farmers. However, farmers complain of expensive fertiliser, which explains their low use. The same applies to pesticides. With a voucher system (Nkunganire), cooperatives assist farmers in buying fertilisers at a 10% discount. Training programmes and sensitisation meetings are also continuously organised to encourage farmers to use fertilisers, pesticides and appropriate agronomic practice applications through temporally hired agronomists.

Farmers’ organisation-related risks Smallholder farmers are highly dependent upon their cooperatives for the improvement of their farming methods and their position in the market. Hence their success vitally depends upon the effectiveness of the PO to facilitate these support functions. The risks here involve limited leadership skills in cooperative management, limited skills in accounting and lack of direct contacts with buyers. On the other hand, the limited skills of farmers regarding the cooperative movements may result in lack of trust and commitment. To mitigate these risks effort are being undertaken on both sides. Training programmes are given to elected members of management and cooperative boards. Farmers are trained and educated in cooperatives principles and better farm management to increase agricultural production. To reduce the risks of farmers’ selling on the side, farmers are encouraged to bring their production to the cooperative store to sell in bulk to buyers at a relatively higher price.

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Marketing-related risks As farmers and cooperatives are still highly dependent upon sales to spot markets, the marketing risks relate primarily to unfavourable pricing and frequent price fluctuations of food crops, lack of product specialisation and predictable supply volumes (making it hard for cooperatives to engage in forward contracting) and delayed payment to farmers, which undermines the farmers’ loyalty to the cooperative. To mitigate the risks related to low prices or price fluctuations, cooperatives try to sell their produce to the recognised institutions like the RAB and the World Food Programme (WFP). Moreover, they try to encourage farmer-groupings and bulk supplies to strengthen the farmers’ negotiation position in local spot markets. To reduce the product deviation risks (side selling, unpredictable supplies) resulting from a delay in payment upon delivery, cooperatives and Uniclecam Ejo Heza agreed to pay at least half of the expected crop value in cash to farmers. The cooperatives can only do this when working capital finance can be accessed at harvest time.

Finance-related risksDelayed disbursement of the loans, the high interest charged to farmers, lack of a credit guarantee and delayed repayments are the main financial risks found. The microfinance institutions (MFI) provides between Rwandan Franc (RWF) 200-350 thousand to each farmer, but this does not cover the total production cost to finance farming activities. To mitigate the disbursement and delayed repayment problems, the MFI also expects to shorten the loan procedures to speed up the disbursement and regularly monitor clients and their produce to recover the loans.

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Table 2.1: Risk assessment and risk mitigation


Product risks Persistability and lack of facilities to control humidity

IABM benefited from a grant from the CCA to build a modern store

Traditional harvest system • Farmers to follow proper farming methods • Farmers to use high-quality seeds

IABM regularly supervises the farmers’ fields to ensure that good farming practices are respected

Post-harvest risks • Training farmers in post-harvest techniques • Educating farmers about handling required quality standards

Regular supervision of the storage of food crops

Manual techniques to select seeds Training farmers in new sorting techniques to select best seed material

The RAB is still studying how farmers can produce good seeds

Production risks Weather changes (specifically drought in southern province)

• Watering the crops during the dry seasons • Insuring crops (2014A KILIMA Salaam has paid seeds and fertilisers damaged during dry season - 95 hectares) • Good planning of agricultural period

• Good mechanism to reserve water for agricultural activities • Ongoing negotiation between cooperatives and other local insurance companies to insure crops

Risk of non-germinating seeds Use selected seeds from the RAB

Low use of fertilisers and pesticides on food crops (maize and beans)

• Training and sensitisation of farmers to use enough fertilisers• Voucher system (Nkunganire) to help farmers buy fertilisers and pesticides

Agronomist makes a follow-up of the proper use of fertilisers

Traditional farming practices Farmers continuously trained in modern agricultural practices

Agronomist to assist farmers in using modern farming techniques

Limited extension services to farmers

Hire more agronomists to assist farmers in using modern farming techniques

Limited resources to pay staff

Partner/client Farmers not sufficiently skilled in cooperatives movements

Training farmers in the role of grouping into cooperatives and in cooperatives principles

Limited skills in accounting records

Training farmers: capacity-building to keep records Ongoing

Lack of direct contacts with buyers

Encouraging farmers to store production with cooperative

Limited leadership skills in the cooperative management

Education and training of management board members of cooperatives

Training is still needed

Market risk Low price for food crops • Selling to recognised institutions like the RAB and the WFP • Negotiations with schools to buy the maize production • Sensitising farmers for group selling of the production to attract other big buyers

The RAB buys seeds of maize and beans and WFP buys untreated maize

Frequent price fluctuations • Strengthening farmers’ groups • Enabling farmers to have selling powers through cooperative movements

Deviation of products by members Continuous sensitisation of farmers to sell their produce to cooperatives

Buyers and cooperatives do not pay on time

Short-term loan from Uniclecam Ejo Heza to pay farmer


Late disbursement of the loans required

Shortening loan procedures

Limited loan Sensitising farmers to increase savings to increase amount of loan

Uniclecam Ejo Heza expects to increase this amount

High interest rate paid

Delayed repayment of the loan Regular monitoring of the clients and their produce Repayment rate has increased

Lack of credit guarantee Joint or solidarity guarantee (cooperatives) This works properly

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Financial appraisalThe MFI – Ejo Heza - checks whether the borrower or the cooperative has collateral certified by the local authorities. The credit officer and the PO manager visit the borrower to check whether the value of the collateral covers the total amount of the loan. The loan approval does not rely solely on guarantees (whether peer guarantees, co-signers or collateral). The loan approval process also requires an evaluation of the borrower’s repayment capacity and loan affordability. The borrower’s creditworthiness is checked through a new system called CRB. In addition, following the Central Bank regulations, a borrower cannot be given a loan that exceeds 2.5% of the total credit portfolio of the MFI. Before approving the loans, the manager of Uniclecam Ejo Heza evaluates the finance assessment according to the total amount available for credits and also checks whether agricultural projects prepared by farmers are implemented in the working areas (Muhanga, Kamonyi and Ruhango districts).Acceptable and unacceptable loans are clearly communicated to borrowers via a written letter or a telephone text message (SMS).

2.4 What capacity for agri-finance has the MFI installed to perform these tasks?

The following indicates that Uniclecam Ejo Heza is able to finance the farming activities: I. The rating for Uniclecam Ejo Heza by Microscore is 4.14 out of 9 (2013), which is good for

this type of institution and shows its lending capabilities.II. The Uniclecam Ejo Heza borrows money from the Rabobank at 8% per year with transfer

charges of 3% to finance farming activities. The MFI later lends money to other local CLECAMs at 12%, which provide loans to farmers at 24%.

III. Recently Ejo Heza has started introducing agri-analysis sheets with the assistance of ICCO Terrafina Microfinance.

IV. The spread between the lending rate and borrowing rate of 12% covers the transaction costs and the provision for the margin for default risks expenses associated with agri-finance.

V. The Uniclecam has 6 branches located near the main roads and is hence accessible to farmers. All branches provide small and medium-sized loans to its customers. The Uniclecam currently employs 48 staff.


Uniclecam Ejo Heza collaborates effectively with its partners ICCO Terrafina Microfinance, Rabobank and AQUADEV.



Farmers are happy with the services of Uniclecam Ejo Heza, especially its procedures for quickly making loan decisions. It is efficient and fast compared to other microfinance institutions (MFIs). As farmers have a tight agricultural calendar that also requires flexibility for weather conditions and forecasts, quick decision-making greatly supports the credibility of MFI among farming clients. The MFI is supported by the Rabobank Foundation and ICCO Terrafina Microfinance, both with financial and non-financial instruments. The later focuses on capacity building and product development for Ejo Heza to increase its ability to provide adequate credit services to its rural and agricultural clients. Financing the several parts of the farming chain, from the production, processing and marketing of maize products, has effectively increased farm production and income for the farmers.

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Although the MFI has contributed to better living standards for its clients, it still has more projects in the pipeline to fully satisfy its clients in the farming sector: I. Uniclecam Ejo Heza is developing a project for a leasing system, with the assistance of ICCO

Terrafina Microfinance and the Rabobank Foundation, to provide farmers with agricultural materials and equipment for irrigation, processing, drying and shelling to increase their production and reduce the crop deterioration risks.

II. The MFI is willing to work jointly with farmers’ cooperatives to identify markets for maize products (corn and flour).

III. Farm finance is much challenged by the low credit ceiling offered to farmers, the relatively high interest rate and the fixed fees charged on each loan. However the MFI is looking for possibilities to increase the amount lent to individual farmers to adequately cover the real farm finance needs.


The MFI gives priority for better service delivery and continuously training farmers in its microfinance products, procedures, credit requirements and eligibility criteria. This should increase the attractiveness of financial services both for the MFI and for its clients. Farmers’ cooperatives stress that more post-harvest financing is required to be able to pay all farmers in cash upon delivery for at least 50% of the sales value; this is vital for farmer loyalty and the expansion of future activities.

3.4 How can linkage between financier (MFI) and PO be strengthened?

I. Uniclecam Ejo Heza continues to think about new products and increased lending limits for its clients.

II. It should also continue to organise training programmes for leaders of cooperatives on credit management, how microfinance operates and keeping records for farming.

III. More attention will be given to rural farmers without a guarantee and the strengthening of new solidarity loan lending techniques (currently promoted by ICCO Terrafina Microfinance).

IV. Uniclecam Ejo Heza may also help farmers link with insurance companies to reduce the risks related to a lack of a guarantee.

SourcesInterviews:• Merchias Dusabumuremyi, coordinator of Uniclecam Ejo Heza 0728531995.• Viateur Nsengumuremyi, manager of IABM 0783190228.• Alphonsine Mukankusi, president of IABM 0788485983.• Jean Bosco, agronomist with IABM 0783009472.• Members of IABM (group meeting).• Aloys Ndahimana, president of UATA, 0788756168.• Members of UATA (group meeting).

Documents:• UNICLECAM EJO HEZA factsheet 20014.• Rating microfinance institutions, MicroFinanza Rating, 2013.

Websites:• www.mixmarket.org/mfi/ejoheza#ixzz3OomCV010• http://issuu.com/amir-rwanda/docs/rwanda_microfinance_magazine

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AbstractAmasezerano Community Banking, S.A. (ACB) is a for-profit microfinance institution (MFI) founded in 2005 by the Rwandan NGO African Evangelist Enterprises (AEE), with 83% of the total shares. Operations officially began on 21 August 2006 from ACB’s first branch in Kicukiro, a neighbourhood in Kigali, the capital of Rwanda. Currently, ACB operates 5 more branch offices in Nyarugenge, Nyabugogo, Bugesera and Rubavu. ACB has a mission of improving poor people’s lives through access to quality financial services, specifically for those living in remote rural areas. ACB currently has 34,237 clients with savings accounts, and 26,796 active borrowers. Most of these strongly depend on agriculture and livestock for their daily activities. Various rural products have been developed for this purpose, including special products targeting farmers, with the leading product called Ezukame (literally meaning “Harvest and earn money”). ACB has been receiving technical and some financial support on overall organisational strengthening, MIS development and special product development.

AcronymsACB Amasezerano Community BankingAEE African Evangelist EnterprisesAPR Annual Percentage RateCRB Credit Reference Bureau AfricaMFI Microfinance InstitutionPO Producer Organisation RWF Rwandan Franc

Case Study R3

Amasezerano Community Banking Ltd



For the purpose of the study two groups of farmers were selected: Jyamberemugore and Terimeremunyar-wandakazi, located in the Gora and Cyanzarwe areas. They produce onions and sell their produce at local village markets. The main objective of these groups is to improve the welfare of their members through promoting and improving the onion product. They do not have specific market arrangements for their product and are thus fully dependent on local traders and spot market conditions. In these two examples, farmers are informally organised. This limits their potential to exploit the benefits of a formalised organisation, such as concluding sales contracts.

Jyamberemugore and Terimberemunyarwandakazi profile data

Type of organisationNumber of membersSize of landNumber of employeesMain cropsTurnover (in euros)

Group of farmers39--Onion

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1.2 The Financial Institution

Amasezerano Community Banking Ltd (ACB) is a for-profit microfinance institution (MFI), founded in 2005 by the Rwandan NGO African Evangelist Enterprises (AEE), with 83% of the total shares. The remaining equity is shared among churches and other holistic organisations (11%) as well as individuals (6%). The mission of ACB is to have a holistic, positive impact on the lives of poor people by providing quality financial services, specifically for those living in remote rural areas On 20 June 2006, ACB was granted official approval to collect deposits and offer loans as an MFI by the National Bank of Rwanda. Operations officially began on 21 August 2006 from ACB’s first branch in Kicukiro, a neighbourhood in Kigali, the capital of Rwanda. With 49 staff, it serves its clients spread over six branches, three branches in Kigali city (Kicukiro, Nyarugenge, Nyabugogo), one in the eastern province (Bugesera) and two others in the western province (Rubavu and Rusizi). ACB currently has 34,237 clients with savings accounts and 26,796 active borrowers. Most of these strongly depend on agriculture and livestock for their daily activities. Various rural products have been developed for this purpose, including special product targeting farmers, with the leading product called Ezukame (literally meaning “Harvest and earn money”).

ACB’s client base is composed primarily of farmers, small business owners, women entrepreneurs and low-wage, private-sector salaried workers. Savings products are checking accounts, fixed deposit accounts and savings accounts. Credit products are tailored to meet clients’ needs and include group solidarity loans, agricultural loans, loans for women entrepreneurs, small business loans, and loans for salaried workers. ACB also offers a money transfer via MTN Mobile Money (local transfer) and Money Trans (international transfer), currency exchange (Forex Bureau) and life insurance services to its borrowers.

All the branches have been computerised and are interconnected. ACB has invested in technology that allows information to be shared between branches quickly and easily, which allows clients to deposit savings and withdraw money at the most conveniently located bank branch, a convenience many MFIs do not offer.Since it was founded, ACB has grown at a remarkable rate and continues to work toward its vision of significantly contributing to the advancement of poor Rwandans while maintaining financial sustainability. In Kinyarwanda, ACB means “promise”. For ACB, living up to this name means playing an active role in empowering a population scarred by war and the terrible genocide of 1994, so that poor Rwandans can enjoy prosperity, dignity and peace.

In 2013, ACB experienced substantial loan delinquency in its agricultural portfolio. Currently, the portfolio at risk (PAR over 30 days) has reportedly been reduced to 8%.


ACB offers savings and loans services to individuals and groups of farmers, small traders and employees. It is mainly financed with the savings of its customers as well as loans from Kiva and Oikocredit and it receives technical and financial assistance from ICCO Terrafina Microfinance and Aquadev. 1. Curuza – Medium- and short-term enterprise credit for businessmen (mainly urban);2. Hembwa Wage – Medium- and short-term credit for salaried workers (any purpose);3. Kaze - Solidarity Group Credit mainly for farmers and rural clients; and4. Tunga Women - – Medium- and short-term credit for women (any purpose). Some 65% of the loans in the ACB portfolio consist of solidarity group-lending in rural areas (Kase credit product). The Curuza and Tunga products represent the larger share in portfolio value; these loans can be as large as RFR 10 million per client.

ACB profile data

Total number of savings accountsCredit clientsPortfolio value (in euros)

34,23726,796RWF 614,639,462

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The cost of credit for the borrower can best be expressed as the full Annual Percentage Rate (APR), which includes the impact of interest, fees, insurance, taxes and compulsory deposits. The APRs for the four ACB credit products are shown in the overview below. It is interesting to note that the cost of credit for the salaried workers is the lowest (Hebwa product – 30%-45% APR), probably because the risk on these loans is relatively small. Most expensive are the business loans for men (Coruza product, with the APR between 43% and 97%). The cost of credit for farmers is in the middle range (Kaze product, with the APR between 57% and 73%).

The ACB Rubavu branch in the western province was the subject of this fieldwork. The loans provided by ACB to farmers cover pre-harvest steps such as preparation of the field and access to inputs (seeds, fertilisers and pesticides). These are short-term loans to rural poor farmers (individual or group) to produce onions and Irish potatoes. The minimum loan of Rwandan Franc (RWF) 300,000 was an individual loan calculated at a 15% annual flat interest rate, payable between 6 to 12 monthly instalments. The minimum loan for a group of farmers was RWF 1,000,000 to be divided over 10 members (100,000 each member), with a 2.5% monthly flat interest rate (30% per annum) payable within 6 months in one instalment after harvest. The loans offered to a group of farmers are deposited in the current accounts of the members after an analysis of the creditworthiness of each member (done by the members themselves). However, all members share equal liability for the total loan taken by group members.


Through international partnerships, ACB has been able to progress, both in terms of portfolio finance and operational performance:• Kiva: provided financial loans to support credit basket to poor farmers;• Oikocredit: provided financial loans to support the group-lending systems; • ICCO Terrafina Microfinance: provides capacity-building support to improve MFI governance,

management and financial systems as well as product-development support including some small grants to test new high-risk products; and

• Aquadev: offers technical services to the management and staff (training, advice and materials to ACB staff).

ACB Credit product characteristics

Product name Loan size Range

Loan term (in months)

% Female % Urban Loan purpose Eligibility

Curuza (Business) RWF 100,000 –

10,000,000

4 - 36 0% - 20% 80% - 100% Business Businessmen,

Hembwa Wage RWF 10,000 –

5,000,000

1 - 36 20% - 40% 60% - 80% Any Purpose Women & men,

salaried workers

Kaze (Solidarity Group) RWF 10,000 –

500,000

4 - 12 0% - 20% 0% - 20% Business, Housing,

Education

Men with a

business / farms

Tunga Women RWF 100,000 –

10,000,000

1 - 36 80% - 100% 40% - 60% Any Purpose Women with a

business

Price of the ACB loans using full Annual Percentage Rate (APR) calculation

Product nameAnnual nominal interest

Fees Insurance Taxes Compulsory deposit

APR (int+fee) Full APR

Curuza

(Business)

15.0%-60.0%

Flat

2 Fees 1 Ins 18.0% fees 20.00% upfront 28.4% -

73.8%

43.3% - 96.6%

Hembwa Wage 15.0% Flat 2 Fees 1 Ins 18.0% fees N/A 28.4% -

41.4%

29.5% - 45.1%

Kaze (Solidarity

Group)

15%-30.0%

Flat

2 Fees 0 Ins 18.0% fees N/A 52% -

69.5%

56.7% - 73.3%

Tunga Women 14.0%-60.0%

Flat

2 Fees 1 Ins 18.0% fees 10.00% upfront 27.3% -

68.4%

34.7% - 79%

Source: mftransparency.org

Source: mftransparency.org

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2. Risk analysis


Loan appraisal by the microfinance institution (MFI)/bank - due diligenceBefore providing a loan to group of farmers, the following items are checked:• A certified document of the existence of the group of farmers offered by local authorities;• This group of farmers must be from different families (checked by credit officer);• The group and individual members must have separate current accounts with Amasezerano

Community Banking (ACB);• A member must not have any other credit with ACB or another MFI;• Having a 10% deposit of the total loan required in their current account;• A profitable agricultural project approved by a credit officer of ACB;• One of the group members must have at least collateral approved and signed by a local

authority (building, lands, etc.);• Each client must sign a contractual agreement on agreeing to use the loan and make

repayment as indicated in the project proposal; and• The client must accept liability for defaulting on the contractual agreement.

To guarantee the individual loan, the borrower must present the certified collateral (building or land titles), whereas a group loan is jointly guaranteed by the solidarity of members.


In the design and development of the programme, the lead actors have jointly assessed the risks for farmers and the Producer Organisations (POs) and have identified means to mitigate these risks. For the purpose of the case study, a distinction has been made between the six crucial aspects of smallholder production, i.e. risks related to:• the specific crop: maize, soya or beans;• the farming system and crop production;• the strength of the farmers’ organisation / farmers’ cooperative;• the markets for maize, soya or beans;• the viability of the crop farming system promoted; and• the financing of farmers and farmers’ cooperatives.These risks and the way they were mitigated and managed have been tabulated in a risk catalogue (see table 2.1 and are briefly summarised below).

Product-related risk Dry onion can be divided into two categories: fresh onions and storage onions. Fresh onions are available up to three months after harvesting. These onions have higher amounts of water and sugar and a lower pyruvate content. Consumers can recognise this onion by its lighter colour and thinner skin. The storage onion is available in the market just as the fresh onions are coming to an end. These onions have a darker and much thicker skin than that of fresh onion. Storage onions are firm, compact and are much less susceptible to bruising and transport damage. Both of these types are commercially available in three colours: red, yellow and white. Risks related specifically to the crop of onions refer to the lack of high quality seed onions and questions of the dosage and viability of the use of farm inputs (fertilisers and pesticides). To mitigate the risks related to maintaining product quality, farmers are advised to use proper storage to keep their produce until it is ready for transportation. However, due to the lack of storage, farmers remain dependent upon instant selling after harvesting at local village markets. Other risks relate to appropriate techniques to sort out high quality seeds because poor onion seed material is still a serious problem for farmers.

Production-related risksThe main production risks that farmers are facing relate to the unpredictability of weather conditions (droughts and flood seasons), a clinging to traditional farming practices and the risks brought by insects and diseases. To mitigate these risks farmers are continuously encouraged to water their plots and use pesticides on their crops to prevent pests during cultivation. The

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MFI and the POs do not possess specialised agricultural experts, and neither are they able to hire external private agricultural consults. Hence, they depend upon the government extension services and peer-experience on these matters. The lack of technical assistants skilled in good farming practices is still a handicap for farmers.

Farmers’ organisation-related risks In this case, farmers’ organisations are small, informal groups. Their capacity to benefit from the advantages of POs is very limited. The Illiteracy of the members and limited interaction with other, more progressive farmers are severely limiting factors in efforts to mitigate the risks to which farming activities are exposed. Most of the farmers in rural areas are illiterate; they do often work with other farmers or other institutions involved in agriculture. This also affects the governance and organisational level of the group.

Marketing-related risksOnions are widely used in cooking because they add flavour to dishes such as stew, soup and salads. As such, it is in high demand as a commercial food item in urban areas. However, due to lack of storage capacity, farmers are tempted to sell immediately after harvest at local village markets. In the rural areas people are highly self-sufficient with respect to food, so food items such as onions fetch low prices. The main marketing limitation for smallholder farmers relates to the poor connectivity of farmers to consumer markets (poor storage, transport and infrastructure). Farmers face very unattractive low prices during the harvest periods when they are keen to receive cash to meet their loan repayment obligations and other household expenses.

Finance-related risks ACB’s risks related to financing farming activities are diverse. In 2013, ACB experienced a substantial default on agricultural loans. The risks of agricultural lending are attributed partly to unfavourable weather conditions, but also to the common practice of loan-diversion (to other pressing household expenses), combined with the limited strength of collateral and group guarantees. Farmers grouped into associations or cooperatives are jointly liable for guaranteeing the loan contracted by each of the members.

Table 2.1: Overview of main risk assessment and risk mitigations


Product risks Lack of quality seeds • Seed multiplication by farmers • Collaboration with private seed multipliers (individual or cooperatives)

Viability of use of fertilisers and pesticides • Training farmers to use pesticides and fertilisers • Subsidies from government on fertilisers and pesticides

Production Droughts and floods

Droughts and flood seasons • Watering the crops • Strict adherence to agricultural calendar and weather forecasting advice

Low productivity Traditional farming practices • Training the farmers in modern agricultural practices • Farmers are supported by agronomists from cell and sector levels

Marketing risk Payment risk

• Limited market for onion products during harvest time • Low market price compared to production cost

Spot market

Partner/client Cooperation governance

• Farmers not very skilled in cooperative organisation • Limited skills in accounting records

Training farmers in capacity building (all members)

Planned

Finance and financial risks Limited loan

• The MFI provides between Rwandan Franc (RWF) 100,000 to 300,000 to each farmer • Delayed disbursement (credit availability) • High interest rate (30% group lending)

Investment risk • Dissolution of groups after using the credit • Risk of over-indebtedness

• Registration of guarantee provided by one of the group members • Regular check by the Credit Reference Bureau Africa (CRB)

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Financial appraisal:To appraise the loan offered to farmers, the credit committee must verify whether:• All the group members are active members (opened a current account, paid the member contribution);• The group members do not have close family ties (wife, husband and children);• The group members have prepared their farms (cultivated and ready for planting);• The value of the collateral presented by one of the members may cover the total amount of the loan; and• A mandatory deposit 10% of the total loan (deposited by each member) is maintained

in their current account to guarantee the solvability of the member and cover unpaid parts up to the total payment of the loan.

Financial needs assessment and financial products:• The manager of the ACB branch, a credit officer and three members of the credit

committee evaluate the demands according to the credit portfolio of the ACB;• The assessment is also based on the ACB credit products KAZE and EZUKAME:

> KAZE is the only ACB product appropriate for group lending at a monthly interest rate of 2.5% (30% per annum) jointly guaranteed by all group members.

> EZUKAME is another product open for all agricultural projects, but offered to individual farmers (agriculture or livestock), payable monthly at 15% and subject to individual physical collateral.

Financial instruments:A credit contract outlining all conditions of the loan (interest rate, penalty rate, compulsory saving, loan guarantee and payment schedule) is signed by ACB and borrowers, and each party keeps a copy of the contract.


I. ACB has 6 branches located near the clients and accessible to main roads; it also has 55 employees, including 13 loan officers.

II. Since 2007 ACB has been using a computerised system (version 3.4 of Adbanking software) installed at all branches, which gives a vision of real-time portfolios and integrated portfolio management. The data provided by the system ensures reliability and an adequate level of protection of customer data.

III. But there are still physical files (documents) simply stored and insufficiently protected from the risk of fire or manipulation.

IV. ACB lacks the professional staff to give technical advice to the farmers.


I. ACB is in collaboration with ICCO Terrafina Microfinance, Kiva, Oikocredit and AQUADEV for financial and technical support.

II. AMIR and Central Bank (BNR) for national regulation requirements.

SourcesOrganisations:• AMASEZERANO COMMUNITY BANKING Ltd.

P.O. Box 4691, Kigali-Rwanda, Tel: (+250) 02555102249/55100954/55100980.• Microfinance Transparency.• KIVA.• APF-Rwanda.

Websites:• www.mftransparency.org/microfinance-pricing/rwanda/001-ACBSA/# • www.kiva.org/partners/170• http://apf-rwanda.ning.com/group/amasezerano-community-banking

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AbstractUniclecam Wisigara is a microfinance institution (MFI) with a focus on agricultural and animal husbandry. It started in 2004 with the mission to promote agriculture value chains and agri-business by increasing the capacity of rural farmers through microcredits and other financial services offered to farmers. Uniclecam Wisigara is a union of primary savings and credit organisations, called Cooperatives for Saving and Mutual Agricultural Credit (CLECAMs). Uniclecam Wisigara is one of the main private MFIs that promote value chains and agri-business through microcredit in Rwanda (western and northern provinces) in terms of the number of active clients involved in the agricultural sector. In 2013, Uniclecam Wisigara began the new product of beekeeping in the northern and western provinces to increase the welfare of its clients. It operates entirely with informal farmer groups and is financed through the CLECAM active in their area of operation (as part of the Wisigara network of CLECAMs). Uniclecam Wisigara has been supported by ICCO Terrafina Microfinance since 2008. It has received technical and financial assistance through small investment grants and loans from the Rabobank Foundation.

AcronymsCLECAM Cooperative for Saving and Mutual Agricultural LendingGAP Good Agricultural Practices MFI Microfinance InstitutionPO Producer Organisation RWF Rwandan Franc

Case Study R4

Union des CLECAM Wisigara



Three groups of farmers were selected for field research: two group members of the Cooperative of Savings and Mutual Agricultural Lending (CLECAM) Zamuka/Cyanzarwe and one group from the CLECAM Bukamba.

“Increasing the capacity of rural farmers through access to microcredits”

Producer Organisation (PO) /cooperative profile data

Type of organisationNumber of members:• Duhuzimbaraga• Dukundakurima• Duhingeneza IbirayiNumber of employeesMain cropsOther crops:Turnover (in euros): • Duhuzimbaraga• Dukundakurima• Duhingeneza IbirayiOperating margin:• Duhuzimbaraga• Dukundakurima • Duhingeneza Ibirayi

Group of farmers

71070Irish potatoesMaize, beans and onions

RWF 700, 000 (€ 875)RWF 4,800,000 (€6000)RWF 3,760,000 (€4700) (estimated)

RWF 700,000 (€-875)RWF 2,000,000 (€2500) RWF 437,334 (€547)

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DUHUZIMBARAGA/Zone NTANGO. This farmers’ organisation is financed by CLECAM Zamuka. It is a group of 7 farmers involved in the production of Irish potatoes, maize and beans. It received a loan of Rwandan Franc (RWF) 1,400,000 (1750 euros) to access up to 2.4 tons of seeds and 500 kg of inorganic fertilisers (NPK 17-17-17) and pesticides. This organisation harvested RWF 700,000 (875 euros) over 4 months (March –July 2014) and it incurred a loss of RWF 700,000 (-875 euros) on its operations. It demonstrated the difficulty in properly assessing the viability of the high-input approach to local farming. As a consequence, the farmers were not able to pay back the loans. This was attributed to a combination of factors such as low land productivity rate, unpredictable weather changes and loan diversion.

DUKUNDAKURIMA/Zone Gisangani. This farmers’ organisation is financed by CLECAM Zamuka. It is a group of 10 farmers involved in the production of Irish potatoes and maize. It received a loan of RWF 2,700,000 (3,375 euros) to buy Irish potato inputs (5 tons of seeds, 800 kg of inorganic fertiliser (NPK 17-17-17) and pesticides. The farmers harvested RWF 4,800,000 (6000 euros) with a profit margin of about RWF 2,000,000 (2500 euros).

DUHINGENEZA IBIRAYI/Zone Nyagahinga. This farmers’ organisation is financed by CLECAM Bukamba. It is a group of 7 farmers that received a loan of RWF 770,000. The loan was only used to buy inorganic fertiliser (NPK 17-17-17) and pesticides to produce Irish potatoes on 14 hectares over a four-month period (March-July 2014). The farmers estimate that they harvested RWF 3,760,000 (4,700 euros) on an investment of RWF 3,322,666 (4,153 euros), including fertiliser.


BackgroundUniclecam Wisigara is a union of 11 autonomous local CLECAMs. The CLECAM in the network all operate in the western and northern provinces and have offices in Gisenyi, Nyamyumba, Biruyi, Kayove, Zamuka, Gaseke, Bukonya, Nyamugali, Nyarutovu, Bukamba, Cyabingo. Uniclecam Wisigara started in 2004 with a vision of improving the socio-economic life of farmers. In 2008, Uniclecam Wisigara merged with the Ruhengeri Union, with the support of ICCO Terrafina Microfinance. Its main mission is to increase the capacity of rural farmers through microcredits and other financial services offered throughout their area of operation. The Union (Uniclecam Wisigara) supports and finances its affiliated CLECAMs to enable them to help their farmer-members access financial services.

Currently, Uniclecam Wisigara is one of the main private cooperative unions (measured in terms of outreach in the agricultural sector), promoting several agricultural value chains and agri-businesses through microfinance services in Rwanda (western and northern provinces). Uniclecam Wisigara microfinance institutions (MFI) currently serves more than 32,000 active clients, 80% of whom are smallholder farmers and 20% have other rural micro-businesses such as commerce, restaurants, transportation, warehouses and communications.

Services rendered to its clientsThe services rendered by Uniclecam Wisigara to its clients are grouped into two categories: financial services and non-financial services:

Financial services: The MFI raises funds from local and international financial institutions to enable the member cooperatives (CLECAMs) to access debt finance for portfolio growth, enabling more farmers to be served and adjusting their loan offers to actual credit needs. Through its local partners like BDF and international partners like the Rabobank Foundation


Total number of active clientsPortfolio value (in euros)% of farming clients% of portfolio in agriculture

32,000RWF 543,009,576 (€678, 762)80%58.1%

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and ICCO Terrafina Microfinance, Uniclecam Wisigara borrows funds for further lending to CLECAMs. Currently, it borrows at an interest rate of 11% (the normal interest rate is 8% and transfer fees 3%). ICCO Terrafina Microfinance has provided technical assistance for management support, MIS development and product development, especially for rural finance.

The CLECAMs are also financed by the clients’ mandatory and voluntary savings, which they can use to provide small loans to their clients. These loans are normally provided at a 1.5% flat interest rate per month for agricultural loan projects (i.e. 18% flat p.a.) and a 2% flat interest rate for other loan projects (i.e. 24% flat p.a.). As transaction costs and risk provisions for agriculture are not lower than lending in other sectors, these figures show that Uniclecam Wisigara has been willing to favour agricultural loans even though returns from small-scale agriculture are normally relatively low. Without this cross-subsidisation, member-farmers might not be able to afford loans for their farming projects. The case of the DUHUZIMBARAGA farmer group illustrates this point.

In order to access CLECAM loans, each client must at least fulfil the following requirements:• Being a good and active CLECAM client; having regular savings and withdrawal transactions

with the one of CLECAMs;• Member must have saved at least 10% of the loan amount;• Having collateral such as a homestead, land or valuable equipment;• Being a member of a group or a cooperative that can act as guarantors (solidarity guarantee);

and• Signing a loan agreement with the CLECAM to confirm his or her obligations to comply with

loan regulations.

The credit ceiling for agricultural loans ranges between RWF 20,000 (25 euros) and RWF 1,000,000 (1300 euros); for other loans repayable in 6 months, it ranges between RWF 20,000 and RWF 2,000,000 (2600 euros). Uniclecam Wisigara mainly finances farmers involved in growing Irish potatoes, maize, beans and wheat and in beekeeping.

Non-financial services: The MFI also offers non-financial services to its clients, such as training, financial education and agricultural technical assistance; this last is done through farming organisations like BAIR and the Urugaga Imbaraga farming federation. In 2013 Uniclecam Wisigara launched a new product of beekeeping in the northern and western provinces to increase the welfare of its clients. The programme is called “the progress of beekeepers” (Wisigara Muvumvu) and provides technical assistance to successful farmers (Kiramuhinzi) interested in taking up this additional activity.


Uniclecam Wisigara supports several agricultural value chains with both financial and technical assistance. In the selected farmer groups, this involved the production of Irish potatoes. The farmer groups were instructed on how to account for the farm inputs purchased and the production achieved with them (as shown in table 1.1 below). The CLECAM also provides working capital loans to farmers, either in the form of inputs (disbursement in kind) or in cash.

Table 1.1: Production table (for Cooperatives or POs)

Farmers’ organisations Production Value (RWF)

Quantity (kg)

RWF/kg Unit

1. Duhuzimbaraga /zone Ntango 2. DUKUNDAKURIMA/Zone Gisangani

Irish potatoes Irish potatoes

10,000 40,000

7004,800

100 RWF/kg 120 RWF/kg

Inputs

1. Duhuzimbaraga /zone Ntango

2. DUKUNDAKURIMA/Zone Gisangani

NPK 17-17-17Organic manureSeeds NPK 17-17-17Organic manureSeeds

270,000150,000960,000432,000240,000

2,000,000

5001,0002,400

8001,6005,000

540150400540150400

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Uniclecam Wisigara• BAIR (Bureau d’Appui aux Initiatives Rurales): provides training and technical support to

farmers undertaking Kiramuhinzi projects;• Urugaga Imbaraga farming federation, providing agricultural technical assistance to

farmers;• BDF: Business Development Funds provides financial support to farmers (25% subventions

of one of project item);• Rabobank (NL) provides financial loans to Uniclecam Wisigara to support its financial

capabilities. 250,000 euros was provided for 5 years at 8% for 5 years (plus 3% transfer fees on the loan); and

• ICCO Terrafina Microfinance (NL) provides technical assistance in management, MIS and product development as well as some investment subsidies to support Uniclecam Wisigara in its operating services.


The agricultural loans are fully tailored to the needs of farmers. The disbursement calendar and loan maturity coincide with the growing season for the crop concerned, and repayment is done at once after harvest. For these bullet loans, the flat rate of interest calculation is not different from a calculation on (reducing) the outstanding balance; the loan is fully outstanding for the lending period (no repayment instalments before the harvest). For the category of other loans, some are also provided as bullet loans (repayment at once when the loan expires) and some are repaid in instalments. While the latter is more common for microfinance in the commerce sector, the application of a flat rate in these cases makes the loan relatively expensive. As the average outstanding amount is approximately half the amount disbursed (due to repayments during the lending period), the interest remains charged over the full amount disbursed. Thus, the flat rate mode of interest calculation for instalment loans pushes the real annualised interest expense to almost twice the quoted flat rate. This illustrates that, as a matter of policy, Uniclecam Wisigara favours their farming clients, with more affordable loans compared to the loans in the commercial sector.


Name # of months Interest % Interest modeFlat or R.B.

Repayment Bullet / install.

Security mode

Agricultural loans

Kiramuhinzi (wealthy farmer)

6 18 Flat Bullet Joint guarantee

Wisigara muvumvu (beekeeping)

6 18 Flat Bullet Joint guarantee or land

Other loans

Individual loans 6-12 18 Flat Bullet Land/houses/other valuable equipment

Others (commerce, transport, warehouses)

6-12 24 Flat Bullet or instalment

Land/houses/other valuable equipment

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2. Risk analysis


Loan appraisal by the Microfinance Institution (MFI)/bank - due diligenceThe demands for credit are assessed by a credit committee of 5 persons, the loan officer and the manager of the Cooperative for Saving and Mutual Agricultural Lending (CLECAM) concerned. Appraisal is based mainly on partitioning the available funding basket of the CLECAM, the historical records of the individual member applying for the loan and the guarantees/collateral offered. The risk assessment depends on the loan product (in this case Kiramuhinzi) and the type of crop financed (in this case Irish potatoes). Much emphasis is now given to the farming systems used and the expected market for the farming product concerned. The beneficiaries of the Kiramuhinzi product are jointly liable to repay the loan; no collateral is required from an individual member.


In the design and development of the programme, the lead actors have jointly assessed the risks for farmers and the Producer Organisations (POs) and identified means to mitigate these risks. For the purpose of the case study, a distinction has been made between the six crucial aspects of smallholder production, i.e. risks related to:• the specific crop: i.e. Irish potatoes;• the farming system and potato production;• the strength of the farmers’ organisation;• the markets for Irish potatoes;• the viability of the farming system for Irish potatoes; and• the financing of farmers.

These risks and the way they were mitigated and managed have been tabulated in a risk catalogue (see table 2.1) and are briefly summarised below.

Product-related risksRisks related specifically to the crop of Irish potatoes involve the lack of certified seeds, questions of the dosage and the viability of using fertilisers and pesticides for this crop and the perishability of Irish potatoes. According to research by the Institute of Agriculture and Animal Husbandry, the limited availability of good quality seeds seriously hampers producers. There are few seed multipliers, which leads to scarcity and inflated prices (0.50 to 0.60 euros/kg; this is high compared to the selling price of Irish potato products (0.125 euros/kg). To mitigate this risk, cooperatives in collaboration with public and private institutions train farmers on how to multiply the seeds themselves. The government imports and distributes seeds and fertilisers to groups or cooperatives of farmers through a voucher system called Nkunganire. This is a system that helps farmers, grouped into associations or cooperatives, to access good quality seeds and fertilisers at a discount (i.e. at a price subsided by the government). The voucher system reduces the cost of fertiliser by some 10% (from 37.5 euros to 33.75 euros a bag). Farmers are also trained in how to build storage facilities to reduce the perishability risks.

Production-related risksThe main production risks that farmers face relate to the unpredictability of weather conditions (droughts and flood seasons), a clinging to traditional farming practices and the risks brought by insects and diseases. To mitigate these risks, farmers are continuously encouraged to water their plots and use pesticides on their crops to prevent pests during cultivation. With the help of extension workers and agronomists, they are instructed in Good Agricultural Practices (GAP), such as adherence to the agricultural calendar, proper land preparation and fertilisation and attention to weather forecasts. The MFI and the CLECAMs do not possess specialised agricultural experts and neither are they able to hire external private agricultural consults. Hence, they are dependent upon the government extension services and internal experience on these matters. Although there are continuous training programmes for farmers and low-level technical guidance in agriculture, the lack of technical assistants skilled in good farming practices is still a handicap for farmers in this value chain.

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Farmers’ organisation-related risks Since the farmers’ organisations are very small, informal groups, the capacity to benefit from the advantages of a PO is very limited. The advantage of these groups, however, is that they are also members of the CLECAM together with many other farmers in the area. Thus the distinction between a PO and financier is not so strict, and the CLECAM also partly acts as a PO. Yet the illiteracy of the members of the farmer groups and limited interaction with other, more progressive farmers are severely limiting factors in efforts to mitigate the risks to which farming activities are exposed. Most of the farmers in rural areas are illiterate; they do not often collaborate with other farmers or other institutions involved in agriculture. To mitigate these limitations, the board members of farmers’ associations and cooperatives are continuously educating their members and organising field visits from one region to the other for their benefit.

Marketing-related risksThe main marketing risks to which smallholder farmers are exposed relate to frequent fluctuations in the price for Irish potatoes, the weak market-negotiation position of smallholders and the poor connectivity of farmers to consumer markets (poor infrastructure). Farmers face very unattractive low prices during the harvest periods when they are keen to receive cash to meet their loan repayment obligations and other household expenses that were postponed until the harvest brought long-awaited farm income. The price varies between 100-120 RWF/kg (0.12-0.15 euros/kg), but the middlemen and other traders sell to final consumers at 150- 200 RWF (0.19-0.25 euros/kg). This is mainly due to the poor infrastructure (roads and warehouse facilities) and a lack of marketing policies for food products in Rwanda. To overcome these limitations, farmers’ associations and cooperatives are being trained and strengthened in bulking produce and strengthening their negotiation power. Most cooperatives are taking steps to create local collection centres (iseta y’imyaka) to facilitate bulking and the group-selling of Irish potatoes in their respective provinces.

Finance-related risks There are financial risks for both the lender and the borrower. For the latter the risks of finance relate to the uncertainty of credit availability with the CLECAM (depends on the pool of resources available), the limited size of the loan (often not meeting the real credit needs), and the impact of interest expenses on the viability of the farming activity. Farmers selected for the study indicated that the credit provided was invariably insufficient to meet the needs of their production budget. They feel they are partially financed and charged a high interest rate. While the rates charged are relatively attractive compared to informal forms of microfinance, their farming activities are so marginally profitable that the affordability of credit remains an issue.

The risks for the lender (CLECAM) involve financing farming activities related to the common practice of loan diversion (to other pressing household expenses) and the limited strength of collateral and group guarantees. The MFI staff pointed out that they themselves are paying a high borrowing rate (between 8% and 11%) to get funds from banks and other financial institutions. The MFI has started to expand its negotiations with other banks to increase the abilities of CLECAMs to meet their clients’ demands. Farmers grouped into associations or cooperatives are jointly liable for guaranteeing the loan contracted by each of the members. Loans are also insured through the local insurance company SORAS at 7% paid by farmers to protect them against the risk of death. However, the current portfolio at risk (PAR) of the CLECAMs ranges between 7-10%, so the mechanisms for minimising loan diversion must be tightened to ensure investments in productive farming activities.

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Risk aspect Risk assessment by MFI/Bank Risk mitigation measures Risk monitoring

Product risks Lack of certified seeds • Many training programmes on seeds multiplication • Collaboration with private seed multipliers (individual or cooperatives)• Voucher system offered to farmers grouped into associations or cooperative

70% seeds are distributed to members by one of the members

Viability of use of fertilisers and pesticides

• Training farmers to use pesticides and fertilisers • Subsidies from government on fertilisers and pesticides (voucher system)

Government assistance still needed

Perishability of Irish potato production

• Direct sale of production to spot market • Building the production storage space

Support from NGOs and government needed

Production Risk Droughts and flood seasons • Watering the crops • Strict adherence to the agricultural calendar and weather forecasting advice

Traditional farming practices Training the farmers modern agricultural practices Farmers are supported by agronomists from cell and sector levels

Insects and diseases, risk of infection

• Use certified seeds • Use of pest control measures with help from agronomist of cell and sector levels • Crop rotation to minimise soil contamination

Little technical guidance in farming system techniques

• Continuous training and capacity building of/for farmers • Uniclecam uses BAIR and farming organisations to guide farmers in their practices

This guidance is still needed

PO, informal farmer group

Illiteracy of members of association or cooperative


Poor collaboration with other farmers

Field visits by farmers to other associations or cooperatives

Marketing Risk Price fluctuations • Strengthening the associations or cooperative organisations • More training in marketing strategies

Lower price to farmer compared to production cost (100-120 RWF /kg to farmers versus 150-200 RWF/kg) on consumer market

• Exhaustive control of the local market • Bulking the production with associations or cooperatives

Irish potatoes are rarely sold in bulk

Low connectivity with the final consumers’ market

Opening more Irish potato collection centres in the provinces

Financial risk The loan is too low Uniclecam extended its negotiation on money from other local banks

High interest rate and short repayment period

Lack of collateral • Joint guarantee (solidarity between all members to pay back the loan) • Death insurance (SONARWA 7%)

It secures the loan received (farmers know each other)

Diversion of loans to other activities

• Strong and regular follow-up by the credit officers • Auto-supervision among farmers

• It assures quick repayment • PS: One of the members sold back the seeds and fertilisers and went to Uganda (a problem for all members)


The finance strategy of the CLECAMs is guided by member needs and constrained by its financial resources. Compared to professional MFIs, they are also constrained by limited manpower resources, both in terms of skills and numbers of staff. Hence, lending policies need to be first and foremost practical, simple and understandable for clients without formal education. Financial appraisal is limited to some simple checks:• check whether the project lies within the objective of the product;• to trace the credit worthiness of members, the MFI consults the CRB (Credit Reference

Bureau Africa); and• check whether one of the group members owns valuable collateral for the total amount of the

group loan.

There is no assessment of the feasibility of the farming projects, neither at the level of the individual clients nor at the programme level (in this case farming Irish potatoes). Moreover, it is a given fact that farmers cannot be fully financed because of a persistent lack of resources. The MFI needs to apportion limited loanable funds fairly to member-farmers, which may imply credit eligibility one year and a lack of it in the following year.

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The microscore for Uniclecam Wisigara is 2.65 (2012) (Governance 2.7, Institutional 2.8, services 2.8, financial performance 2.5), indicating it is still in the development stage as an MFI. While it has no specialised staff for agriculture, it has been operating with a majority of farming clients and hence it can build upon a considerable base of practical experience. This potential for reaching the farming community is clearly recognised by financiers: Uniclecam Wisigara is able to borrow money from banks and from other financial institutions. However, its capacity for agricultural lending is also defined by the requirement of financial sustainability as a financial institution. Its profitability is largely defined by the spread between its passive and active finance structure. Currently the spread is a tiny 1%, as it borrows funds at 11% (Rabobank at 8% a year, transfer charges 3%), and lends to CLECAMs at 12%. The larger spread is left to the CLECAMs, which borrow at 12% and lend to farmers at 18%. The spread between the lending rate and the borrowing rate does not sufficiently cover all the necessary provisions for agri-finance risks. The Uniclecam currently has 75 staff spread over 11 branches.



Based upon a decade of experience, Uniclecam Wisigara has been able to sustainably sustain agricultural lending. Particular points of strength as observed by clients and member Cooperatives for Saving and Mutual Agricultural Lending (CLECAMs) include: I. Decisions about loans are made quickly, which increases the credibility of the microfinance

institution (MFI) in the eyes of farmers.II. The loan approval normally involves a group of farmers, mutually guaranteeing one another.

To minimise the credit diversion the money is directly deposited into the account of a trader of fertilisers or seeds (i.e. disbursement in-kind). Farmers receive their loan in the form of the seeds or fertilisers from the trader paid by Uniclecam Wisigara.

III. Uniclecam Wisigara organises regular training events such as workshops to teach farmers how to prepare small projects, to manage their agricultural activities, to save for the project and to use the credit exclusively for productive farming projects.

IV. The branches of CLECAMs are located near clients’ locations, which facilities easy access to credit. And this also helps to reduce Uniclecam Wisigara’s transaction and monitoring costs.


The MFI contributes positively to improving the livelihood of its clients (farmers). However, a number of problems threaten Uniclecam Wisigara in fully achieving its objectives. The main obstacles are the lack of equipment for staff (no vehicles, no motorbikes, computers, telephones) and the lack of agronomists and agri-business staff to advise farmers, design value chain finance programmes and monitor the agricultural loans. Currently, the MFI is not able to supervise the farming system used by farmers. This is recognised as a great omission in terms of risk mitigation. Uniclecam Wisigara indicated it should have at least agronomists who could assist in identifying the most promising farming opportunities and advise farmers on Good Agricultural Practices (GAP).

It is recognised that the opportunities for collective approaches in crop selection, quality improvement and marketing are still insufficiently exploited. Dependence on local spot markets leaves farmers with marginal returns on their enterprise. Direct links to more attractive opportunities in the market require more effective bulking, strict quality controls and scaling-up production volumes. On the other hand, larger commercial contracts also require the capacity to deliver on time in the right quality and product specifications.

Uniclecam Wisigara also needs to be concerned with its financial sustainability as a financial institution. Agricultural lending remains exposed to higher risks, and the need for portfolio

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diversification should take this into account. With limited equity capital and dependence on external debt financing, the institution is relatively vulnerable to debtors who fail to pay. Uniclecam Wisigara may approach more insurance companies to guarantee the loans and provide assistance to recover some losses.

The visited CLECAMs are still using manual systems or bookkeeping and accounting. The MFI intends to take steps to use modern ICT software to safeguard its records (back-up) and data consistency and quality.

3.3 How can linkage between the financier (MFI) and Producer Organisation (PO) be strengthened?

The informal farmer groups (the POs) are part and parcel of the farming community that established the CLECAM. Hence the two are linked by the nature of this farming community and its cooperative traditions. Yet there are factors that affect the sustainability of agricultural finance within this community; I. MFIs should continue to serve farmers to access credit but also keep thinking about their

sustainability as a financial institution, which requires new innovations and products to limit risks of non-repayment.

II. The profits of the CLECAMs are currently reinvested and not distributed to members; to strengthen the linkage between MFIs and members, some distribution of the profits to members may be needed to motivate them to continue their commitment.

III. It should increase its financial capacity to meet customer demands.

SourcesPersons:• Majyambere Florent, Director General of UNICLECAM WISIGARA, 0788452379.• Safari Innocent, manager of CLECAM Bukamba, 0788652122.• Mugiraneza Aloys, credit officer Bukamba, 0783460903.• Ndayambaje André, president of DUHINGENEZA IBIRAYI, 0783461443.• Members of DUHINGENEZA IBIRAYI (group meeting).• Manager of CLECAM Zamuka/Cyanzarwe.• Nsengiyumva Elias, president of BAKUNDAKURIMA, Zone Gisangani, 0783643582.• Members of BAKUNDAKURIMA, Zone Gisangani, ( group meeting).• Semivumbi J Baptiste, président of DUHUZIMBARAGA, Zone Ntango, 0785544159.• Members of DUHUZIMBARAGA, Zone Ntango, ( group meeting).• Majyambere Anatole, vice-coordinator, AgriProfocus-AgriHub Rwanda, 0788561450.

Documents:• Official Gazette nº 34 of 26/08/2013, order NORCA /614/2013 of 28/06/2013 providing legal

statutes of the cooperative «UNION DES COOPERATIVES LOCALES D’EPARGNE ET CREDIT AGRICOLE MUTUEL (UNICLECAM WISIGARA-GISENYI)».

• UNICLECAM Wisigara factsheet, 2013.• Microfinance pricing analysis – Rwanda – September 2013.

www.planetrating.com / www.mftransparency.org

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AbstractWith the support of the luxury-clothing brand Edun and the Rabobank Foundation, TechnoServe (TNS) was engaged to establish a programme with cotton farmers, who had to abandon their farms as a result of civil conflict in the northern region of Uganda. The Conservation Cotton Initiative Uganda (CCIU) aims to improve farmers’ cotton incomes by encouraging the adoption of better agronomic and post-harvest practices and linking farmers to better markets. Additionally, the programme is working to improve marketing efficiency by building and strengthening smallholder cotton farmers’ business groups, providing business development services and facilitating access to finance. As a result, an agreement was made between the Rabobank Foundation and Crane Bank (CB) stipulating that the bank would finance CCIU’s farmers and service providers. To this end the Rabobank Foundation has granted CB a three years’ loan facility of USD 500,000 and grant of EUR 50,000. During the first cotton-cropping season (2013), few loans were disbursed, but intensive field trips were made and 1,200 farmers enlisted. As of mid-May 2014, CB had approved 465 loans for a total of Ugandan Shilling (UGX) 431 million (USD 170,000).

AcronymsCB Crane BankCCIU Conservation Cotton Initiative UgandaFAL Functional Adult LiteracyLC1 Local Council 1MAAIF Ministry of Agriculture, Animal Industry and FisheriesMFI Microfinance InstitutionPBG Producers Business GroupPO Producer OrganisationTNS TechnoServeUGX Ugandan ShillingVSLA Village Savings and Loan Association

Case Study U1

Conservation Cotton Initiative Uganda (CCIU)


Type of organisationTotal number of members @ CCINumber of PBGsMembers in each group Number of employeesMain cropsOther crops Districts of operation etc.

Producers Business Group (PBG)8537160 PBGs50 members (average)7 employees of TechnoServe (TNS)CottonMaize, groundnuts and beans 3 (Gulu, Amuru and Nwoya)



CCIU stands for the Conservation Cotton Initiative Uganda. Under the CCIU and with the support of the luxury-clothing brand Edun and the Rabobank Foundation, TechnoServe (TNS) is working with 8,537 farmers affected by the civil conflict in the northern part of the country. The CCIU project was launched in April 2011 to double incomes of smallholder cotton farmers in Northern Uganda over 3 years while providing a supportive range of social initiatives and setting the farmers on a path to commercial sustainability in years 4 to 5.

“Improving income of smallholder cotton farmers and service providers by

facilitating access to finance and institutional building in Northern Uganda”

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The project focuses on promoting market-driven production, facilitating increased access to inputs and outputs markets for farmers, promoting access to financial services and facilitating such social initiatives as Village Savings and Loan Associations (VSLAs), Functional Adult Literacy (FAL) and drilling boreholes. The CCIU aspires to improve farmers’ cotton incomes by encouraging the adoption of better agronomic and post-harvest practices and linking farmers to better markets. Additionally, the programme is working to improve marketing efficiency by building and strengthening smallholder cotton farmers’ business groups, providing business development services and providing access to finance. The programme also aims to increase and enhance the competitiveness of the country’s overall cotton sector. In addition to cotton, CCIU also strives to improve the production of staple crops such as groundnuts, maize and beans. The programme’s social component focuses on drilling for community boreholes, increasing FAL and establishing VSLAs, all this implemented in partnership with the organisation Invisible Children. Starting in April 2011, the CCIU has registered and organised more than 8,500 farmers into 150 farmers’ business groups and helped them generate more than $1 million in staple crop sales. It has trained 350 business service providers in business and technical skills. In addition the programme has assisted more than 465 farmers in accessing loans and 250 entrepreneurs in generating income by providing agricultural support services.

Producers Business Group (PBG)CCIU is working with farmers organised into producer organisations (POs) called Producers Business Groups (PBGs). The collaboration of the PBGs in the CCIU programme started in 2011. The farmers are grouped into 150 PBGs, and each group is formed into 50 farmer households. The PBGs are distributed over three districts, namely the Gulu, Amuru and Nwoya districts. The majority of the farmers, about 75%, under CCIU are from the Gulu district. The services provided by TNS to the PBG under the CCIU include five sorts of activity:I. Linking farmers to input markets

Farmers in these districts need seeds for their cotton and other main food crops such as beans and maize. TNS links these farmers to cotton development organisations, such as Equator seeds and Victoria seeds.

II. Linking farmers to business service providers Business service providers are businesses and trained entrepreneurs equipped with the necessary materials, skills and knowledge by TNS. These businesses in turn provide their services to the PBGs. So far there are about 350 business support service providers working with the PBGs. These business service providers include: • Ox ploughing service entrepreneurs; • Spraying service entrepreneurs. TNS has equipped them with the spraying equipment and technical training on spraying cotton. As a result they are able to provide this service to the cotton producers.

III. Capacity building for the PBG Leaders: TNS provides the following capacity-building training to leaders of PBGs: • Good governance and management of their groups; • Leadership and administration of their groups; • Registration and structuring of the groups; and • Documentations and keeping records for their groups

IV. Facilitate access to credit TNS facilitates the access to credit for the PBGs. Currently, about 465 farmers have been able to access credit from Crane Bank (CB) with the help of TNS (see next section for details of this facilitation).

V. Experience/ exposure meetings Weak PBGs were exposed to the experience of strong PBGs, and strong PBGs were also exposed to different business cases. Some of the PBGs had an opportunity to visit the Central East African Development Programme to learn from their experience and replicate some successful business practices.

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Facilitation of financial access to the farmers and their PBG is one of the several services of TNS. With the financial support of the Rabobank Foundation, TNS managed a grant fund of EUR 100,000 aimed at facilitating better access to finance for cotton producers, the financial education of their PBGs and the sensitisation of local banks. In order to address the financing needs of farmers, a local financial intermediary had to be identified to ensure an effective outreach. As a result, financial institutions including microfinance institutions (MFIs) and banks were surveyed. MFIs turned out to be insufficiently equipped for the job; consequently, five banks operating in Gulu, including the Bank of Africa, Centenary Bank, CB, Stanbic Bank and the Development Finance Company of Uganda, were shortlisted. Finally, after proper screening and negotiations, CB was selected and it received a grant from the Rabobank Foundation to act as the financial intermediary. CB is the largest locally owned commercial bank in Uganda. The bank is part of the Ruparelia Group, whose business interests include insurance, hospitality, education, media, horticulture and property management. CB is the only Bank in Uganda with a paid- up capital of Ugandan Shilling (UGX) 100 billion - well above the regulatory requirements – and as such one of the strongest banks in Uganda. The bank is headquartered in Kampala and has 45 branches across Uganda, including the Gulu branch.

MFI profile data

Total number of CCIU clientsPaid-up capitalFarming clients% of portfolios in agriculture% of female clientsMinimum loan amountMaximum loan amount

465UGX. 100 billion 600100%20%300,000400,000

Key CCIU results to date

> Trained 8,535 farmers (30% female) in good agronomic practices, post-harvest handling, farming as a business

> Trained 150 PBGs in governance and business planning > Trained 350 business service providers in business and technical skills > Marketed +1,500 metric tons of seed cotton through the AFRICOT trading company and Gulu

Agricultural Development Company Limited > Marketed + 2,000 metric tons of staples on the domestic market. > Facilitated loan disbursement through Crane Bank (CB) to 404 farmers (25% female), > Established and trained 90 VSLAs > Drilled 12 boreholes and trained 108 water-user committees > Trained 90 VSLAs in FAL classes

1.3 Nature of the programme - crops and markets

The northern part of Uganda was scarred by a decades-long civil war. The so-called‘Lord’s Resistance Army’ terrorised the region, forcing thousands of people to flee their homes and live in government-run camps for internally displaced persons (IDPs), where disease, hunger and violence were rampant. When the conflict ended, many returned to their land in hope of rebuilding their livelihoods by farming cotton, the area’s main cash crop.Cotton can be grown in many parts of Uganda, and the sector has a great potential to lift

smallholder farmers out of poverty. Yet the country’s cotton productivity remains lower than in other major cotton-growing countries and generates low revenues in absence of value addition or processing. Besides, due to cotton price fluctuations, cotton farmers can also be exposed to huge losses. As a result, it is difficult for cotton to compete with staple crops like maize and beans as a source of income.

It is believed that by improving agronomic and processing techniques, forming farmers’ business groups and establishing market linkages, smallholder cotton farmers in Uganda can grow and stabilise their incomes.

In line with this, TNS has been facilitating financial access to cotton-producing smallholders. As a result an agreement was made between the Rabobank Foundation and CB stipulating that the bank would finance CCIU’s farmers and service providers (in ox-ploughing, spraying). To this

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effect the Rabobank Foundation granted CB a three- years’ loan of USD 500,000 and grant of EUR 50,000. During the first cropping season (cotton) few loans were disbursed, but intensive field trips were made and 1,200 farmers enlisted.


Edun. Edun is a socially conscious clothing company launched in the spring of 2005 by Ali Hewson and Bono with New York clothing designer Rogan Gregory. The company’s mission is to create beautiful clothing while fostering sustainable employment in developing areas of the world, particularly Africa.

Edun Uganda cotton impact chain

Edun Apparels initially bought CCIU cotton through connections with Fine Spinners in Nairobi in 2011 and later through a ginner-AFRICOT trading company, which bought seed cotton from CCIU farmers and ginned & exported lint to Swift Tunisia. The CCIU Initiative aimed to improve the livelihoods of communities in Africa by promoting a greater investment in the sustainable and ethical production of conservation-friendly agricultural products. The CCIU focuses in particular on cotton grown organically or through methods that are part of a transition from conventional to organic production. Another focus of the CCIU was to incorporate sustainable conservation agricultural practices and the protection of wildlife.

The efforts include establishing farmer agreements that promote conservation and improve livelihoods and developing local farmer outreach programmes to ensure that such practices are taken up by the community. After looking at the improvements and success of the training and extension services that CCIU was providing to farmers in Northern Uganda in 2011, Edun announced a $1.6 million commitment to fully fund CCIU. After a few months of consultation, Edun decided that TNS would implement the CCIU programme.

Invisible Children. The charitable organisation Invisible Children has been working in Northern Uganda since 2003. They played an integral role in the peace and recovery activities of the region. They were featured on CNN International, Larry King and Oprah and have been the

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recipient of many awards including the 2008 Ugandan North American Associations Service award for its work in education and economic development. Invisible Children received a portion of the programme budget to continue facilitating and operating the social component of CCIU. The social component was extended to the rural community’s growing cotton and selected staples crops (such as maize and beans) with TNS, which was leading the process of selecting the beneficiary groups in the Gulu, Amuru and Nwoya districts. This social component focused on:• VSLA development; • FAL; and • Water sanitation and hygiene.

Rabobank Foundation. The Rabobank Foundation supported the project to improve access to finance and it focused on the financial education of POs, encouraging local banks, facilitating access to finance for CCIU farmers and backstopping the financial service manager of TNS. The financial support of the Rabobank Foundation consisted of four components; • Funding to the CCIU I programme for ‘access to finance’ for farmers, PBGs and BSPs, mainly

involving capacity building (including the financial services manager);• Direct Technical Assistance (TA) to the programme for linking farmers, etc. to financial

institutions;• A loan of USD 500,000 to CB for on-lending to participating farmers; and• A grant for start-up costs and capacity building of agricultural loan officers.

Equator Seeds. Equator Seeds Limited is a specialised seed company licensed by the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF) of the Republic of Uganda to produce, process and market quality seeds of improved crop varieties. Based in Minakulu, in the Oyam district, the company has built up a vast marketing and distribution network covering the greater north, west Nile, Teso, Karamoja, Bunyoro, and Kampala and beyond the country’s bounders. Its product range includes the commonly improved open pollinated varieties and hybrids released by the National Variety Release Committee of the MAAIF. Equator seed undertakes the contract production of open pollinated varieties of maize, beans, soya beans, rice, sorghum, groundnuts and sesame. They work with cooperatives and PBGs under contract farming. In collaboration with CB and TNS, Equator Seeds is also able to provide a door-to-door seed distribution to the CCIU farmers and PBGs.

Victoria Seeds. Victoria Seeds Limited is a seed company that became operational in 2004 for the purpose of delivering quality seed to smallholder farmers in Uganda. It is a leading seed house, marketing over 90 seed varieties of cereals, legumes, horticultural products, oil and forage crops in the domestic and regional markets. Since 2008 Victoria Seeds has been operating a seed-processing and research facility in Gulu to make seeds available to communities resettling in Northern Uganda; they also and started engaging mostly women in the regional seed industry supply chain. Vitoria Seeds is one of the seed suppliers for CCIU farmers and the northern region as a whole.


CB offers a simple, standardised loan product to the CCIU farmers for input financing UGX 400,000 per acre of cotton, and UGX 300,000 per acre for maize, groundnuts, and beans). The amounts are derived from TNS calculations of input costs for the crops. Prospective borrowers are recommended by the PBG chairmen, often in consultation with the Local Council 1 (LC1) chairpersons.

The loan term is six months with bullet repayment and an interest rate of 18% per annum (flat charge). For documentation and insurance, a flat amount of UGX 50,000 is charged to cover land measurement, legal charges for contracts/agreements and insurance. These fees are normally charged up-front but, in view of the agricultural application of the loan, in this programme they are charged at recovery. If the farmers do not yet have the legally required ‘financial card’, it will be produced at CB and the costs (UGX 20,000) are then included in the loan amount.

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Farmers in the north do not have legal title deeds. Loans are secured by land certificates that are based on land mapping carried out by CB staff. These certificates are also registered with local authorities. Other security requirements are two guarantors (from the PBG; no relatives), as well as pledging the crop. Farmers are required to form a group of three so that one borrower has two personal guarantors. The group formation may not be based on blood relationship, so the guarantors cannot be relatives. Disbursements are made in cash to the borrower, except for improved grain seeds that are supplied by a seed distributor (Equator Seeds). The loan has two cash disbursements: one for opening the land and fertilisation, and the other for hiring labour for harvesting, threshing and transport. At the start of the scheme, the loan had three cash disbursements but this was cumbersome for the farmers and was amended.

2. Risk management

2.1 How was risk management approached by the stakeholders?

In the design and development of the Conservation Cotton Initiative Uganda (CCIU) programme, the lead actors jointly assessed the risks for farmers and the producer organisations (POs) and identified the means to mitigate these risks.

For this purpose a distinction has been made between the six crucial aspects of smallholder production, i.e. risks related to:• the specific crop: i.e. cotton and food crops; • the farming system and farm production;• the strength of the farmers’ organisation / PO;• the market for cotton and food crops;• the viability of the farming system promoted; and• The financing of farmers.


Product-related risks Lacking sufficient knowledge, farmers are less willing to use quality seeds and they prefer local seeds, which are poorer in quality. Crane Bank (CB) and TechnoServe (TNS) tried to sensitise farmers and trained them in the advantages of improved inputs and good agronomic practices. Despite the efforts made by CB and TNS, farmers were slow to change. Farmers complained about the delayed loan disbursement. CB disbursed loans after the farmers’ proper agronomic practices had been assessed. In addition, three disbursements were also a burden to the farmers. Hence, the bank reviewed its policies and reduced the number of disbursements to two. In order to get disbursements on time, farmers should apply for a loan and fulfil the requirements well in advance.


Name AmountUGX

# of months

Interest %

Interest modeFlat or R.B.

Repayment bullet / Instalment

Security mode1

Cotton loan 400,000 6 18 Flat Bullet Farmland

Maize loan 300,000 6 18 Flat Bullet Farmland

Groundnuts 300,000 6 18 Flat Bullet Farmland

Beans 300,000 6 18 Flat Bullet Farmland

1 In addition there are two personal guaranties and other legal documentation to be eligible for this loan

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Production-related risksUnpredictable weather conditions delayed planting some crops like cotton and beans because of a prolonged dry spell. A delay in planting means a delay in completing repayment within the required period of six months. There was a very low use of fertiliser and quality seeds, which will hamper the total production and the farmers’ capacity to repay their loans. Furthermore, farmers are not aware of the right agronomic practices at the right time. In order to mitigate these risks, TNS and CB offered training in correct agronomic practices. Despite these efforts, the farmers’ behaviour hardly changed; more extension services and encouragement by the concerned stakeholders are needed. Even though loans have been granted to these smallholders, the amount is insufficient to do all the necessary work from opening fields up through harvesting. This is a complaint by farmers, but is still subject to investigation by CCIU. The loan amounts are based on medium-level modern agricultural practices. When farmers use little or no fertiliser, the loan amount should be adequate since it even covers the labour components in weeding, harvesting and threshing. Proper storage and handling / transportation of the harvest remains a problem despite the post-harvest training for the farmers by TNS and a follow-up by CB agricultural field experts.

Client / PO-related risksAs described in section 1.1, the Producers Business Groups (PBGs) have a role in linking farmers to markets and to finance, but they do not buy nor sell and neither are they loan recipients. Hence the success of the chain is not directly dependent upon their functioning, but they have a role in mitigating risks for the farmers and for the financier. It is especially important to link farmers to those who need to endorse their loan application. Signatures are required from the Local Council authorities, i.e. Local Council 1 (LC1) & LC2 and the group chairmen to certify the farmer’s application for the loan.

A delay in obtaining these signatures causes a delay in processing and disbursing loans to farmers who need more than two signatures on their loan application form. The need to have a financial card has also prolonged the delay in loan disbursements since more than 90% of the farmers lack such a card.

Marketing-related risks Farmers have little access to or links with the market/ buyers. Farmers and their groups are yet to fully benefit from collective marketing. They have neither good storage facilities nor easy transportation to the market. As a result they are also confronted with a drop in prices at harvest time when there is an excess supply of produce. TNS tried to teach farmers about storage and collective marketing for better bargaining power. A number of PBGs are still weak, and it will take a bit of time for them to become strong entities to enjoy the much-needed benefits. Here you have to distinguish between cotton and grains. Cotton has no ‘price fall’ because bottom prices are set by the government and in relation to world market prices. There is no ‘excess supply of produce’ for grains, but the market is not structured or stable: Northern Uganda traditionally supplies staples to Southern Sudan, where civil war has disrupted trading and communications.

Finance-related risksWith respect to the guarantors, the bank’s lending model heavily depends on mutual guarantorship. Applicants/borrowers insist on using their family members as guarantors, which is not acceptable. Challenges in obtaining consent by the spouse and children impede progress in documentation, which is a legal issue. It is therefore necessary that farmers start the loan application process very early so that these problems will be minimised. Farmers in the north do not have legal title deeds. Loans are collateralised by land certificates based on land mapping done by CB staff. In order to address the lack of hard collateral, CB has developed a simple title deed based on land measurement organised and conducted under its guidance. The local authorities accept these deeds. Farmers receive a cartographic presentation of their land holding with a calculation of the land size.

Since most of the loans were given in cash, it was very difficult to control diverting the loan for unintended purposes. Different mechanisms were done to avoid diversion. Among these is the requirement of having two personal guarantees meant to follow each other against diversion, family consent about the loan and the certified land and staggered loan disbursement based on the post-sanction report of the loan officers.

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As one of the banks operating in the Gulu district, saw an opportunity to engage in smallholder finance created by the collaboration with TNS and the financial and technical support of the Rabobank Foundation. Like other financial institutions in the region, CB has no experience in providing agricultural credit. As a result there is a conservative due diligence process before loan disbursement.• Loans are secured by land certificates that are based on land mapping done by CB staff;• Another required security is two guarantors as well as pledging the crop;• Farmers are required to form a group of three so that one of the borrowers will have two

personal guarantors; and• Prospective borrowers are recommended by the PBG chairman but also by the LC1

chairperson.

Using this conservative due diligence process, CB offers a simple, standardised loan product to the farmers for input financing (see details in the above section). The amount of loan is calculated based on Ugandan Shilling (UGX) 400,000 per acre of cotton and UGX 300,000 per acre for maize, groundnuts and beans. The target farmers are smallholders with 2-4 acre of land ownership. The loan is given at a 18% annual interest for six months with a bullet repayment.

After the due diligence, loan are sanctioned and disbursed in two disbursements. Disbursement is largely made in cash to the borrower, except for improved grain seeds that are supplied directly by Equator Seeds, which is contracted with the bank to do so. The first disbursement is to open and fertilise the land; the second is for hiring labour for harvesting, threshing and transport. The second disbursement is given only if the post- sanction officer’s report gives


Aspect Risk assessment Risk mitigation measures Risk monitoring (post-loan)

Product risks Poor awareness towards quality seed and less willingness for uptake

Awareness creation through training and education

Yes, but it remains a problem

Loan disbursement is not timely realised Two disbursements found to be better Follow-up by agronomists

Pest and diseases Advising farmers to buy approved inputs Pesticide application

Fake and resistant pesticides (Karate & Rogan) Training in integrated pesticide management Agronomists following up on farmers

Post-harvest handling risks Post-harvesting education and training Follow-up on records at warehouses where the farmers bulk their produce

Lack of storage in some of the PBGs Some PBGs have stores for bulking Regular post-harvest handling & training

Transporting from garden to home to market Post-harvest handling & training

Production Risk Volatile weather changes (Too much rain) Advice from agronomists

Low willingness and uptake of fertiliser Encouraging farmers to use good agronomic practices

Poor agronomic practices Sensitising farmers on better agronomic practices

Continuous sensitisation

Shortage of funds for land opening, weeding and labour expense

Prepare business plans Need some periodic review by the bank

Partner/client Risk Farmers lacking financial card Crane Bank produces them for farmers

Bringing family members as guarantor Proper screening by PBGs Yes, needs more sensitisation

Challenges of obtaining signatures for the LC and PBG’s chairman

Farmers to belong to PBGs

Challenges in having consent by spouse & children

Education and sensitisation

Absence of land titles Land certification by the bank

Lack of leadership quality TNS provides training for leads Needs to continue

Market Risk Cotton market price volatility / fluctuation • TNS to link them to better markets • PBG’s marketing agent appointed • Collective marketing through bulking in central stores

Project shifted (partly) to other crops like oil seed, cassava, beans, etc.

Lack of easy access to the market Exploit local markets

Fake weighing scale Collective marketing Client educated to avoid using middle men

Financial risks Loan diversion • Staggered loan disbursement • Close follow-up by agricultural officers • Inter-guarantor follow-up • Land entitlement and used as a security • Disbursement in kind (seeds)

• Post-sanction report on each of the borrowers • Two personal guarantors for loan • Cartography and land certification

Delay in repayment Recovery follow-up by agricultural officers • 67% repayment • Need to reschedule the loan?

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sufficient data to do so. The following conditions and terms must be verified during the due diligence process:1. Permanent residence and membership in the PBG;2. A smallholder’s farm with 2 – 5 acres of cultivated land, Loan sizes are small and in line

with the agreement between the Rabobank Foundation, CB and TNS. This is proof that smallholders (with 2 – 4 acres of cultivated land) are reached;

3. Financial card. The Bank of Uganda requires that all borrowers produce their financial cards/numbers before they are given any loan by any banking institution. About 90% of the farmers have no financial card. If the farmers do not yet have the legally required financial card, it will be produced at CB’s office and the costs (UGX 20,000) will be included in the loan amount;

4. Savings account at CB. Together with CB has organised farmers’ meetings to inform farmers about the new loan product and encourage them to open accounts. In addition, CB facilitates account opening by travelling to the field and meeting new clients at the PBG and/or LC1 level;

5. Farmland. Loans are collateralised by land certificates that are based on land mapping done by CB staff; a. The farmers sign a statement that the land is his/her own and name his/her boundaries/ neighbours on the north, south, west and east. b. Neighbours confirm the land ownership of the borrower and sign on it. c. The PBG’s and LC1 chairman also confirm the land ownership of the prospect borrower and give a recommendation to the bank. d. Consent of family. The farmer’s family confirms that the land is pledged to the bank against the loan. e. The prospective borrower and his/her family declare that the land is pledged against the loan. f. Then a specialised independent cartographer to map this land. This is used as collateral for the loan.

6. Two personal loan guarantors. Two other forms of required security are two guarantors (from the PBG; no relatives), as well as pledging the crop. Within the same PBG, each farmer is required to form a group of three persons so that each one of the borrowers has two personal guarantors. The group formation may not be based on blood relationship, so the guarantors cannot be relatives. Finally, individual loan applications are filled and submitted by each of the prospect borrowers. Each guarantor is expected to play the role of watchdog role and monitor the others;

7. Business plan. The prospect borrower/farmer has a business plan concerning his plan of harvest, farmland and related agronomic practices. In addition, a description of the need for finance at different agronomic stages such as opening the farmland, seeding, planting, weeding and harvesting is presented in the proposal. Then the amount of production is estimated, and an insurance amounting to 1.25% of the loan is deducted. Based on the proposal, the required credit is calculated. The borrower’s family and the two personal guarantors confirm the amount of the requested loan sign for it; and

8. Staggered loan disbursements. In line with the borrower’s business plan, CB disburses a loan in two phases. Given that there are four months to harvesting the crops, the bank will first sanction the loan for seeds, opening the land, planting and fertilisation. Then the bank’s agronomic field officers will follow up the borrowers and prepare a monthly sanction report. They also provide a post-sanction reflection for the bank to make decision on the second disbursement meant for weeding and harvesting.

As of mid-May 2014, CB had approved 465 loans for a total of UGX 431Million (USD 170,000). Actual disbursements on these loans were UGX 275.4 million. The average loan is UGX 927,500 or USD 265. About 20% of the loans go to female borrowers, representing 18% of the funds. No loans have yet been issued to a BSP. The barrier so far is that cattle insurance, which was required by the bank, involves very high premiums. The loan repayment rate of the crop loans is low: the total due for repayment was UGX 209.1 million, while recovery stood at UGX 140.5 million or 67%. Only 108 out of 277 loans due had been fully repaid at the time of this report.

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2.3 What capacity for agri-finance has the financial institution installed?

CB has been able to provide a flexible, standardised and innovative input financing scheme thanks to the following factors:• There are four agricultural field officers who have been following up the farmers, looking at

the progress, providing monthly reports upon which the bank bases decisions about a second disbursement. In addition, these officers are also responsible for sensitising the farmers on loan recovery.

• The bank collaborates well with the providers of non-financial services, in particular with TNS. The latter has more experience with, and knowledge about the PBGs and BSP as well as individual farmers. Working with TNS therefore minimises the task for CB.

• The bank as a robust system to track all loans for the farmers.

2.4 What connections were entertained by the financial institution with other stakeholders in the sector? Who was the lead actor in orchestrating the chain?

CB customers under CCIU need seed for their cotton and other main food crops such as beans and maize. In collaboration with TNS, CB links these farmers up to cotton development organisations, seed suppliers (Equator Seeds and Victoria Seed) and off-takers (ginners, grain traders).

In order to legalise land certification and prepare land cartography the bank works closely with a local cartographer and the borrower’s immediate neighbours, chairmen of PBGs and LCs and family members for the confirmation of land ownership and the authorisation of the loan. Generally, TNS leads the orchestration of this value chain finance by facilitating grants from the Rabobank Foundation and enabling farmers and their PBGs to have financial access through CB. CB has proven to be competent in agricultural lending. Through time, they have gained knowledge of the local environment and the agricultural needs of the farmers. They have also shown a high degree of flexibility in their approach to crop-lending, e.g. waiving strict loan security financing for older farmers (up to 75 years old), charging fees at loan recovery (instead of up-front). CB’s loan products to the farmers seem to be at a reasonable interest rate (in relation to market rates for small loans). The loan products are simple and standardised. Loan documentation has been reduced to the most necessary issues. They also did an admirable job in land certification and using the land as a legal security against the loan. All these factors demonstrate that CB offers a wonderfully innovative service in line with TNS’ efforts on behalf of the CCIU farmers.


3.1. What are the success factors in this case? What risk mitigation measures proved effective? Three years ago the current farmland was just brushland, unable to sustain the farming families without outside help. It is obvious that under those circumstances commercial finance for these farmers would have been inconceivable. The fact that this was achieved in a reasonably short period shows that an effective approach was found to create access to finance. A number of factors appear to be crucial for this result:• The formation of farmer groups and effective linkage to input suppliers and buyers;• The availability of subsidised non-financial services by TechnoServe (TNS) to improve

agricultural practices;• Effective facilitation of financial services, both in terms of identifying potential providers

and the availability of incentives and technical assistance. The Rabobank Foundation was important in this regard;

• Special efforts on the part of the financier (Crane Bank - CB) to develop a suitable financial product and facilitate collateralisation; the latter was necessary because farmers in the north do not have legal title deeds. Mapping and cartography were done by CB in collaboration with the farmers, Producers Business Groups (PBGs) and local authorities. Thus, loans could be

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collateralised by land certificates that were based on land mapping done by CB staff; and• The fact that the financier (CB) avoided a short-term perspective in assessing their

investments in this programme. Otherwise disbursements might have come to a standstill when deficiencies in loan repayments became evident. CB has not attempted to repossess any collateral pledged, despite loan delinquency.

As a result of this combination of financial and non-financial services in the Conservation Cotton Initiative Uganda (CCIU) programme, new farmland was opened and yields improved, thus providing a good source of income to farming families. Three years from now the bank and TNS believe that the farmers will be self-sufficient. Farmers who had been used to handouts, as most people in post-conflict areas, have now changed their mind-sets to generate their incomes and be self-reliant. With the introduction of Village Savings and Loan Associations (VSLAs), more and more people are beginning to understand that they can use their own resources to improve their livelihood.

3.2. What are the (remaining) weaknesses/threats/risks? It is not surprising that in a post-conflict area, a transition as envisioned in the CCIU programme meets challenges on the way. In the interviews with stakeholders the following observations were made on remaining weaknesses and risks:• In view of the small loan sizes, farmers consider the fixed charges for external services (land

measurement, title deed registration, financial card, etc.) relatively expensive. It is difficult to solve this issue because the interest charged is already fairly low;

• The main challenge for the bank is that farmers do not respect the repayment schedule. Scheduled bullet repayments at the end of the loan periods are rarely done at once and on time. Farmers tend to come to the branch to make small payments;

• Farmers have a low level of financial education. Farmers are insufficiently aware of the bank’s basic products, procedures and requirements. This results in undue complaints like ‘account opened, but no loan granted’, ‘no card received’ ‘the bank should come and collect my loan repayments’, etc. It is noted that the scheme is ‘credit-driven’. Farmers and their organisations were not yet clients in any financial institution. Hence the need to have them ‘banked’ as well as taught to use a (bank) loan;

• Another major constraint is the distance between the CB branch and its borrowers. Although CB tries to minimise the frequency of the borrowers’ visits to the bank, travel expenses for a trip to the bank (by public transport) still remain high;

• It appears that women borrowers are under-served. However, property titles are often made in the name of the husband, in which case the husband will become the formal borrower. There is still more to do in this area so that more women will control financial resources; and

• Building strong PBGs has only partially succeeded and work must still be done. It will take a few more years to have strong PBGs with the benefits that farmers desire.

3.3. Stakeholder views on scope for improvement In view of the fact that loan repayments are not yet satisfactory, the stakeholders are considering what additional measures might be taken to rectify this problem. The following suggestions emerged in discussions on this issue:• Better communication and training for farmer clients. As farmers are apparently still

insufficiently aware of the bank’s basic products, procedures and requirements, CB might develop a simple booklet (preferably in a local language) that outlines product characteristics, eligibility criteria, bank procedures, etc.;

• Finance intermediaries: CB might select and train leaders in the local communities (e.g. PBG chairpersons, LC chairpersons) to become ‘resource persons’ for the bank. Resource persons can act as the link pin between the borrowers and the bank, represent the farmers at the bank and be the intermediary for account opening, loan application, loan documentation and perhaps even loan repayments. This may also improve communication between the borrowers and the bank;

• Distances between the CB branch and its borrowers are one of the prevailing problems. Although CB tries to minimise the frequency that borrowers have to come to the branch, travel expenses for trips to the bank (by public transport) remain high. In order to reduce

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travel time and costs, CB could explore the option of mobile money transfers for loan repayments. All Ugandan telecom companies offer ‘mobile money’ on their mobile communication systems. Mobile money coverage in Northern Uganda is big in urban areas and expanding in rural areas. It is the one of the most widely used means of cash transfer and has a huge potential for future loan repayments. It can certainly be exploited by CB and other financial institutions; and

• Continuous sensitisation of farmers on how the loan scheme operates, especially the eligibility criteria like minimum land holding of at least 1 acre, experience and their previous track record in growing the crop, etc. In addition, farmers must be continuously reminded to come early to register for financial cards before we can start processing their loans.

Sources

Documents:• Note, CCIU / Crane Bank case (Rabobank Foundation – Frank Bakx).• Improving access to finance for smallholder cotton farmers in Northern Uganda, monthly

report to TechnoServe Inc. Uganda, by Crane Bank, July 2013.• TechnoServe strategic plan, 2013-2017. TechnoServe. • Report on visit to review programme implementation by Frank Bakx, Rabobank Foundation,

18-21 May 2014.• Report on Frank Bakx’s visit CCI-U, Ugandan banks to select financial institutions interested

in providing credit facilities to smallholder (cotton and food crop) and other CCI-U clients, 15-19 November 2012.

• Improving income of smallholder cotton farmers and service providers through facilitation in access to finance and institutional building for primary co-operative societies in Northern Uganda, project progress report no 3, TechnoServe Uganda, 2013.

Interviewees: • G. Sudhaka Rao, branch manager, Gulu Crane Bank, [email protected]• Samuel Arop, TechnoServe Uganda, Gulu branch, CCIU. • Gorege Olak business advisor, CCIU, TechnoServe Uganda, [email protected]• CCI-U Gem farmers’ business group.• CCI-U Per Ber farmers’ business group.

Websites: www.technoserve.org

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AbstractEnterprise Support and Community Development Trust (ENCOT) was founded in 2006 as a developmental microfinance institution (MFI), with a strong agricultural orientation. It aspires to position itself as a preferred lender to the local farmer, and to this end it has developed products and delivery channels that best respond to the needs of the farmers for production, processing, trade/marketing and farm-asset acquisition. ENCOT uses both the individual and traditional peer-guarantee methodologies, combined with other new innovations and practices. The financial product was tested and yielded outcomes that encouraged venturing full force in agricultural lending. ENCOT currently serves over 5,000 farmers with a portfolio of 2.1 million euros (averaging 420 euros per farmer), growing various crops such as maize, rice and beans.

AcronymsaBi TrustAMFIUENCOTFCHFHUKRCMSCMFINAROPAR PFAPORFSSEMAUGX

Case Study U2

Enterprise Support and Community Development Trust


Type of organisationA group has A centre Number of centres with ENCOT Number of employeesMain crops

Farmers’ group/centres 1-5 members 5 - 10 groups 24 centres 4 committee members Rice, maize and beans



Farmers are organised by the Enterprise Support and Community Development Trust (ENCOT) into groups of 5 people, and 5-10 groups then form a centre. ENCOT operates in 24 centres with its agri-finance scheme. Each centre is led by a committee composed of a chairman, secretary and treasurer. These centres have not yet been legally registered with the local authorities, but efforts are ongoing.

“Making agricultural microfinance work”

Agricultural Business Initiative TrustAssociation of Microfinance Institutions of UgandaEnterprise Support and Community Development TrustFriends Consult Habitat for Humanity UgandaKabarole Research and Resource CenterMicrofinance Support Centre LimitedMicrofinance InstitutionNational Agricultural Research OrganisationPortfolio At RiskProsperity for AllProducer OrganisationRural Financial ServicesSustainable Energy Market AccelerationUgandan Shilling

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There are no other well-organised farmers’ groups in the region where ENCOT is engaged with its agri-financing schemes. Some of the groups are older and stronger in their formation and thus are in a better position to bulk production and undertake collective marketing. Others are very young and less organised to do this. The main problem with this type of producer organisation (PO) is that they can neither be registered as a cooperative nor certified as a farming organisation. ENCOT is trying to facilitate the proper legalisation and formalisation of the groups in order to strengthen them and give them better collective bargaining power and bulking capacity.

ENCOT has been engaged in microcredit and enterprise development activities since its beginning and intends to increase its loan portfolio to at least Ugandan Shillings (UGX) 5 billion within the next 5 years. Both services offered are highly needed in Masindi. Despite the existence of other MFIs and banks in Masindi, the other providers have no specialised financial services for low-income farmers. In view of this financial service gap in the region, ENCOT positioned itself as a specialised financial service provider to low-income groups, more specifically smallholder farmers. The following main products are provided by ENCOT:1. Micro-enterprise group loans;2. Agricultural enterprise group loans;3. Individual SME loans;4. Renewable energy loans; and5. Home improvement loans.

ENCOT’s focus is on agriculture. It aspires to position itself as a preferred lender to the local and delivery channels that best respond to the needs of the local farmers. ENCOT’s strategic plan 2012 – 2016 mainly focuses on reaching smallholder farmers, with appropriate loan products targeting production, processing, trade/marketing and farm-asset acquisition. As a result, ENCOT has developed a mix of financial products for both the individual and traditional peer-guarantee methodologies, combined with other new innovations and practices geared to the needs of farmers. The financial product was tested and yielded wonderful outcomes that encouraged venturing full force into agricultural lending.

1.2 ENCOT Microfinance Institution (MFI)

ENCOT is an indigenous rural community development NGO in micro-credit and rural-enterprise development. It was founded in 2006 by a group of indigenous community development practitioners in the Masindi district in Uganda. ENCOT is a young company that works with vulnerable, rural farming communities in the region, especially women. By providing microfinance services to micro and small-size enterprises, it hopes to help overcome poverty. ENCOT has three branches: Masindi, Kiryandongo, and Hoima. It is headquartered in Masindi and its operations encompass over 6 districts in the region.

MFI profile data

# of active clients# of employees Portfolio value Portfolio in agriculture % of farming clients% of women clientsOSSFSSPortfolio yield Liquidity ratio Operating expense ratio Loan to asset ratioPortfolio At Risk (PAR) Minimum loan amountMaximum loan amount

528542UGX 2,192,839,000 UGX 21,9871,600 92%68%151 %136%71%15% 52%78%6.2%UGX 50,000UGX 10,000,000

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1.3 Nature of the business, crop and market ENCOT aimed to position itself as an agricultural lender. Despite this intention, it hesitated to fully embark on this agricultural lending process because of the risks and challenges of agricultural finance. In 2011, with technical assistance from its partner: Agricultural Business Initiative (aBi) Trust, ENCOT conducted a comprehensive market survey. The survey was aimed to better understand the needs of the farmers in the mid-western region and to see which agricultural products and value chains are the most interesting for doing business. This comprehensive market survey was the basis for agricultural financial product development. The market survey highlighted the following facts about the region’s farming practices, agricultural extension support, agricultural financial demand and the current access to finance for farmers: 1. Farming still remains the major means of livelihoods for over 85% the active labour force;2. Most farmers (over 95%) still operate alone;3. Farming remains predominantly subsistence;4. Only 6.2% of farmers have access to finance for their agricultural projects; and5. Extension service is mainly provided by the government and is relatively inadequate.

Based on the observations of the market study, an agricultural loan product was developed in 2012 in collaboration with the aBi Trust and HIVOS. The product was developed along the value-chain principles, where each project is appraised & managed according to its unique crop-related features. This determined the key issues with respect to the terms and conditions of the financial product to be rolled out:• Grace period: the production life cycle and the respective timings for loan applications,

number and timing of loan disbursements and the repayment periods along with the unique production/project cycles;

• Loan securities – Tailored in accordance with market guarantees;• Delivery channel; and• Loan period – Set in accordance with value-chain principles.

After this study and with support from the aBi Trust, the Microfinance Support Centre Limited (MSC) and HIVOS, a pilot was successfully conducted in 2012 on a total of 80 loans. In the pilot phase the loan was issued for two products, namely for the maize and beans value chains. The pilot was successful with all farmers clearing their loans as was agreed, placing the Portfolio At Risk (PAR) in this category just at less than 2% with an on-time repayment rate of over 97%. The product was finally rolled out in 2013, and agricultural projects accounted for over 21% of the total loans outstanding.

1.4 Other Stakeholders

The various stakeholders actively involved in this project include:• HIVOS;• Friends Consult (FC);• aBi Trust;• Microfinance Support Centre Limited (MSC);• Association of Microfinance Institutions of Uganda (AMFIU);• National Agricultural Research Organisation (NARO); • Kabarole Research and Resource Center (KRC);• Habitat for Humanity Uganda (HFHU); and• Sustainable Energy Market Acceleration (SEMA) Project. The active partnership of ENCOT with these diverse organisations shows ENCOT’s ambition to go beyond “standard” microfinance and to gain as much as possible from external expertise, especially in the agricultural sector. Each of ENCOT’s partners is briefly described:

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HIVOSHIVOS is a Dutch NGO committed to the poor and marginalised people in Africa, Asia and Latin America. It strives for the long-term improvement of their circumstances and for the empowerment of women in particular. Hivos is one of the major supporters of ENCOT. ENCOT and HIVOS have been partners since 2009, working on an array of projects intended to improve the capacity of ENCOT to increase its depth and breadth in lending to the un-banked, especially rural smallholder farmers and with a special focus on women entrepreneurs. In 2012 HIVOS supported the augmentation of the business plan 2012-2016 and also provided seed capital to build ENCOT’s capacity to reach out to the rural communities in Masindi, Kiryandongo, Nakasongola and Bulisa with specially tailored agricultural loan products. Hivos also helped ENCOT in management information systems and capacity building by training employees and farmers in production and marketing.

Friends Consult (FC)FC is the firm retained by HIVOS to provide technical assistance to ENCOT and monitor the seed capital grant given by HIVOS. FC is home to some of the more experienced microfinance consultants in Uganda, and ENCOT has greatly benefitted from this expertise. In 2013 Friends Consult provided technical assistance to ENCOT in developing the Renewable Energy Loan product. The product was tested among the rural families, and the feedback showed a great need for renewable energy products such as solar PV panels, cooking stoves and biogas units for home use. The product was rolled out in 2014 and received positive commitment from various stakeholders.

aBi TrustThe Agricultural Business Initiative (aBi) Trust is a multi-donor entity jointly founded by the governments of Denmark and Uganda and other development partners. This Trust supports agribusiness development in the private sector in Uganda. ENCOT has been in partnership with the aBi Trust since 2012. In 2013, the aBi Trust helped ENCOT expand to the Hoima District in the period October – Dec 2013. The branch was officially opened in March 2014. This branch is strategic in expanding ENCOT’s presence in the oil-rich region serving the districts of Bulisa, Kyankwanzi, Kibale and Hoima itself.

MSCMSC is one of the leading, government-owned agencies implementing the government programme “Prosperity for All” (PFA) in Uganda. PFA wants to transform the rural economy through creating jobs and increasing household incomes. One of the pillars of PFA is Rural Financial Services (RFS). The overall objective of RFS is to develop a financial infrastructure at the sub-country level. ENCOT has been a partner with MSC in RFS since 2009, enabling over 1,200 poor households in the districts of Masindi, Kiryandongo, Nakasongola and Bulisa to access the microfinance services needed to support self-employment in those communities.

Association of Microfinance Institutions of Uganda (AMFIU)The AMFIU is an umbrella organisation of MFIs in Uganda. The AMFIU provides capacity-building support to its members on key themes. The main reason for its establishment was the need for MFIs to have a common voice, to lobby government for favourable policies, to share information and experience and to link up and network with both local and international actors. ENCOT has been a registered, full member of the AMFIU since 2009. In 2013, the AMFIU provided technical support through PESS Limited to enable ENCOT to streamline and mainstream its social performance objectives and perfect its reporting to the MIX market. NAROThe NARO is the apex body for the guidance and coordination of all agricultural research activities in the national agricultural research system of Uganda. ENCOT is an approved private research service provider for the NARO and has participated in a number of seed trials and other agri-research activities working through the organisation’s women’s groups and services centres.

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KRCThe KRC is a well-established NGO operating in the Rwenzori region of Western Uganda. Founded in 1996 with a research mission and a long-term commitment to understanding the measures and drivers of poverty and its solutions, the KRC has accumulated substantial experience in research and created numerous development programmes based on community analyses of the activities that would be most helpful in achieving sustainable and equitable socio-economic development. In a bilateral arrangement (2013 – 2016) facilitated by HIVOS, the KRC and ENCOT have a embarked on a project to improve the household incomes of smallholder farmers in the Bunyoro region involved in the rice, beans and maize value chains through developing and strengthening inter-linkages between sustainable production, collective marketing and access to financial services in ENCOT’s areas of operation.

Habitat for Humanity Uganda (HFHU)HFHU is an affiliate of Habitat for Humanity international. In 2010-2011, HFHU supported ENCOT with the Financial Literacy project in the districts of Masindi and Kiryandongo. This was followed up by the Housing Microloan Product development process. In December 2013, HFHU provided ENCOT UGX 150,000,000 for on-lending under the micro-housing credit product. To further bolster this product as an ENCOT product offered to the regional poor, HFHU has further committed UGX 150,000,000, to be release in 2014.

SEMA ProjectSEMA is a project jointly funded by the European Union and Hivos. The objective of the project is to contribute to increased access to renewable energy through partnerships between renewable energy entrepreneurs and rural-based financial institutions. The SEMA project has supported ENCOT’s development of the energy product, linked ENCOT with a reputable energy entrepreneur, equipped ENCOT staff with renewable energy lending skills and provided marketing support to promote awareness of these energy solutions to increase their acceptance. Through this support ENCOT is now able to successfully lend to its clients, who previously could not acquire these energy solutions with their high upfront costs. Clients are now replacing their kerosene lamps with brighter solar lights, charging their phones from the comfort of their homes, listening to the radio, etc.


While ENCOT has five main financial products, the agricultural enterprise loans are the ones studied and described in this case study. ENCOT MFI designed a financial product for agricultural borrowers after having completed a preliminary study. The product was designed for specifically selected crops: those that are supposed to be in a better position to enable loan repayment. In doing this, ENCOT considered the viability of the microenterprise of its clients and promoted those considered most attractive. Both considerations are rarely seen in the regular microfinance industry.

Product features. The loans are provided for one year, based on the cyclic nature of production in the region. A 36 % annual interest rate was imposed for the borrowers and a flat interest rate with a bullet repayment was designed. In order to mitigate the risk a group loan mechanism was devised. Despite this group guarantee system to mitigate risks, the loan contract was made individually for each borrower.


Name Months Interest Interest mode Repayment Security

Agricultural enterprise loans 1 year 36%1 Flat Bullet Group2

1 In addition, there is a 1% insurance coverage + a commission fee of 3%.2 Beyond the group arrangement there are many more conditions and terms in the product to assure loan security.

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ENCOT focused on reaching farming communities, especially smallholder farmers, with appropriate loan products targeting production, processing, trade/marketing and farm-asset acquisition. After the marketing survey, the product was developed, piloted and rolled out in 2012 and 2013, respectively. The products have the following features; 1. A loan is given with a minimum and maximum limit of UGX 100,000 to UGX 1 million,

respectively;2. Group arrangement for security; and3. Targeted to the poor having land ownership or legal entitlement of 1-5 acres of farm land.

Repayment is based on the balloon repayment strategy (bullet loan), in which the borrowers keep paying back the interest and finally pay back the principal at the end of the loan period. Other features and conditions are described below under loan appraisal.

2. Risk Analysis


Loan appraisal by the Microfinance Institution (MFI) - due diligence The requirements of Enterprise Support and Community Development Trust (ENCOT) in its due diligence process include:I. Permanent residence of the peasant association for at least 2 years;II. Having owned or rented farmland (with proper evidence for a good period);III. One personal guarantee to stand in for the loan if borrower fails to pay back; IV. In a group of not less than 5 members;V. Willing to save 1% of the loan every week with ENCOT, this to also encourage the saving

habits of the clients;VI. Each applicant is required to have 5% of the amount of the loan demanded as mandatory

savings at ENCOT;VII. ENCOT offers a 3% interest monthly, which is 36% per year;VIII. Insurance coverage against the loan amount is taken with a premium of 1% of the loan

disbursed;IX. A commission fee of 3% of the amount disbursed;X. Willing to accept all the terms and conditions of the ENCOT loan and sign a contractual

agreement with ENCOT; andXI. Phased disbursements according to the crop needs, e.g. land preparation, weeding and

harvesting.

Generally, ENCOT recognises that proper management of microenterprises by its clients is paramount in two ways. First, it helps to generate income among the poor through efficiency and good practice. Second, it improves the client’s ability to manage credit and other business obligations. With regard to this, ENCOT has been using its group and services delivery points (centres) as training and advisory points to offer the following trainings.A. Pre-disbursement training programmes that emphasise understanding the loan terms, group formation and dynamics, leadership skills, financial discipline, loan tracking and basic business planning skills. For a new group of applicants there will be a training one day a week for one month. B. Post-disbursement training programmes are follow-up business skills trainings that further support the poor to articulate business issues and further exploit the business potentials around them. The common themes of interest include:• Business planning; • Marketing;• Customer care; • Record keeping; • Resource mapping and mobilisation; • Networking; and• Basic accounting, budgeting.

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In the design and development of the programme, the lead actors have jointly assessed the risks for farmers and the producer organisations (POs), and identified means to mitigate these risks. For the purpose of the case study, a distinction has been made between the six crucial aspects of smallholder production, i.e. risks related to;• the specific crops: i.e. rice, maize and beans;• the farming system and production risks;• the strength of farmers’ organisation;• the markets for the selected crops;• the viability of the crop farming system promoted; and• the financing of farmers.


Product-related risks Maize and beans are crops that can be stored for some time, and hence the shelf life is not as limited as other ‘garden crops’ such as vegetables. Crop specifics risks are associated more with poor quality, low yields due to fake farm inputs, and the risk of buying wrong seed variety. Mitigation measures focussed on educating and sensitising farmers to follow proper farming methods, and letting farmers use good seed materials from certified suppliers. As a monitoring mechanism ENCOT staffs perform regular inspection of the farmers’ gardens to insure proper farming practice. To mitigate the risk of fake variety seeds and farm imputes farmers are sensitised to buy seeds and other inputs from recognised distributors.

Production-related risks The production risks for the three crop financed by ENCOT are varied. They include the full range of both pre-harvest and post-harvest issues:• farmers’ reluctance and failure to do the right agronomic practice at the right time;• impact of bad weather conditions on crop yields;• pests and diseases;• non-germination of seeds;• lack of awareness of the nature of the soil and the appropriate crop to cultivate on these soils;• harvesting and re-harvesting on time; and• risk connected to bulking (post-harvest treatment, quality selection and grading) and

transporting (transport damage, poor packaging, poor handling). As indicated above, crop cultivation risks (pre-harvest) are dealt with by sensitisation, training and regular monitoring visits by ENCOT staff. To increase farmers’ awareness of the appropriate agronomic practices ENCOT outsources support from the Kabarole Research and Resource Center (KRC) and facilitates government extension supporters in addition to ENCOT’s own field officer, who offers the same service to the farmers. ENCOT invests only a portion of its loan portfolio in the agricultural sector to mitigate the risk of bad weather on crop yields. To mitigate the post-harvesting and re-harvesting problem, ENCOT devised a farmer’s warehouse bulk receipt, organising the delivery, acceptance, grading and storing of the crops produced. It also serves as collateral for the loans provided (asset-based lending).

Farmers’-and-PO-related risks As described under 1.1, no formal PO exists for the farmers because ENCOT organises them in client-groups and centres. The difference with the conventional client grouping applied in solidarity group lending is that ENCOT’s groups are led by a committee (similar to Savings and Credit Co-operatives – SACCOs, or Village Savings and Loan Associations - VSLAs) and they consist of one type of client only (smallholder farmers). As they are organised by ENCOT, the financier has considerable influence on these groups and can act if the group fails to function properly. This in itself is a risk-mitigating feature of the ENCOT model. Nevertheless, there are still ample challenges in respect to organising farmers, such as the lack of a common stand among farmers in pooling products (this is important to have bargaining power on the price) and the observed vulnerability to unreliable traders (e.g. traders’ efforts to disorganise farmers or dealings with unreliable farm-input suppliers). Training and educating farmers

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about production, marketing and value addition through pooling was used to mitigate the risk of common pooling and bulking problems. To reduce the risk of unreliable buyers of the produce, farmers were encouraged to bulk their produce. Encouraging farmers to buy only from approved input suppliers was a means of coping with the unreliability of farm inputs and supplies to the farmers. Side selling to the middleman rather than pooling with the farmers’ group to strengthen the negotiation position, continues to form a risk for participating farmers and their centres. Thus farmers needed to be educated and supported to do bulking and collective marking.

Marketing-related risks The risk related to the seasonal fluctuation of prices was identified as the main risk. After harvesting, prices for maize and beans typically drop as a result of excess supply. The three mitigation strategies are storing (until prices are back to normal), processing (posho mills producing maize flour) or forward contracting at pre-agreed prices. This requires strengthening farmers’ groups and enabling them to have collective power through pooling and storage. Farmers were also encouraged to diversify their income by growing a number of crops. To mitigate price risks, ENCOT tried to devise a forward-contracting proposal and look for better buyers, but this has been unsuccessful so far.

Finance-related risksUnlike most MFIs, ENCOT first studied the viability of different crops to ensure that farmers would be capable of debt servicing. This in itself is a risk-mitigating feature of the ENCOT model. Other financial risks can be attributed to: • loan diversion;• adverse selection of borrowers;• moral hazard, wilful default, delay in repayment;• risk of catastrophic crop failure; and• warehouse receipt lending undermined by side selling.

In order to mitigate these risks, ENCOT devised a group-guarantee system with a staggered loan disbursement. In addition, both pre- and post-loan sanction-training programmes were given, due credit appraisals and due diligence processes were done and clients and their produce were regularly monitored. As a result the MFI has a 98% repayment rate.

ENCOT invests only a portion of its total portfolio (15%) in the agricultural sector to mitigate the risk of bad weather on crop yields. To educate farmers about the financial product provided and appropriate agronomic practice applications, ENCOT receives support from the KRC, facilitates government extension supporters and has its own field officer who provides farmers with the same service.

Risk management The detailed risk appraisal, assessment and mitigation measures taken are presented in the following table.

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Table 2.1: Risk catalogue: Overview of risk assessment and risk mitigation measures

Aspect Risk assessment The risk owner

Risk mitigation measures Risk monitoring

Product risks Poor quality of harvest • Farmers to follow proper farming methods • Sorting out the harvest for best produce • Farmers to use high quality seeds

• Agronomists / ENCOT staff regularly inspect farmers’ gardens to ensure proper farming practices are embraced • Group committee inspects produce for bulking

Risk of fake farm inputs To buy seeds and other inputs from recognised distributors

Side selling to middlemen rather than pooling with farmers’ group

• Educating them to pool for better prices • Pooling harvest and warehouse store receipt used as a way for the next loan

• More education collective marketing • Diversification of crops to grow

Risk of buying a wrong variety of seeds • To buy seeds and other inputs from recognised distributors • To sensitise farmers to appreciate the benefits of using improved seeds

Farmer training by ENCOT staff at centre meetings

Production risks Risk of tight harvesting and re-harvesting time

Warehouse bulk receipt and going to the next loan cycle

Extension staff keeps farmers informed of the seasons

Bad weather conditions/harvesting season/drought/ weather failure

• Crop Insurance (but this one is almost not possible) • ENCOT investment in agriculture 15% of the total portfolio – manageable portion • ENCOT provides for a diversified product value chain. Rise, maize and beans • Explore other farming methods like Drip Irrigation

• Insurance was sought but very expensive for the farmers at this time • Only last year there was a bad harvest • ENCOT still had a great repayment rate of 98%

Pests and diseases • Diversification. • Follow-up of agricultural experts of the KRC provide training and extension service • Observe good agronomic practices

• Growing of pest/disease-resistant varieties • ENCOT provides a limited extension service in collaboration with the KRC

Risk of non-germination of seeds

Lack of extension services • Outsourcing support from the KRC • Facilitating government. Extension Workers (e.g. transport) to support ENCOT farmers

Very limited

Lack of knowledge of the type of soils in the area and the kind of crops they support

Collaboration with local research institutes

Risk at bulking and transporting

Farmers’ failure to implement the right agronomic practice

Education in good agronomic practices • Inspection of farms by ENCOT staff. • Agricultural extension and sensitisation programmes

Farmers’ organisations Lack of common stand in pooling products to have bargaining power about price

Training and educating farmers about production, marketing and value addition through pooling

• Yes, but much should be done to make farmers well aware of it • Next cycle loan based on bulking

Unreliable trader Keep encouraging farmers to bulk their produce • Keep encouraging farmers to bulk their produce • Yes, but still much should be done

Unreliable farm-input suppliers Encouraging farmers to buy only from approved input suppliers

Traders’ efforts to disorganise farmers

Uncertified farmers’ group Registration with the sub-county or district authorities.

In progress

Negative attitude towards loan because of religion

More education on the benefits of loans to a farmer.

Centre group meetings/trainings

Past bad loan experience from other financial institutions

ENCOT to take advantage of the shortcomings of the other financial institutions to do better

Do competition analysis to highlight ENCOT’s position in the market on different parameters e.g. customer service, client education, etc.

Market risk Price fluctuation 1. Seasonal price fluctuations

• Strengthen farmers’ groups in collective power through pooling and selling in bulk • Diversification of income generated by growing a number of crops

Extension service or loan officer’s inspection of farmers

2. Product price risk Proposed for forward contracting. ENCOT tried to look for a better buyer

• Not yet possible • Buyer did not agree on forward contract; opted for spot price

Financial risks Loan default • Staggered loan disbursement • Group guarantee (Personal guarantee)

Portfolio performance e.g. Portfolio At Risk (PAR)

Risk of catastrophic crop failure • Diversification: Only 15% agricultural • Staggered conditioned loan disbursement

• Used gradual principle. Start small, grow big loan • Based on farmers’ agronomic progress

Risk of adverse selection Good credit appraisal and due diligence process Based on graduation principle they will provide for the next loan cycle

Repayment delay Regular monitoring of the clients and their produce

94% repayment rate after delay

Risk of loan diversion Proper due diligence Regular loan monitoring & proper due diligence

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ENCOT’s agri-financial strategy is characterised by the following:

Financial needs assessment and product development. With technical assistance from the Agricultural Business Initiative (aBi) Trust, a comprehensive market survey was conducted in 2011 to better understand the needs of the farmers in the mid-western region and to see which agricultural products and value chain were interesting. Based on the key observations from the market study, ENCOT developed an agricultural loan product in 2012 in collaboration with the aBi Trust and HIVOS. The product was developed along the value chain principles in which each project is appraised and managed according to its unique features.

Farmers’ group formation. The credit was given to the farmers in a group arrangement with cells of five that together form a centre. A conservative list of conditions and terms was also used to support the group security arrangement of this loan (refer to the due diligence process above for details).

Financial products/instruments. An agricultural enterprise group loan was given with a minimum and maximum limit of Ugandan Shillings (UGX) 100,000 to UGX 1 million, respectively. A group guarantee arrangement was followed in order to secure the loan. The loan was targeted to the poor having either land ownership or a legal entitlement of 1-5 acres of farmland. The loan was provided for one year with an annual flat interest rate of 36%. Repayment was based on a balloon repayment strategy in which the borrowers keep paying back the interest and finally pay back the principal at the end of the loan period.


ENCOT has highly trained staff to do the credit appraisal and proper screening of the farmer applicants and their groups as well as to follow-up the request and disburse the loan to each based on the staggered conditional disbursement scheme of the loan. In addition, in the regions that ENCOT has been operating in, there is little competition in the agricultural finance sector and a very high demand for credit. This gives ENCOT a high bargaining power with farmers to force them to behave with respect to the conservative terms and conditions with a staggered disbursement of the loan product. This also enables them to select only the most creditworthy farmers from a very large number of applicants.

With the help of the KRC, better agronomic education and training has been given and will continue to be given to support farmers to be more efficient and productive and to have a better repayment rate for ENCOT. Furthermore, ENCOT is working with the KRC to develop and em-power farmers’ groups in order to make them able to pool production, store, add value and sell at a better price at an appropriate time. Buyers from Kenya and Rwanda are interested in the product and looking forward to bulking and selling it at a better price in bulk.

ENCOT has been building excellent partnership experience and relationship with international and national development partners, funding agencies and research institutions. They are still looking for a good system that can synchronise credit operations and farmer activities.

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3. What made it tick?3.1 What are the success factors in this case? What risk mitigation measures proved effective?

Financier-led orchestration. The lead actions were done by the financer: Enterprise Support and Community Development Trust (ENCOT). Most activities and initiatives were supported by development partners such as the aBi Trust, HIVOS, the Microfinance Support Centre Limited (MSC) and the Kabarole Research and Resource Center (KRC). For details see the other stakeholders (section 1.4 above). The financial product development was based on an extensive marketing survey of the region. The region’s farming practices, the financial demand and the current accesses were investigated. The survey also provided information about how to develop the product and the terms and conditions of the loan. Moreover, a pilot study was conducted preceding the market survey. The loan was then given with a group loan security system with a number of specific conditions and terms. In addition, the loan was also disbursed based on a staggered conditional loan disbursement. This finally enabled ENCOT to minimise the risk and be able to have a real-time repayment rate of over 98%.

ENCOT allocated only 15% of its loan portfolio to agriculture. If a worst-case scenario of crop failure happens in the region, the risk will not have a substantial effect on the business operations of ENCOT. Furthermore, ENCOT based its value chain finance on the selected agricultural production; crops that already had proven marketable at a better price. As a result, the loan was diversified with maize, beans and rice producers.

As a young institution ENCOT, was able to cover all the expenses of its operations. Furthermore, ENCOT was also able to convince and create partnerships with a number of development partners. Recently, ENCOT was able to receive money from the Grameen credit fund. Oikocredit and Hivos are also the other development partners who are interested in having equity and/or shareholdings. Further, ENCOT recently recruited qualified, skilled and experienced employees in the key positions of the organisation. Agricultural value chain finance has already been piloted and is operational. ENCOT now wishes to upscale these financial products to the other regions that ENCOT can feasibly address and to apply the experience gained to other product value chains in addition to the existing three main value chains financed. Next year ENCOT plans to change the organisations legal entity to a company limited by shares.


ENCOT has a system to track the farmers and clients but they would also like to have one that records the harvest, forecasts their produce in bulk and looks for a better market linkage, such as a forward contracting. They still do not have the best human resources with the experience, skills and qualifications for every position in the organisation. Funding specifically designed to suit agri-lending at the wholesale level is still a challenge. ENCOT provides its financial products only to the extent that its resources allow.

The grassroots farmers’ organisations are still weak and/or non-existent in many parts of the country, hence the need for ENCOT to be active in this field. The market survey also highlighted that the majority of the farmers are operating alone with little commercialisation. Credit, cash management and financial management in this region are still serious problems. Credit is often perceived as handouts. Sensitisation was done through training programmes and pre- and post-loan disbursement education. Despite this, the problem still persists. When loan delay and default happen, the regulatory environment regarding non-performing assets/loans is still skewed against financial institutions. Because most of the existing farmers’ groups are not well organised and legalised as cooperatives, they lack the trust of the farmer members; as a result, there is little collective bargaining power through bulking produce at harvest time to add value through storage. Marketing farmers’ produce is still not well organised and leaves farmers at the mercy of middlemen, thus greatly affecting the net farm income. Furthermore, insurance in agriculture as a mitigating mechanism for the risks exposed is still not well developed or involves a very expensive insurance premium so that farmers are less interested.

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• Production and marketing are unorganised and need improvements: The extension service provided by both the government agricultural extension agents and ENCOT for the farmers is very minimal. ENCOT believes that lending to farmers can only be successful if closely coordinated with extension services (in-house or external) and market linkages. This needs much more attention.

• Empower farmers’ groups and so they have collective bargaining power with buyers. This will enable the farmers to minimise their main risk of price fluctuations at harvest as a result excess supply. If the groups are strong enough they can collaborate to create a better marketing strategy in bulking and forward contracting.

Sources Documents: Making Agricultural Microfinance Work; The ENCOT Journey and Lessons Learnt, Hoima Branch. Launch Symposium, Kolping Hotel, Hoima – 14 March 2014.

Interviews:• Paschal Mandhawnu, ENCOT managing director, Masindi,

[email protected]• Robert, ENCOT agricultural loan officer, Masindi.• Kikubie centre’s members and administrators.

Websites:www.encot.org

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AbstractThe National Union of Coffee Agribusinesses and Farming Enterprises (NUCAFE) is a national union of 160 coffee growers’ primary societies with a total membership of 150,000 coffee farmers. It has established 8 so-called business hubs, which are strategically located in the coffee-growing area of the country. The hubs, usually located on the premises of a hulling factory, consist of a small building with an office and storage space. As a development partner, Agriterra played a major role in facilitating the financial access of NUCAFE farmers in the Kabonera Coffee Farmers’ Association (KCFA) in the Masaka hub. It trained NUCAFE staff in financial management and guided staff on how to develop a bankable business plan. With this, the KCFA staff were able to present a bankable business proposal to Centenary Bank. This led to a fruitful financial relationship in which the bank built up experience in coffee-farm financing and gained confidence in its clients. Thus over the past three years, Centenary Bank allowed bank loans to increase from Ugandan Shilling (UGX) 40 million to 100 million at gradually decreasing interest rates.

AcronymsaBi Trust Agricultural Business Initiative TrustFAQ Fair Average QualityFOM Farmer Ownership ModelKCFCS Kibigne Coffee Farmers’ Co-operative SocietyMFI Microfinance InstitutionNAADS National Agricultural Advisory ServicesNUCAFE National Union of Coffee Agribusinesses and Farming EnterprisesPO Producer OrganisationTMEA TradeMark East AfricaUCDA Uganda Coffee Development AuthorityUCFA Uganda Coffee Farmers AssociationUGX Ugandan ShillingUIA Uganda Investment Authority

Case Study U3

National Union of Coffee Agribusinesses and Farm Enterprises (NUCAFE)

NUCAFE profile data

Type of organisationNumber of group membersNumber of group membersNumber of employeesMain crops

Coffee Agribusiness & Farm Enterprises8 hubs & 160 primary societies 150,000 HH15Coffee



NUCAFE stands for the National Union of Coffee Agribusinesses and Farming Enterprises and was founded in 1995 as the Uganda Coffee Farmers Association (UCFA). In 2003, the UCFA changed its name to NUCAFE in response to an assessment of members’ needs and strategic planning carried out that year. NUCAFE is mainly involved in procuring and marketing coffee. It consists of 160 Ugandan primary societies spread over 5 main coffee- growing regions in Uganda and representing more than 150,000 coffee-farming households. NUCAFE’s system of operation is based on the Farmer Ownership Model (FOM), which is designed to help small-scale coffee farmers to adopt a business view of farming and organise themselves to assume as many roles in the value chain as possible.

“Facilitation of access to finance”

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NUCAFE’s aim was to establish a sustainable market-driven system of coffee farmer societies through which farmers participate fully in determining the economic future of their households and the rural economy. In order to procure and mobilise the coffee of its members, NUCAFE established 8 so-called Hubs, which are strategically and logistically located in the towns of Masaka, Bushenyi, Kasese, Nkokonjeru, Mityana, Wakiso, Kapchorwa and Phaida. Every hub consists of a small building with an office and storage space. The hubs are usually located on the premises of a hulling factory where farmers can process their kiboko (dried berries) into Fair Average Quality (FAQ) for a small hulling fee. After hulling they can sell their FAQ coffee at the hub (NUCAFE only buys FAQ).

NUCAFE still plays an essential role in mobilising, bulking and transporting coffee from farmers and member associations to Kampala. This is mainly because most associations and hubs are not developed enough to manage activities related to bulking and transportation. In the future, however, it is expected that hubs and member associations will acquire the expertise, skills, as-sets and working capital themselves to individually transport their coffee to the NUCAFE export facility in Kampala. The field research for this case study concentrated on the Masaka District. Under NUCAFE membership in the Masaka district there are two main producer organisatios: Masaka Coffee Hub and the Kibigne Coffee Farmers’ Co-operative Society (KCFCS). Figure 1.1 below shows the relationships between the main stakeholders in the chain and these two pro-ducer organisations (POs).

In the above figure, four major players contribute to the aim of coffee farmers’ organisation: the Masaka Coffee Hub, the Kabonera Coffee Farmers’ Association, the KCFCS and its Savings and Credit Unit. Each of these is briefly described below.

Centenery bank

Uganda Development Bank

National Union of Coffee Agribusiness and Farm Enterprise (NUCAFE)

Masaka Coffee Hub

Kabonera Coffee Farmers Assocation

Coffee farmers Coffee farmers

Kibinge coffee farmers cooperative society

Credit & Savings Unit

Farm Input Shop

Drug ShopCooperative activity unit

Figure 1.1: Organisational structure of NUCAFE with respect to the selected case studies

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Masaka Coffee HubMasaka Coffee Hub is one of the eight coffee hubs under National Union of Coffee Agribusiness and Farm Enterprise. The hub consists of 2,220 farmers organised in 9 coffee farmers’ associations with 74 groups engaged in bulk marketing of their own coffee. The system of operation at NUCAFE in general and at the Makasa coffee hub in particular is based on the NUCAFE Farmer Ownership Model (FOM), which is designed to help small-scale coffee farmers to adopt a business view of farming and organise themselves to assume as many roles in the value chain as possible. Coffee business hub practice is taken from a Tanzanian business case introduced by the development partner Agriterra. This business hub practiced for the last two years. Like the other hubs, Masaka is not yet registered (neither as a cooperative nor for fair trade certification). In line with this, NUCAFE also aimed to strengthen the coffee hubs so they could start operating more independently. With the new export processing facility in place (July 2014), NUCAFE believes that the hubs will become more independent in mobilising and exporting coffee by using the market linkage services and export facilities of NUCAFE. The hubs are currently in the process of becoming Fair Trade and Organic certified. These certifications, in combination with the focus on specialty coffee, will result in higher prices and premiums on the world market. NUCAFE has already devoted much effort to educate farmers on quality improvement.

PO /coop profile dataMASAKA COFFEE HUB


Coffee Hub2220 farmers 3Coffee

Masaka coffee hub and its membership

Name of farmers’ association

Number of groups

Membership

Kabonera 1 450

Kyanamukaka 13 150

Kkingo 11 240

Lwengo 9 200

Butengo 11 80

Kisekka 9 119

Buwunga 11 66

Mukungwe 3 25

Bukulula 3 350

Total 71 1680

Kabonera Coffee Farmers’ AssociationKabonera Coffee Farmers’ Association Limited started operation in June 2002 as a company limited by guarantee with 15 registered paid-up groups as shareholders, each group having 25-35 coffee farming households. The association is a leading coffee PO for the Masaka Coffee Hub and the location of the pilot study. The vision of this association is to improve coffee farmers’ livelihoods through producing and marketing special, organic Robusta coffee. The individual coffee farmers have been engaged in bulking and supplying dry (Kiboko) coffee to NUCAFE since 2006. The Kabonera Coffee Farmers’ Association was the leading party for the pilot finance scheme of Centenary Bank in 2011. Subsequently, it was provided with loans by Centenary Bank for the past three harvesting years. This year the business proposal included a credit line amounting to Ugandan Shilling (UGX) 100 million.

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Achievements Masaka hub Since 2011, the Masaka Coffee Hub has achieved the following:• Acquiring a business plan and diagnostics report through ITC;• Improving the quality of the warehouse and grading plant at Namanve by

NUCAFE;• Improving professionalism of hub staffs by acquiring a number of

trainings from NUCAFE and development partners like Agriterra, the Agricultural Business Initiative (aBi) Trust, the National Agricultural Advisory Services (NAADS) and the Uganda Coffee Development Authority (UCDA);

• Acquisition of 4C certificate with support from ITC;• Increased tonnage of coffee from 50MT in 2011, 60MT in 2012 to 98MT in

2013;• Through Agriterra and the aBi Trust, the hub got fixed assets, including a

computer set, printer, moisture metre and motorcycle; and• Quality-enhancing tools (such as a moisture metre, weighing machine

and sample screening - see the pictures below) were acquired from the aBi Trust for Kingo, Kabonera and Kyanamukaaka.

Kibigne Coffee Farmers’ Co-operative Society (KCFCS)• Established in 1995;• Registered as a private company limited by guarantee in 2001;• Converted in 2009 to cooperative society with the aim of benefiting the members by engaging

in income-generating projects; and• Currently the cooperative society is doubly certified: UTZ and Fair Trade certificates.

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Services offered by the Cooperative Include:1. Training farmers in general agronomic practices, collective marketing, financial accounting

bookkeeping, cash management and ender studies;2. Consultancy in agribusiness; 3. Delivering technical support in certification standards; 4. Savings and credit facilitation;5. Buying and processing coffee; and6. Assisting farmers by providing easy access to farm inputs, certification, crop advances,

collective marketing and research.

The Cooperative Society is able to improve the coffee quality by adding value and enjoying a premium price in the market. Moreover, it is able to create better working conditions and to contribute to development services and support for the local communities in terms of repairing roads in its area of operation. For these achievements, the KCFCS has been awarded some certificates (see photos below).

Eligibility criteria: Access to this loan for the members is based on the following requirements and steps:

> Member with shareholding status with a 10% share of the loan is mandatory (1 share= UGX 10,000);

> Good relationship with the cooperative and a savings culture; > Good farm shop activity in the cooperative’s farm shopping unit; > Physical collateral such as a house, motorbike, etc; > Two personal guarantors who have a paid-up share holding position in the cooperative; > Field officer’s field visit and appraisal; > Then credit committee approves or rejects based on the field officer’s report and the

applicant’s application; > Application fee of UGX 5,000; and > A signed contractual agreement with the credit and savings unit.

KCFCS Savings and Credit Unit In 2013, the KCFCS opened up a savings and credit unit. The aim of this unit is to provide credit service to its members in response to their working capital needs before their coffee is ready for sale. This initiative also raised the culture of savings among the farmers.The KCFCS savings and credit unit provides credit to participating coffee farmers for inputs (farm chemicals). The loan size depends on the creditworthiness of each farmer and the needs of their coffee farm. The KCFS charges a 2.5% interest monthly. It also provides staff loans at a 1% interest per month.

PO /coop profile data

Type of organisation# of members# of farmers’ groups# of employees# casual workers Main crops

Cooperative society1456 48 15 6 Coffee

Microfinance Institution (MFI) profile dataKCFCS Savings And Credit Unit

Total number of active clientsPortfolio value (in euros)Portfolio value outstanding % of farming clients% of portfolio in agricultureSavings portfolio Share capital Loan Outstanding

331 Loans So FarUGX 483.97 M UGX 191 M100%70% estimatedUGX 59,353,170 UGX 29,145,000 UGX 176,052,650

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1.2 Financial service providers

There were three external sources of finance for the coffee farmers: Agriterra (Netherlands) as facilitator, Centenary Bank in Masaka and the Uganda Development Bank. Each of these is briefly described below.

Agriterra As a development partner, Agriterra played a crucial role in facilitating the financial access of NUCAFE in general and the Kabonera Coffee Farmers’ Association in the Masaka business hub in particular. From the very beginning Agriterra trained NUCAFE staff on financial management aspects and bookkeeping and instructed staff on how to develop a bankable business plan. Subsequently, also with the support of Agriterra, NUCAFE and the Kabonera Coffee Farmers’ Association employees were able to develop a bankable business proposal. Based on this business proposal and other additional conditions and terms (see below), credit was granted through Centenary Bank. As a result of their bankable business proposal, Kabonera was able to access UGX 40,000,000, 45,000,000 and 75,000,000 from Centenary Bank at a 28%, 27% and 26% interest respectively in the past three years. This year they have also developed a business plan and proposed a credit line of UGX 100 million loans at a 21% interest. Moreover, Agriterra also provided training support at the hub and farmer’s levels on gender balance and equitable household decision-making, bookkeeping and cash management at both the household and hub levels. Moreover, through Agriterra the coffee hub also acquired fixed assets including a computer, printer, moisture metre and a motorbike.

Centenary Bank, Masaka branch Centenary Rural Development Bank Ltd started as an initiative of the Uganda National Lay Apostolate in 1983 as a credit trust. It began operations in 1985 with the main objective of serving the rural poor and contributing to the overall economic development of the country. In 1993, Centenary Rural Development Bank Ltd was registered as a full-service commercial Bank. Currently, Centenary Bank is a leading microfinance commercial bank in Uganda, serving over 1,300,000 customers. The services are accessed across their 62 full-service branches and 146 ATMs networked countrywide. Centenary Bank has been supporting NUCAFE in general and the coffee agribusiness sector in particular.

Due diligence processAccording to NUCAFE’s information, it was difficult in the beginning for Centenary Bank, to decide on the creditworthiness of the Kabonera Coffee Farmers’ Association because the bank had no experience in coffee-credit provisions in the Kabonera region. As a result, an interest rate of 28% was set. Over time, the bank was able to see and experience the business of the association and its repayment capacity and, as a result, the interest rate was reduced to 26% on the second loan and now to 21%. The amount of loan granted to the association also increased from 40,000,000, to 45,000,000 and then to UGX 75,000,000 in the past 3 years. It is this experience that has helped the bank agree to a credit line of UGX 100,000,000 at an interest of 21%.

Ugandan Development Bank The Ugandan Development Bank is the financer for the KCFCS and specifically for the Credit Unit. The loan had the following terms: • Loan amount of UGX 300 million • Interest rate of 15%;• Loan period of one year; and• Repayment in two equal instalments (every 6 months). The due diligence process was based on the following criteria: • Financial statement of the business operation of the cooperative society; • Membership in the cooperative society and experience in the business; • Business activities and cash inflow and outflow of the cooperative society; and• Guarantee by three board members of the cooperative society.

Other financiersNUCAFE received a variety of grants from the Agribusiness Initiative Trust amounting 2,151,091.845 USX. From TradeMark East Africa (TMEA) USD 340,851 and from Agriterra

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62,705,885 USX. All these grants were to improve coffee bulking and marketing and increase the access to finance for smallholder farmers. Generally, financial aid is given independently for NUCAFE and for member organisations such as Kabonera CFA and the Kibigne Coffee Cooperative. This funding also benefited farmers because it helped to stimulate the market linkage services and equipment lease service portfolio. The interest rates of Centenary Bank, Ugandan Development Bank and the pre-harvest finance was set at 21%, 15% and 9% per annum, respectively. These loans run for a maximum of one year and are subject to renewal. This is the second year of managing these loans.


Coffee delivery by regional smallholders to NUCAFE has increased from 50 to 138 metric tonnes in four years, implying a growth rate of some 40% annually. The input finance for farmers has grown at almost the same rate (i.e. 36% annually), as shown in the table below.

While the smallholder farmers sell their coffee to the hub, NUCAFE markets the coffee both on national and international markets. NUCAFE makes immediate cash payments to the smallholders upon delivery at the hub despite the fact that payment by ultimate clients takes some time. This is possible through the post-harvest credit provided by Centenary Bank to the hubs.

1.4 Other support activities by stakeholders

A. By NUCAFE Training the employees of the hub and the coffee farmers about:• Gender issues and equal participation in income generation;• Cash management; and• Better bookkeeping skills. B. By AgriterraTraining and support on:• Business plan development;• Participatory business plan development; • Participatory action plans; • Record keeping and financial management; and• Research on the knowledge of the available lending possibilities.

Production table

Year Production Metric Tonne

Coffee output/production 2011201220132014 estimated

50 Metric tonnes60 Metric tonnes98 Metric tonnes138 Metric tonnes

Year Loan from Centenary Bank

Input/loan 2011201220132014 proposed

UGX 40 million UGX 45 million UGX 75 million UGX 100 million

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C. By the aBi-trustThe Agricultural Business Initiative (aBi) Trust is a multi-donor entity jointly founded by the governments of Denmark and Uganda and other development partners. The Trust supports agribusiness development in the private sector in Uganda. The aBi Trust has been giving the following support to NUCAFE and the hub. • Training employees and farmers on gender equality; • Support for lobbying the government on agricultural policies; and• Support for Kabonera with tools such as sample screening machine, moisture metre, sample

weighing scale, platform weighing scale and motorcycle.

D. Uganda Coffee Development Authority (UCDA)The UCDA was established as a public authority and its mandate is to promote and oversee the coffee industry by supporting research, promoting production, controlling the quality and improving the marketing of coffee in order to optimise foreign exchange earnings for the country and payments to the farmers. The UCDA mainly engages in:• Provision of coffee seedlings to smallholder farmers at the hub level; • Support NUCAFE to conduct trainings; and • Financial support of UGX 30 million to NUCAFE to facilitate trainings at the hub and farmers’

levels. E. Uganda Investment Authority (UIA)The UIA is a semi-autonomous government agency operating in partnership with the private sector and the government of Uganda to drive national economic growth and development. The Authority was setup by an Act of Parliament with the aim of promoting and facilitating private sector investment in Uganda.


An annually modified loan product has been given for the Kabonera Coffee Farmers’ Associations at Masakahub by Centenary Bank, as shown in the table below.

The loan is given for working capital for the hub to enable them to buy coffee produce from the farmers at harvest time and pay them in cash upon delivery. The loan matures within 8 months. The loan first offered a 28% interest in 2011. Every year, there was an improvement in the interest rate offer from the financier, Centenary Bank. As a result, in 2012 and 2013 the interest rate offered was 27% and 26%, respectively. This year’s bankable business proposal of the Kabonera Coffee Farmers’ Associations proposed a 21% interest rate, which is in the process of loan approval. The repayment is in two instalments, in which the interest and principal are added up and divided by two. The repayment time is based on the mutual negotiations of the hub and Centenary Bank. The loan is secured by a number of requirements besides the physical collateral and personal guarantee requested.


Name # of months

Interest % For d/t years

Interest mode Flat or R.B.


Security mode

Kabonera Coffee loan 8 months >>>>>>

28% 201127% 201226% 201321% 2014 1

Flat>>>>>>

2 instalments>>>>>>

See above >>>>>>

1 Note: This is the interest rate proposed by the coffee association. Not yet approved by the bank.

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2. Risk analysis


Loan appraisal by the bank - due diligence. The financer, Centenary Bank, applies a thorough due diligence process. The following requirements and conditions are taken into consideration: • The management of the farmers’ group. The bank carefully scrutinises the nature, quality and

number of management staff who are responsible for running the farmers’ group;• Experience in the business. The experience of the farmers’ group in the particular

agricultural business was also considered while screening the credit application of the producers’ group;

• Audited account books;• The farmers’ groups owned physical collateral;• Capacity of the farmers’ group and the member farmers’ interim’s land ownership and crop

cultivation;• Credit history of the farmers’ group. The better the history, the higher the credit processing;• Input and output cash flows of the farmers’ group;• The business proposal of the farmers’ group and the feasibility and profitability of the

business plan;• Third-party security: a personal guarantor of the three board members of the Masaka Coffee

Hub was also used;• Contractual agreement with a buyer: a tripartite contact and its memorandum of

understanding of the coffee hub, the National Union of Coffee Agribusinesses and Farming Enterprises (NUCAFE) and the International buyer called Cafe River Spa; and

• With respect to the Kabonera Coffee Farmers’ Association the recommendation from NUCAFE was also used to assess the loan application.


In the design and development of the programme, the lead actors have jointly assessed the risks for farmers and the producer organisations (POs) and identified means to mitigate these risks. For the purpose of the case study, a distinction has been made between the six crucial aspects of smallholder production, i.e. risks related to:1. The specific crop: i.e. coffee;2. The farming system and coffee production;3. The strength of the farmers’ organisation;4. The markets for coffee;5. The viability of the coffee-farming system promoted; and6. The financing of farmers and hubs.


Product-related risksQuality is a determining factor in the price of coffee beans. The quality of a batch of coffee beans establishes whether it can be exported or must be sold locally. Moreover, quality defines whether the lot will be bought at a standard commodity price or may acquire a “specialty” price, which is much higher. The factors that determine quality are numerous, yet in a coffee bean’s entire journey through the chain, quality is primarily made (or lost) at the farm level – notably during the initial post-harvest treatment of the coffee cherries by the farmers. There are also losses that are incurred at the drying stage. It is recommended that the handpicked coffee be dried on trays or mats. When farmers dry their coffee on the ground, the beans can easily be polluted or damaged, thus lowering the quality of the entire batch. Problems observed relate particularly to issues such as mixing coffee with coffee from other regions (which is believed to be of lower quality than coffee from the Mekasa region) or pollution with non-coffee materials.

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In order to mitigate this, the Mekasa Hub has been trying to assess the quality of coffee through quality-standard control tools such as moisture metre, weighing machine and quality grading. At the farm level, farmers are exposed to risk of theft of coffee in the garden. In order to mitigate this they fenced off the coffee garden.

Production-related risksCoffee production problems relate to poor seed choice, limited or no use of complimentary inputs, declining soil fertility and ageing trees. These are some of the reasons why seed deliveries may fail to grow. Very crucial to the production is the process of harvesting. The standard of picking controls the final product because the inclusion of other than red ripe berries increases the percentage of shrivelled, black, discoloured and defective beans. The unripe berries produce beans that break easily, are of inferior quality, are small in size and are usually eliminated during processing, resulting in qualitative and quantitative post- harvest losses. Furthermore, the immature beans give a bitter taste. This highlights the importance of picking in time. The hub facilitates extension services for farmers to address these issues.

Farmers are also exposed to bad weather conditions, coffee pests and diseases (such as the coffee stem borer and coffee wilt diseases). As mitigation measure farmers used traditional treatments against the diseases and diversified crops. In the context of the programme follow-up was provided by the agricultural experts of the cooperatives, the hub and Centenary Bank. Storage and transportations problems were also the other risks for the farmers. While it is recommended that farmers construct special rooms to store their produce, most farmers store their coffee in the houses in which they live; in addition, the coffee is stored with other crops (and at times with animals). The implications of this are twofold. On one hand, such coffee is prone to attack from vermin (such as rats) in the house, resulting in quantitative post-harvest loses; on the other hand, this coffee may acquire unfavourable odours from such an environment, thus lowering its quality. NUCAFE purchases insurance against the transportation risk for coffee while being transported from the hub to Kampala.

Farmers’ organisation-related risks The main risk related to a (weak) farmers’ organisation is side selling, observed both among the coffee hub members and at the coop members’ level. Since there is limited financial assistance from the hub, the farmers are sometimes tempted to side sell their raw coffee against advances in order to satisfy urgent financial needs. In those cases cherries are handpicked prematurely to generate some cash. In order to mitigate this risk, cooperatives, hubs and farmers’ societies have been training and educating farmers on the disadvantages of side selling. Despite the effort made by all the concerned stakeholders side selling has not yet been completely resolved. This is mainly because of financial needs of farmers in the off- seasons for food, schooling and farm labour employment.

Other risks related to farmers’ organisations: 1. Limited understanding on the part of the bank with respect to the way the hubs work and

manage their risks;2. The presence of unreliable traders and farm inputs suppliers, undercutting the standards

promoted within the value chain;3. Unclear price setting at the hub level in the perception of farmers, undermining confidence in

the system; and4. Low trust of farmers in the hub as a result of the absence of certification and legalisation of

the hub are the main risks of this value chain.

Through time Centenary Bank gained experience in the operations and businesses of the Mekasa Hub in general and the Kabonera Coffee Farmers’ Association in particular. As a result they gradually granted larger loans to the hub and at a gradually reduced interest rate.

To mitigate the unreliability and price fluctuations of farm inputs, Kibegn established a coffee farm input shop to supply the necessary farm inputs and reduce price fluctuations. This is a good example to be followed at the hub level for all coffee farmers’ societies in the Mekasa region. Kibegn has a double certification, (Utz and Friar Trade), which reduces price volatility and solidifies marketing linkages.

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Marketing-related risksPrice fluctuations and the lack of reliable buyers are recognised as the main marketing- related risks in this value chain. Price volatility is experienced both at the hub level and at the international export market level. In order to mitigate this, Mekasa Hub has been trying to determine prices based on the quality of coffee supplied by each farmer. To determine quality, standard compliance tools such as moisture metres, weighing scales and sample screening tools are used. NUCAFE has made ample efforts to link farmers and hubs to better markets through forward contracting and related contractual arrangements with international buyers. Kibegn Coop has also been training staff to control price fluctuations and the reliability of the marketing, which has been made considerably easier thanks to its double certification from both Fair Trade and Utz.

Finance-related risksIf farmers or coffee hubs do not make ends meet or face temporary cash flow deficits, the proper functioning of the supply chain is at stake. In the Mekasa Hub, the Kibegn Coop and the farmers in this value chain, financial performance risks arise from a number of factors:• Poor personal and manual financial record keeping at the coffee farmers’ association and the

Mekasa Hub; • Exchange rate fluctuations; and• Employee’s fraud and moral hazard.

Delay and default by the farmer borrowers are assessed as the main financial risks of the scheme. To mitigate these risks, employees at different levels in the chain were trained and efforts were made to link through forward contracting, have employee rotate jobs at least at the Coop level, do regular audits and ensure close follow-ups by the cooperative, hub and Centenary Bank’s field officers.

Based on the approaches to risk management in the finance of the whole coffee value chain, the following risk-management matrix was created. Evaluations range from 0 to 5; 0 means that risk management was not taken into consideration aspect by the owner/s of the risk, and 5 represents an excellent effort/action taken by the risk owner/s. The detailed risk appraisal, assessment, mitigation measures taken are presented in the following table.

Elements risk management (score 0 – 5)

Aspect Appraisal by MFI/bank Risk assessment by PO

Risk mitigation measures

Risk monitoring

Product 4 4 3 3

Production 3 4 3 3

Partner/client 4 4 4 3

Market 4 4 4 4

Financial 4 4 4 4


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Table 2.1: Risk catalogue - Overview of the risk assessment and risk mitigation measures

Aspect Risk assessment The risk owner

Risk mitigation measures Risk monitoring

Product risks • Quality-related risk such as mixing • Mixing Masaka coffee with other regions’ coffee

• Using standard quality-enhancing tools • Careful assessment of compliance with quality standards

• Up to the farmer to comply with the quality standard • Rejection of non-compliance to quality standards

Theft at farm level Fencing off the coffee garden

Side selling: cooperative members (borrowers who pledge their coffee as a collateral)

• Tight follow-up of farmers who take credit at a cooperative level • Better price at the cooperative level • Incentive payments based on the amount sold to the cooperative society

• Percentage of product sold to the cooperative society • NUCAFE lobbying at the government to have some regulation at national level. A rule was enforced recently by the government

Side selling: coffee hub members • Farmer education on the benefits of bulking and collective marketing as well as understanding losses incurred from side- selling • Better price at the hub level • Immediate cash payments on delivery at hub level

• It works but there is still side-selling as early harvest source of cash needed for HH consumption, school fees and labour payment • Regular field visits by lead farmers and extension staff • Tracking farmer records at the hub to enforce delivery of the quantities pledged by farmers

Production risks Bad weather conditions/ harvesting season N/A Historical experience with the climatic patterns in the area

Coffee pests and disease such as: 1. Coffee stem borer disease 2. Coffee wilt disease (stayed for three years and the coffee plant must be burnt to avoid spread)

• Traditional way of treatment using ash • Follow-up by agricultural experts of the cooperative, hub and bank • Diversification

• Reporting any strange disease or pests to the hub • Farmers sharing notes with their peers

Shortage of drying sheets at farm level N/A

Risk of fire at the hub store

Risk during transport to Kampala NUCAFE insurance Renewal of the insurance

Theft at the store level

Partner/client risk Financer (centenary) have little knowledge of hub’s business

Training and briefing about the business Regular communication with the bank to enhance understanding

Unreliable traders Unreliable sources of farm inputs

• Keep encouraging farmers to stick to the hub • Farmers to follow advice from the field staff

Yes, but still much should be done

Unclear price setting at the hub level Price based on quality-enhancement tools

Price fluctuation of farm inputs Stick to approved input suppliers Enlisting approved input suppliers in the area

Trust: farmers have less trust in unregistered hub

Certification on progress

Market risk Price fluctuation at coffee hub level Based on the quality-enhancers tools Based on better quality better price

Price fluctuation at export level for hubs • NUCAFE tried to link the exporters with the farmers under a Memorandum of Understanding (MoU) • Hub is in the process of fair-trade certification

29 and 7 containers sold to international and local market last year, respectively

Price fluctuation for cooperatives Double certification and better link to the export market (Fair Trade and UTZ)

Best Fair Trade awarded in 2014

Financial risks Poor personal and manual financial record keeping at the association

Training the employee in financial management, record keeping

Yes, but much more needs to be done

Exchange rate risk for exporting • Forward contracting • Monitor work coffee prices

• Done, but for only some contracts • Monitor world prices

Possibility of employee’s fraud at the KCFCS savings unit level

• Job rotation and incentive for employees • Instituting regular internal audit

• Staff performance • Staff job appraisal

Moral hazard, intentional default of borrowers at the KCFCS savings and credit unit level

• Coffee harvest is used as a collateral for loan • Credit field officers close follow-up with the farmers • Personal guarantees

• 85% recovery on time • Supervisory committee to follow up • Close loan portfolio analysis

Absence of cash safe at the hub and the association level

• Use of a link bank • Avoid a lot of cash transactions

Bank statements with the link bank

Repayment delay Rescheduling the loan 94% repayment rate after delay

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I. Financial appraisal A. Centenary Bank for Kabonera Coffee Farmers’ AssociationGenerally Centenary Bank advances agricultural loans after considering the following in a due diligence process and with the listed requirements and conditions:

1. The management of the farmers’ group. The bank carefully scrutinises the nature, quality and number of management staff responsible for running the farmers’ group;

2. Experience in the business. The experience of the farmers’ group in the particular agricultural business was also considered while screening the credit application of the producers’ group;

3. Audited accounts books; 4. The farmers’ groups’ owned physical collateral; 5. Capacity of the farmers’ group and the member farmers’ interim land ownership and

crop cultivation;6. Credit history of the farmers’ group; 7. Input and output cash flow of the farmers’ group;8. The business proposal of the farmers’ group and the feasibility and profitability of the

business plan;9. Third party security: Personal guarantee of the board members;10. Contractual agreement with a buyer: a tripartite agreement; and11. With respect to the Kabonera Coffee Farmers’ Association, NUCAFE’s

recommendation was also used to assess the credit request and then approve.

II. Financial need assessmentThe need for finance was studied through the bankable business proposal. This was done with the initial support of Agriterra to NUCAFE and its huge staff training. As a result the coffee farmers’ association was able to assess their financial needs and come up with a bankable business proposal in close collaboration and support from Agriterra, NUCAFE and the Mekasa hub staffs.

iii. Financial productAs a result of the support from the hub, NUCAFE and Agriterra as well as the resulting bankable business proposal submitted to Centenary Bank, the bank provided a coffee development loan product for Kabonera coffee farmers’ societies for three years in a row. The loan totalled 40, 45 and 70 million USX at an interest rate of 28%, 27% and 26%, respectively.

B. Uganda Development Bank for Kibinge Coffee Farmers’ Cooperative Society (see above)The following are requirements for the Uganda Development Bank’s loan to the Kibigne Coffee Farmers’ Co-operative Society (KCFCS):• Financial statement of the business operation;• Membership and experience in the business; • Business activities and cash inflow and outflows;• Guarantee by three board members; and • Collateral owned by the cooperative.

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2.4 What capacity for agri-finance has the Microfinance Institution (MFI) installed to perform these tasks?

• NUCAFE has agricultural financial officers responsible for coordinating and facilitation training and support at the headquarter level for each coffee hub;

• Each hub has also its own manpower for conducting the daily managerial, accounting and operational activities;

• Each coffee farmers’ association also has also its own manager and accountant to facilitate the overall activities of the association;

• Kibinge Coffee Farmers’ Cooperative has a total of 21 staff responsible for conducting its multiple operations; and

• But, the quality of the human resource needs to be improved continually through training the existing employees and by recruiting new qualified employees at the various levels of this coffee value chain.

2.5 What connections were entertained by the MFI with other stakeholders in

the sector? Who was the lead actor in orchestrating the chain?

The main role is played by NUCAFE. For both the Makasa Coffee Hub and the KCFCS, most of the initiatives and sensitisation was done by NUCAFE, especially at the Maksaka Coffee Hub, which is neither well established nor legally registered and lacks Fair Trade certification. NUCAFE still plays an essential role in mobilising, bulking and transporting coffee from farmers to Kampala as most of them are not well developed enough to manage the bulking and transportation activities themselves. In the future, however, it is expected that hubs and member associations will have the knowledge, skills, assets and working capital themselves to individually transport their coffee to the NUCAFE export facility in Kampala. The NUCAFE secretariat also wants to ensure that, in the future, the hubs are able to run their own operations and marketing to the export level themselves. The KCFCS is already a matured cooperative society, which has diversified its producers and services and collaborates more independently with different development partners, government agencies and other stakeholders.


3.1 What are the success factors in this case? What risk mitigation measures

proved effective?

I. At the farmers’ level • Financial literacy education and change in the women’s empowerment through the gender

training sessions;• Trainings provided for the coffee farmers by the direct and indirect support of different

stakeholders and development partners enables them to get the right seedlings, have better harvests, produce a better quality of coffee and to enjoy better prices based on a fair quality standard measurement at the hub. The training in gender and empowerment also enhances gender balance, shared responsibility and trust in the households.

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II. At the hub level• The hub is able to continue mobilising the farmers and able to capitalise on the experience in

the business in doing its operations;• The hub is also able to lobby and link the smallholder farmers to exporters who have

recognised the quality of coffee provided by the farmers’ associations;• Increased supply of coffee from 23 to 51 containers for export within a short time period;• Able to increase tonnage of coffee from 50MT in 2011, 60MT in 2012 to 98MT in 2013; and• Able to have the financial grant for the last three successful years.

iii. At Kibinge Coffee Farmers’ Cooperative Society • Kibinge Coffee Farmers’ Cooperative Society received double certification from UTZ and Fair

Trade. Kibinge was also able to win the first-ever international Fair Trade awards in June 2014;• Kibinge Coffee Farmers’ Cooperative Society has set up a savings and credit scheme to

provide credit to members at an affordable rate (a 2.5% interest rate); and • They have also set up a farm supply shop giving members access to farm inputs closer to

their communities and also offering technical information and good advice on the safe use of chemicals and fertilisers. This also minimised the risk of unreliable farm input distribution to the farmers from unreliable suppliers.


I. At farmers’ level • Coffee diseases (see picture below); • Need of finance in the off-season for farming purposes, to buy farm inputs, to finance

manpower used for coffee harvesting and to finance schooling of children.

II. At coffee hub level • Kabonera Coffee Farmers’ Association faces a big challenge of collateral security to access a

large number of loans from the bank. The hub cannot easily reach the members because of financial constraints;

• Fluctuation of coffee price;• High cost of borrowing funds, a 28%, 27% and 26% interest for the last three years, respectively; • Inadequate human resource back-up and few employees to do all the work both at office and in

the field; • Low quality of coffee from some farmers; and • No publications and publicity at the hub level to attract other development partners and

stakeholders.

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III. At the cooperative society level• Membership differences. Most of the members are not certified with Fair Trade certification.

There is a need to have much more training to make the members certified and avoid the differences among the member farmers. Training members will enable the farmers to equip themselves in preparation for the certification;

• Need for an integrated system for coffee supply by the coffee farmers and an immediate payment from the savings and credit association;

• Need of continuous support from the National Union of Coffee Agribusinesses and Farming Enterprises (NUCAFE);

• Need to have assistance with capacity building of employees with respect to value chain in general and coffee value chain in particular; and

• Need to have support of development partners like Agriterra in accessing financial loans.

3.3 Do stakeholders have a view on how to better deal with these remaining

risks in the future?

• The hub is very interested in being legally registered as a cooperative and intends to get a Fair Trade certification. This certification is believed to reduce price fluctuations and create more confidence of ownership among the member farmers’ associations and the hub at large.

• Diversification of the crops targeted to increase cash flow from other sources of finance;• Provision of quality enhancement tools at the individual farmer’s level and farmers’

associations as well;• Intensifying and carrying on good experience in training the farmers on financial literacy, loan

development, bankable business planning, cash management, etc.;• The hub is encouraging individual associations to get crop finance loans from Centenary Bank;• The associations have a long loan process; this should be shortened and/or should be done in

advance to reduce the workload at the bank;• Stakeholder believe that there is still a need for constant training and the continuous

engagement and support that was already started by development organisations such as Agriterra, the Agricultural Business Initiative (aBi) Trust and NUCAFE; and

• The hub should quickly register as a cooperative or look for certifications to ensure both farmers’ confidence and a premium price for the farmers.

3.4 How can linkage between financier and Producer Organisation (PO) be

strengthened?

Linkage between the producer and producer groups• If the bank is able to give an adequate loan to the association/hubs the smallholder farmers

can be easily reached by the associations. This would avoid (or at least reduce to some extent) the risk of side selling;

• It should be clear to the farmers at the hub and association level that price determination should be based on the quality of the produce with the help of quality-enhancement tools. It would also be very helpful if each farmer had these quality- enhancing tools so that they could measure the quality of their produce, the moisture level and the grade at home. This would enhance the knowhow of the farmer, reduce the burden at the hub level and create more mutual diagnoses of the quality of coffee at different stages in this coffee value chain; and

• Better to have a farm supply shop at the Masaka Coffee Hub level if not at each farm association level. A farm supply shop is able to give coffee farmers easy access to farm inputs with technical information and good advice on the safe use of chemicals and fertilisers. This also minimises the risk of unreliable farm input distribution to the farmers from unreliable suppliers.

Linkage between producer groups and the financer• The producer group, Kabonera Coffee Farmers’ Association, should do the annual business

plans on in time. In addition, it would be very good for Centenary Bank if the loan process was shorter.

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3.5 What are the lessons learned for the industry?

In order to realise more added values for the farmers of its member societies, the PO should set up a sustainable marketing organisation and develop innovative bankable business proposals for banks and MFIs; this will generate funds to internally meet its basic business development services and marketing linkage services. Development partners can play a crucial role in facilitating and supporting producer groups through training programmes, supporting the bankable business plans and its developments, and linking banks to finance them. In the process of making a bankable business plan, granting loans and follow-up services, financers may also help the cooperative to better understand their business and investment plans and allow the PO to have a larger grant at a lower interest rate.

When buying coffee from the farmers of their member societies, POs like the NUCAFE hubs need to compete with private buyers active on the market, the so-called middlemen. The biggest disadvantage for POs with regard to the middlemen is their lack of working capital to buy the coffee from the farmers. Due to various reasons, the majority of coffee farmers need to sell their coffee for an immediate payment. In order to tackle this problem, a credit line facility at banks and MFIs greatly strengthens the producers’ organisations and helps farmers to benefit from their produce.

Sources Documents:• Maganda Samuel Hilton, finance and administration manager, Kampala – Uganda, sam.

[email protected]• Mr. Muluya Philip, chairman, Masaka Hub. • kibegen manager, accountant and savings unit employees. • Mr Taco Hoekstra, agribusiness advisor, Agriterra Uganda, [email protected] • Kabonera farmers’ association smallholder farmers (one male and one female). • Mr. Joseph Nkandu, executive director, Kampala [email protected]• Kiwanka Joseph, Centenery Rural Development Bank Ltd, commercial loan officer, Mekasa

branch, [email protected]• An overview of coffee in Uganda, Roni Babigumira, IFPRI.

Websites: • www.nucafe.org• www.agricord.org/farmersorganisations/organisation/15423/national-union-of-coffee-agri-

businesses-and-farm-enterprises.• www.centenarybank.co.ug/search/node/coffee• www.kibingecoffee.com

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AbstractIn line with its mandate of “improving farmers’ access to finance”, AgriProFocus (APF) promoted and initiated finance fairs in several countries. Financial service providers exhibited at the fair to showcase their products and services to smallholder farmers. Smallholder farmers or their organisations are able to meet and explore opportunities to improve access to finance. This report evaluates the intended outcomes and the actual results of the finance fairs.

AcronymsAPF AgriProFocusFI Financial InstitutionMFI Microfinance InstitutionRWF Rwandan FrancSACCO Savings and Credit Co-operativesUGX Ugandan ShillingVSLA Village Savings and Loan Association

Case Study Finance Fairs:

Ethiopia, Uganda, Rwanda, Mali

1. Purpose and set-up of the finance fair

The goal of finance fairs is to support the development of smallholder agri-business by facilitating access to financial services and credit. The key aims of the AgriProFocus (APF) agri-finance market places are:• Promote business linkages: Do business and promote deal-making among chain actors in the

agricultural value chain;• Increase the access of farmers to information on the financial products and services available

in the market;• Promote farming as a viable investment for financial institutions (FIs) and other service

providers by providing space for dialogue and business deal-making;• Encourage the development of appropriate financial products and services for farmers; and• Encourage learning from good practices, in which financial services match with the needs of

farmers, processors and traders.

The events normally last 2 days, with the exception of the finance fairs in the Mbale region of Uganda, which lasted one day and the first event in Mali, which took 3 days. In general the programme consists of plenary presentations and discussions, workshops and a market place. Sometimes field visits are organised, or a game. The exhibition provides an opportunity for exhibitors and visitors to meet, speed-date, negotiate, make deals, discuss and exchange information. Sometimes the fair has a specific theme such as ‘promoting farmer finance deals’ or ‘linking farmers to wider agri-business opportunities’.

AgriProFocus

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2. Who are involved?The finance fairs are organised by AgriProFocus (APF) network members; the local Agri-Hubs and diverse regional, national and international partners. Microfinance Institutions (MFIs), banks, government officials and public authorities are largely involved. The exhibitors are parties that are involved in the agricultural value chain, mostly financial institutions (FIs), farmer groups and cooperatives, unions, input providers, suppliers and capacity builders, but also individual farmers. Visitors of the finance fairs are individual farmers and representatives of farmer groups, cooperatives, associations, community-based organisations, savings and credit schemes, banks, government officials, NGOs and research institutions. • The number of exhibitors ranges from 12 to 60 (see Table 3.1);• The number of visitors per fair varies from 270 to 1.400 (see Table 3.1). Information on how many of these visitors are individual farmers, or members of farmer groups / cooperatives is not provided.

3. Scope of implementationIn the period November 2011 – August 2014, a total number of 13 finance fairs have been organised in 4 countries and in 11 different regions (see Table 3.1). Depending upon the specific country or regional context, the actual setup, the main theme and / or the goals can be slightly different.

UgandaThe first finance fair was organised in Uganda in 2011 to “support the development of smallholder agri-business by supporting access to financial services and credit”. The fair programme included a competition on the most popular financial service provider with farmers in the categories farmer groups and individual farmers, and a financial literacy game. Certificates of good performance and attendance were issued to all the participating financial institutions (FIs) and farmer groups. The theme of the 2nd finance fair in Mbale in 2012 was “promoting farmer finance deals” whereas the 3rd finance fair in Lira was preceded by a one-day workshop on “innovations in agricultural finance in Uganda”. The theme of the 2013 finance fairs was “linking farmers to wider agri-business opportunities”. At the finance fair in the Rwenzori region in 2013, farmer speed-dating was organised between farmers and service providers, alongside the exhibition.

RwandaThe first finance fair in Rwanda shared the same theme as Uganda’s first fair: “support the development of smallholder agri-business by supporting access to financial services and credit”. Both the 1st and 2nd organised a competition and rewarded the, by farmers elected, most innovative and most popular bank, the best financial product and the best exhibitor. The theme of the finance fairs in the Kayonza and Nyanza region was “agri-business market linkages”.

EthiopiaIn Ethiopia a total of 5 finance fairs were organised in this period. Information on the first two fairs in 2012 in Jimma and Hawassa was not available, although they all had the same intention. Besides the general aims of the finance fairs, in Ethiopia the aim was also to influence bankers to consider seed as a profitable business and to promote seed production, processing and marketing as a viable investment. The fairs in 2013 were respectively organised in collaboration

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with the Integrated Seed Sector Development (ISSD) project of Mekelle University and with the ISSD II programme of Bahir Dar University. The setup of the finance fairs in Ethiopia is somewhat different from the fairs in the other countries because of the 2nd day field visits of FIs to seed producer cooperatives.

MaliThe first finance fair in Mali was organised in March 2014. This fair lasted 3 days with a thematic conference every day. The first was on the experiences of financing agriculture in Mali, the second on innovative financial products in agriculture and the third on the risks related to agricultural finance and risk management mechanisms. Besides the exhibition, business-to-business sessions were organised between farmers and FIs. The farmers had to send in their project plan in advance so the FIs could prepare and evaluate them beforehand.

4. Evaluation of Results

Evaluation studies were carried out for the finance fairs in Lira (2012), Mbale (2013), Rwenzori (2013) and Bahir Dar (2013). The finance fairs were evaluated by means of interviews with exhibitors and visitors, and by questionnaires, based on convenient sampling. This was usually done during the course of the fair. Only in the case of Bahir Dar (2013), interviews were held afterwards. Otherwise, information on the fairs is provided in evaluation documents summarising the objectives, setup and course of the event, sometimes including concrete results and / or recommendations. It has been difficult to evaluate the outcome of the fairs from a quantitative perspective, i.e. how many actual financial deals were made at what value. Specific numbers and figures are used in the evaluations, such as the percentages of exhibitors and visitors that made business deals and the nature of these deals. However, information on the actual value of these deals is seldom provided. It is therefore difficult to calculate actual financial successes. When evaluating the outcome of the surveys, we also need to take into account the percentage of exhibitors and visitors that participated. They do not necessarily provide a statistical representation. The results are evaluated on the basis of available information only, without pretending to offer valid statistical conclusions. All documents used for this report are listed on the last page of this study.

Table 3.1: AgriProFocus (APF) finance fairs overview

Country Region Date Visitors Exhibitors

Uganda Rwenzori Mbale Lira Rwenzori Mbale

November 24-25, 2011 May 23, 2012 October 31 November 1, 2012 August 15-16, 2013 August 29, 2013

350600700

1000750

n.a. n.a. n.a.

60 n.a.

Rwanda MusanzeRusizi Kayonza Nyanza

February 21-22, 2012 December 4-5, 2012 October 16-17, 2013 August 28-29, 2014

800500

12001400

15 n.a.

25 19

Ethiopia Bahir Dar Mekelle Hawassa

April 6-7, 2013 August 24-25, 2013 March 1-2, 2014

270300300

131217

Mali Sikasso March 6-8, 2014 1000 40

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Profile of interviewed visitors and exhibitorsThe evaluation documents of the finance fairs provide information on the profile of both visitors and exhibitors. The main observations are discussed below.

The majority of exhibitors interviewed (41%) at the Nyanza fair (2014) represented some sort of farmer cooperation, followed by financial service providers (21%).Interviewed visitors at the Mbale fair (2012) belonged for almost three-quarters to some kind of farmer group. Only a quarter of the interviewed visitors were individual(s) (farmers).

At the Bahir Dar finance fair (2013), this pattern looks similar. Because this fair focused on the seed sector, almost half of the participants represented a seed producer and / or marketing cooperative.

Profile of Exhibitors - Nyanza 2014

Interviewed visitors by category - Mbale 2012

CBO / producergroup / farmer organisation

Financial service provider

Business development service / consultancy

Trader / processor

Development agency / NGO

Farmer Groups

Cooperatives

Focus Groups

Individuals

41%

42%

17%

28%

17%

11%

21%

19%

4%

Diagram 4.1: Profile of exhibitors – Nyanza 2014

Diagram 4.2: Interviewed visitors by category - 2012

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If at all a conclusion on the profile of the participants can be drawn, it would be that the majority belongs to some kind of organised group. The number of individual farmers attracted to the finance fairs seems rather small. More concrete information on the degree of participation of financial service providers is not provided.

Business deals, networks, partnerships and brokerage opportunitiesThe following section provides information on the categories of business deals, the type of partners and on whether or not partnerships are established. Only in the case of the Nyanza fair in 2014, concrete results are mentioned in relation to the number of deals, the average size of the deals and the split-up by product of financial deals.

* Including opening of new bank accounts by farmers and appointments to acquire bank loans to finance agriculture

** Including biogas / cooking fuel

Representation of participant organisations - Bahir Dar 2013

Seed producer & marketing cooperatives

Private seed growers

Cooperative office

Union

Other

46%

8%

8%

16%

22%

Diagram 4.3: Representation of participant organisations - 2013

Diagram 4.4: Business deals of interviewed visitors by category

70%

60%

50%

40%

30%

20%

10%

0,0%

Business deals of interviewed visitors by category

Farming

Lira 2012 Rwenzori 2013 Mbale 2013

Financial services*

Market Agri-processing /

Value addition

Agri-input Agri- machinery / Implements

Other**

185

Mbale 2012A Seed Company in Mbale was able to get a loan worth UGX 300 (Ugandan Shilling) million to buy sunflower and maize seeds. The company applied for the loan after talking to the bank at the finance fair in 2012, who told them that collateral demand for agricultural loans had been revised and relaxed. Stringent collateral demand had been the reason why the company was not successful in securing this same loan a year before.

In a period of 5 months after the fair, 10 farmer groups and cooperatives opened an account with the Bank of Africa and 2 cooperatives were processing tractor finance as a result of the fair.

Diagram 4.4 compares the results related to the business deals mentioned by the interviewed visitors at the finance fairs in Lira (2012), Rwenzori (2013) and Mbale (2013). The diagram reflects how many of the interviewed visitors mentioned that they made business deals and in which category they were made. Since it is possible that visitors made more than one business deal, the total can add up to more than 100%.

It is therefore not so much the percentage itself that is important, but the difference between the categories. Only in the categories; financial services and agri-input, business deals were made at all three finance fairs. The categories; farming and agri-processing / value addition scored the highest number of deals, followed by agri-input’. One of the key aims of the finance fairs, therefore, seems to be met: promoting farmer access to finance, do business and promote deal-making among chain actors in the agricultural value chain.

Musanze 2012: 10 organisations reported 200 deals with farmers with an average deal size of RFW 40 million.Mbale 2012: A significant amount of deals are mentioned, ranging from 50 to 1.000 with an estimated loan size of UGX 500.000 - 2.000.000.Lira 2012: Banks estimated that the event would result into 100 - 300 loans with a loan amount ranging from UGX 500.000 - 70.000.000.

Diagram 4.5: Comparison of business deals

Other

Biogas / coocing fuel

Agri-processing / Value addition

Agri-input

Farming

Market

Financial services

0% 10% 20% 30% 40% 50%

Exhibitors Visitors

Comparison business deals - Mbale 2013

186

Mbale 2012• The Centenary bank completed 10

deals, had 5 pending ones, and >50 negotiated but not yet accomplished deals;

• Housing finance completed 37 cash account openings, 10 pending ones and >50 awaiting opening balance only;

• Pride microfinance received 5 complete applications for account opening; and

• Post bank received and processed 10 complete deals for follow-up.

The reported business deals of exhibitors and visitors at the Mbale fair (2013) in diagram 4.5, show that for exhibitors the two main areas of business deals were financial services and market related. For the visitors, financial services were the second most important area, after farming, although it is only half the size of the reported farming deals.

Business deals by partner - Lira 2012

Diagram 4.6: Business deals by partner category

Fellow farmers / exhibitors*

Agri-machinery / Implements

Agri-input dealers

Traders, buyers, agri-processors

Financial service providers**

Farmer groups

Individual farmers

0% 10% 20% 30% 40% 50%

Exhibitors Visitors

*Business deals between farmers or between exhibitors, e.g. trader-trader, bank-funder** Including opening of new bank accounts by farmers and appointments, to acquire bank loans to finance agriculture

The partners of the business deals were spread across the different categories of participants at the Lira finance fair in 2012. Deals with financial service providers are only mentioned by visitors, and only exhibitors made business deals with both farmer groups and individual farmers.

187

Other business opportunities

Diagram 4.7: Other business opportuntities

Exhibitors Rwenzori 2013

Exhibitors Mbale 2013

Visitors Rwenzori 2013

Visitors Mbale 2013

0% 10% 20% 30% 40% 50% 60% 70% 80%

Brokerage deals Networks Partnerships

In terms of partnerships, 47,1% of the interviewed visitors at the Mbale fair (2013) managed to make business partnerships and almost 65% reported establishing business networks, against 48% at the fair in Rwenzori (2013). Brokering opportunities were much less reported; 27,9% in Mbale and only 8% in Rwenzori. Interviewed exhibitors mainly established business networks; 76% in Mbale and 59% in Rwenzori.

Musanze 2012• 38 farmers registered at the Rwanda

Grains and Cereals Corporation. Memoranda of Understanding on the corporation, buying the farmers produce, were expected to be signed in due course;

• 10 organisations reported 200 deals with farmers, with an average deal size of RWF 40 million.

However, visitors also reported business deals with each other, indicating that farmers made business deals with other visiting farmers, although it is unclear whether this has been done with farmer groups or with individual farmers. Exhibitors did also business with each other, yet less than farmers.

Besides making business deals, exhibitors and visitors also reported establishing partnerships, business networks or brokerage deals at the fairs in Mbale (2013) and Rwenzori (2013). The areas in which the business networks were built, are largely similar to those of the above mentioned business deals.

188

Mbale 2012Up to 12% of farmers (producer groups, associations) started or speeded up registrations at cooperatives or producer groups, at district level to increase their access to financial services. Of the farmer groups, 6% formed Village Savings and Loan Associations (VSLAs) and revived Savings and Credit Co-operatives (SACCOs) to prepare them to embrace a saving culture and improve internal and financial credibility, so that farmers can apply for commercial loans.

Matibu yellow group, counting 25 members, started a VSLA two months after the fair, leading to a $1.000 savings portfolio in order to become eligible for an agri-finance loan.

As mentioned before, the evaluation of the Nyanza fair in 2014 provides more specific insight in the quantity of deals and their value. It also gives information on the nature of the financial service deals.

Diagram 4.8 and 4.9 show that the majority of the exhibitors made between 1 and 5 business deals and that the value of these deals was most of the time below RWF (Rwandan Franc) 70.000 or unknown. Diagram 4.10 gives an overview of the main product categories of financial service deals. It shows that 61% is related to loans / credit and 28% to opening a (savings) account, which is probably no surprise.

Value of deals by exhibitors - Nyanza 2014

Number of deals by exhibitors - Nyanza 201420

15

10

5

0

12

10

8

6

4

2

0

Num

ber

of d

eals

Number category

Value category

Num

ber

of d

eals

1-5 5-10 10-50 50-100 >100

<70.000 RWF 70.000 - 350.000 RWF 700.000 - 1.500.000 RWF No value available

Diagram 4.8: Number of deals by exibitors - 2014

Diagram 4.9: Value of deals by exibitors - 2014

189Diagram 4.11: Knowledge acquired by visitors - 2013

Knowledge acquired by visitors - Mbale 2013

Number of respondents

Subj

ects

The feedback on closed deals, business networks and partnerships, provided by exhibitors and visitors of the different finance fairs, shed some light on whether or not the finance fairs were successful. For several categories concrete deals have been reported, including financial services but also between different actors in the agricultural value chain. Some of the examples even report the value of deals, but most of the time deal sizes are lacking. This makes it almost impossible to determine the success of the finance fairs from a quantitative perspective. What it does tell is in what areas most of the deals are made, who deals with whom and what the differences are between exhibitors and visitors, at least at the finance fairs that provided this information. It also shows that, at the evaluated finance fairs, the establishment of partnerships and networks plays an important role.

Information and knowledge sharingThe finance fairs also aim to improve farmers’ financial literacy and encourage dialogue between financial service providers and farmers. Improving the knowledge of farmers on what products and services are offered and identifying what is needed to qualify for them, will improve actual access and use of financial services by farmers. Meanwhile, financial service providers will be able to increase their knowledge of what farmers need and of the barriers that farmers are facing. This could lead to a better alignment of supply and demand and, in the end, improve access to finance for farmers.

Financial service deals by product - Nyanza 2014

Loan / credit

Opening a (saving) account

Insurance

Not applicable61%

5%

28%

6%

Diagram 4.10: Financial service deals by product - 2014

Other

Where to buy agri-inputs

New financial products

New irrigation methods

Where to get loans

Soil conservation techniques

Market agricultural products

Value of team work

Energy-saving cooking fuels

Value addition techniques

New farming techniques

0 2 4 6 8 10 12 14 16 18 20

190

The feedback from the interviewed visitors of the Mbale fair (2013), presented in diagram 4.11, shows that only a few of them improved their knowledge of new financial products and on where to get loans. The knowledge acquired by visitors is much more related to their core business of farming, i.e. on new farming techniques, value addition and soil conservation, and on the market(ing) of agricultural products.

The responding visitors of the fair in Lira (2012), however, stated that of all information on new products they received, they learned the most about new financial services.

Comparing the feedback from the exhibitors and visitors that took part in the survey of the finance fair in Rwenzori (2013), reveils that information on agri-input and agri-value addition was in particular obtained by visitors, whereas exhibitors mainly received information on the market of agricultural products. A large part of the interviewed exhibitors also mentioned that they obtained information on financial services. This could be explained by the fact that exhibitors were often farmer organisations that were not only offering their products and services to the market place, but that were also in need of financial services.

Information on visitors on new products - Lira 2012

Subject of information

Financial services

Market information / prices

Agri-processing

Agri-input

Agri-machinery / implements

48

46

44

42

40

38

36

Visi

tor

resp

onse

s

Diagram 4.12: Information visitors on new products 2012

Information obtained by category - Rwenzori 2013

Diagram 4.13: Information obtained by category

Forming a SACCO / network

Market agricultural products

Farming

Financial services

Agri-value addition

Agri-input

0% 10% 20% 30% 40%

Exhibitors Visitors

191

Clearly the finance fairs contributed to the exchange of knowledge and information. It is not completely clear, however, whether this increased knowledge also reduced the information gap between suppliers and farmers, with regard to financial services. Yet, some of the examples in this paragraph indicate that such an effect did occur, at least in some instances.

Other resultsAn evaluation of the success of the finance fairs also needs to take into account the participants’ experiences and perceptions of the fairs, and whether the participants thought it was successful from a more qualitative perspective. This section presents some of the comments that arose from the different surveys and evaluation reports.

Mbale 2012 finance fairThe fair increased farmers’ awareness about what size of loan suits personal business and personal capabilities. It resulted in a better understanding of collateral requirements by farmers and a better understanding of farmers’ perception of collateral demands by banks. The Bank of Africa, for example, revised the collateral demands of farmers, giving more priority to the capability of the applicant. Housing Finance Bank started a pilot of warehouse receipt financing after the fair.The general feeling was that the fair helped mobilising farmers’ voices.

Rwenzori 2013 finance fairThe participants highlighted the minimal participation of rural smallholder farmers, although the fair was intended for them. The conclusion was that the mobilisation of farmers had steered the tendency of having farmers being represented by their leaders. As a result of this, there was a concern about whether information would be transferred and trickled down to the farmers.

Bahir Dar 2013 and Mekelle 2013 finance fairsAt the finance fair in Bahir Dar visitors stressed the fact that, as a result of the fair, they understood better what the conditions are to get a loan and they commented that they received valuable information concerning the financing of farmers. This was also the case at the fair in Mekelle in 2013 where 80% of the respondents received valuable information and 20% better understood the conditions required to get loans.

A third of the service providers interviewed at both fairs mentioned that they learned more about the financial needs of farmers. The others all succeeded in providing information on their institutions and on their products and services on offer.

Feedback visitors - Bahir Dar 2013

Got to know a helpful person to arrange a loan

Understand better the conditions to get a loan

Obtained information on financing

Met interesting people

Liked the event

27%

12%

16%

21%

9%

Diagram 4.14: Feed back visitors - 2013

192

5. Conclusion

Based upon the evaluation of the finance fairs it is possible to compare the outcomes with the main goals as set out in paragraph 1, extract some conclusions on how successful the finance fairs were, and in particular whether they contributed to improving access to finance for farmers.

The finance fairs have definitely contributed to creating an environment in which the different actors in the agricultural value chain, including financial service providers, could meet, interact, share knowledge and experiences, and do business.

The finance fairs contributed to more awareness among farmers on what agricultural financial products and services are offered by the different financial institutions (FIs) and what the requirements and conditions are to become eligible for them. By sharing information and knowledge, farmers also gained a better understanding of what is needed to comply with the requirements and conditions to acquire agricultural financial products and services. They also became more aware of the importance of combining forces and working together, in farmer groups or cooperatives, to improve access to finance. Although hard figures are lacking almost everywhere, farmers did seem to have made valuable business deals, including deals with financial service providers. They also established partnerships and they built networks to improve their access to finance.

From the perspective of financial service providers, the finance fairs did contribute to a better understanding of the barriers to farmers to comply with the conditions and requirements of financial services. This, for example, resulted in some cases in easing the collateral requirements. The finance fairs also resulted in actual business deals for financial service providers.

One of the key aims of the finance fairs, therefore, seems to be met: promoting farmer access to finance, do business and promote deal-making among chain actors in the agricultural value chain.Although the primary target group of smallholder farmers was not always reached or included, the finance fairs did seem to bridge the information gap between farmers and FIs, and improve access to finance.

Finance fairs do not actually lower the barriers for farmers to access finance, but they can play an important role in creating awareness on what farmers themselves can do to improve their eligibility for financial services. Moreover, they help identify how financial service providers can alter their products and services in such a way that they meet the needs of farmers. When organising these finance fairs with the intention to reach smallholder farmers, it is important to make sure smallholder farmers are invited and facilitated to join the event.1

1 See also Noor Ali Amir Ali; Msc. Thesis Final Report: Unraveling multi-stakeholder platforms and their impact on the growth of agri-food entrepreneurs in Africa, May 2014.

A particular case is the finance fair in Sikasso in Mali in 2014Farmers could submit a business or project plan to the financial institutions (FIs) before the fair. The FIs then prepared themselves for giving feedback on the plans; most importantly on whether or not the plan would qualify for funding. The projects were evaluated according to pre-determined criteria; mainly looking at the amount, nature and lifetime of the project, the experience of the farmer and the area concerned.

At the fair itself, a total of 113 projects have been discussed between FIs and farmers. This resulted in the following:• None of the project files were rejected categorically;• A total of 12 projects were in principle agreed to receive funding; and• At least 30 concrete business links were established between the farmers with a

project, and FIs.

193

Sources

Documents:• APF agri-finance market place event and workshops for northern region of Uganda at Mayor’s

Garden, Lira-final report dated December 16, 2012.• Mbale agri-finance market place result assessment-final report prepared by CARD Uganda

dated November 29, 2012.• APF agri-finance market place event for eastern region of Uganda at Maluku Public Grounds,

Mbale-final report dated May 23, 2012.• Event exhibition report for market event in Lira-Mayor’s Garden (2013).• Report on AgriProFocus agribusiness Rwenzori region marketplace event 2013 dated

September 2013.• Report: Evaluation of the Rwenzori agribusiness market event dated August 2013.• Evaluation report of the AgriProFocus eastern region agribusiness market event-29th August

Malukhu Grounds Mbale district.• The agribusiness market place event at Malukhu Public Grounds, Mbale, August 2013.• Report APF Uganda agri-finance market place, 24 – 25 November 2011, Fort Portal-executive

summary.• Report Uganda agri-finance market place Fort Portal, 24 – 25 November 2011.• AgriProFocus Rwanda report: Agribusiness market linkages- southern province- Nyanza,

August 28-29, 2014.• Agri-business finance fair Rwanda Report, February 21-22 2012, Musanze.• Agri-business finance fair: Bahir Dar, 2013 – post event evaluation report, April 2013.• Agri-business finance fair: Mekelle, 2013 – post event evaluation report, September 2013.• Agri-business finance fair: Hawassa, 2014.• Event report AgriProFocus: Agri-business market linkages event in the eastern province of

Rwanda, October 2013.• FINAGRI salon du financement de l’agriculture 1ère édition : Sikasso 2014 - draft rapport

final, Avril 2014.• Rapport sur l’agri-finance fair Rusizi, 4 au 5 Décembre 2012.• Noor Ali Amir Ali; Msc. Thesis Final Report: Unraveling multi-stakeholder platforms and their

impact on the growth of agri-food entrepreneurs in Africa, May 2014.

Websites:www.agriprofocus.com

Finance for Smallholders

Documents

Transcript of Finance for Smallholders