AGRICULTURAL CREDIT SCHEMES: THE MICROAGRICULTURAL FINANCE SCHEME FOR SOUTH AFRICA, MAFISA Presentat

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AGRICULTURAL CREDIT SCHEMES THEMICRO-AGRICULTURA
L FINANCE SCHEME FOR SOUTH AFRICA,
MAFISAPresentation to Portfolio
CommitteeParliament Marks Building Cape
Town07 February, 2005
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Presidential Announcement

• Re-establish the agricultural credit scheme in
  the Department of Agriculture
• Provide capital to increase support to
  agricultural activities in the communal land
  areas as well as other smallscale agriculture.
• Leave the Land Bank to deal with the commercial
  sector
• Make R1 billion immediately available to start
  the scheme
• Work with the financial institutions to implement
  the provisions in the financial services charter
  relevant to the development of small-and
  medium-farming enterprises

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Why the Reversal ?
Pre-1997
Commercial Banks
Land Bank
Agricultural Credit Board
Agricultural Coops
Agricultural Coops
Agricultural Coops
Enterprises
Farmers
Enterprises
Farmers
Farmers
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Why the Reversal ?
1998-2004
Commercial Banks
Land Bank
Agricultural Companies
Rural Micro-Finance Institutions
Rural Micro-Finance Institutions
Enterprises
Farmers
Farmers
Farmers
Enterprises
Farmers
Farmers
Farmers
Farmers
Farmers
Farmers
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Why the Reversal ?
Post 2004
Commercial Banks
Land Bank
MAFISA Micro-Agricultural Financial Scheme for
South Africa
Enterprises
Farmers
Farmers
Farmers
Enterprises
Farmers
Farmers
Farmers
Farmers
Farmers
Farmers
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Global Microfinance Experience

• Asia
• BRI of Indonesia
• BRAC of Bangladesh
• BAAC of Thailand
• Latin America
• Bancosol of Bolivia
• Africa
• Rural Banks
• Cooperative Banks
• Europe
• DGRV of Germany
• Rabo Bank of the Netherlands
• Agricole of France

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Policy Issues

• Micro-finance demand among the working poor can
  be met by profitable and sustainable institutions
• Successful commercial microfinance can be carried
  out by different institutions in widely different
  environments
• Regulatory authorities must provide an enabling
  environment if institutional commercial
  microfinance is to succeed
• Donors supporting the growth of commercial
  microfinance assist through capacity building
  initiatives

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Comprehensive Agricultural Support Programme
Agricultural macro- system within consumer
economic environment
Farm Business level activity
Household food security Subsistence
The Hungry Vulnerable
AGRICULTURAL SUPPORT
Training Capacity Building
Technology Advisory Services
Financial Assistance
On Off Farm Infrastructure
Marketing Business Development
Information Knowledge Management
PILLARS
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Farms and Agribusiness Structure
Large commercial farms agribusinesses
1st Economy
IV III II I
Small commercial farms agribusinesses
2nd Economy
Emerging farms and agribusinesses
Subsistence farms and agribusinesses
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Socio-Economic Analysis

• An estimate of 15 million rural poor people
• Women-headed households
• Women, youth and people with disabilities
• Some form of access to land
• Have some form of self-employment
• Earn as little as R600 per month
• Farming share less than 10 to total HH income
• Move in and out of the 1st and 2nd economies in
  pursuit of household livelihood strategies
• Are not severely malnourished, hungry or
  destitute
• Use credit for high potential areas and high
  return activities

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Socio-Economic Analysis

• Use savings for subsistence farming and low
  return productive activities
• Rely on remittances, wages, disability, pension
  and child support grants for production and HH
  needs
• Live in remote and dispersed areas with poor
  infrastructure
• Participate in but do not benefit from the 1st
  economy
• May be creditworthy below and above the poverty
  datum line
• May engage into profitable self-employment
  investments
• Use extended families and social networks to
  manage production, price and market risks and
  disasters

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Business Case

• More savers than borrowers in a financial system
• Households save more than they borrow
• Enterprises borrow more than they save
• If 10 out of 15 million rural people are savers,
  then 5 million rural people should be borrowers
• If 10 million people save at least R200 per year,
  then there should be R2 billion in the rural
  financial market available for the 5 million
  rural borrowers

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Vision

• Empowering the rural working poor, small
  entrepreneurs and farmers to improve their
  livelihoods

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Mission

• MAFISA is the state-owned scheme that provides
  access to micro and retail agricultural financial
  services to households, individuals and
  entrepreneurs in the rural areas on a
  nation-wide, commercial, cost-effective and
  sustainable basis

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Scope
INPUT MARKETS

• Manufacturers
• Sources
• Intermediaries
• Distributors
• Fertilizer
• Fuel
• Seed
• Chemicals
• Mechanisation
• Animal Feed
• Finance
• Insurance
• Advisory

CONSUMER MARKETS
Handling Storage Preparation Processing Distributi
on Transportation
OUTPUT MARKETS
VALUE ADDITION
PRIMARY AGRICULTURE
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Sustainable Livelihoods Framework

• OUTCOMES
• more income
• more jobs
• better well-being
• reduced vulnerability
• improved food security
• better sustainable use of NR-base

• ISRDP
• STRATEGIES
• LRAD
• CASP
• IFSNP
• ARM
• AgriBEE
• MAFISA
• Land Care
• Non-NR-based

TRANSFORMING STRUCTURES PROCESSES

• CAPITAL ASSETS
• Natural
• Social
• Physical
• Human
• Financial

• VULNERABILITY CONTEXT
• Trends
• Shocks
• Culture

STRUCTURES Government Private Sector
Laws Policies
Incentives Institutions PROCESSES
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Sustainable Rural Financial System
Stakeholder participation
Non-Financial Services
Improved sustainable livelihoods
Financial Services
Rural Financial Infrastructure
Outreach
Conducive Policies
Regulation Supervision
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Financial and Enterprise Viability Cycle
Viable Financial Institutions
Vibrant rural and agricultural economy
Growth
Growth
Viable Rural Enterprises
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Savings and Credit Household Cycle
Savings Subsistence production and low return
ventures
Rural and Agricultural Economy
Growth
Growth
Credit High potential areas and high return
ventures
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Households Savings and Credit Cycle
SAVINGS THROUGH
  LUMP     SUM
AMOUNT
CREDIT
SAVINGS
TIME
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Strategy
Productive Assets and Technology   Improving
equitable access to productive natural resources
and technology
Human and Social Assets   Strengthening the
capacity of the rural poor and their organisations
Empowering the rural working poor and
enterpreneurs in their efforts to improve their
livelihoods
Financial Assets and Markets   Increasing access
to financial services and markets
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Principles

• Rural livelihoods strategies
• Collaborate, share and reinforce
• Use or improve existing resources and efforts
• Offer and gain something of value
• Specialise in something of value
• Service delivery within the 20km target
• Target 10 million beneficiaries
• Optimise tax-rand value return and
• Rural financial services industry benchmark.

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Beneficiaries

• Farm Workers
• Farm Tenants
• Small Landholders
• Landless
• Food Emergency Beneficiaries
• Farm and Labour Tenants
• Land Reform and Agrarian Beneficiaries
• Small, medium and Emerging Farmers
• Household Food Producers
• Food Garden Producers and
• Rural Micro-Entrepreneurs.

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Products and Services
Poverty Datum Line
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Products and Services
Poverty Datum Line
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Functional Structure
Head office
District Branches
Local Branches
Local Branches
Village Branches
Village Branches
Village Branches
Village Branches
10 million Farm and Non-Farm Customers
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Competence and Expertise

• Economics, politics, legal and social structures
  and practices
• Policies and regulations of national and regional
  practices
• Operations and dynamics of local markets, formal
  and informal
• Extent and types of demand for microfinance
• Clients, their households, businesses and rates
  of return
• Financial expertise to manage portfolio risk and
  liquidity
• Treatment of poor clients as valued and respected
  customers
• Locally effective ways to avoid pressure to
  direct credit
• PR skills and ability to sell products and
  services.

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Institutional Ownership

• Understand the business opportunities of
  microfinance
• Defined mission and an established governance
  structure
• Act as commercial shareholders
• Mandate to set interest rates and fees that cover
  costs and risks
• Active, committed and accountable for the
  organization
• Capacity to access additional capital as needed
• Avoid or overcome bureaucratic and political
  hurdles.

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Organization and Management

• Effective asset-liability management
• Product and services for low-income households
  and enterprises
• High loan repayment rates
• Monthly income statements and balance sheets for
  each outlet
• Effective cash management
• Systems of staff recruitment, evaluation,
  promotion and incentives
• Service locations and opening hours convenient
  for clients
• High quality supervision, internal control and
  internal audit

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Human Resources Development

• Develop a management career track within the
  institution
• An effective recruiting methods for entry-level
  positions
• Promotion tracks, career paths and compensation
  for staff
• Management and staff training programs for
  microfinance
• Develop a culture of accountability
• Provide staff incentives based on performance
  indicators
• Combine responsibility, accountability, training
  and incentives for staff members

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Corporate Philosophy

• Trust
• Incentives
• Commitment
• Simplicity
• Standardization
• Transparency
• Flexibility
• Accountability
• Profitability
• Staff Training
• Market Knowledge

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Loan Products

• Standardization of credit and savings products
  with flexibility
• Design and price credit and savings products
  together
• Offer loans to any creditworthy borrower
• Provide loans to individuals or self-formed small
  groups
• New borrowers start with small loans
• Provide larger loans as borrowers prove capacity
  to repay
• Most loans are for working capital, with
  relatively short terms and frequent payment
  installments
• Make loans only to ongoing enterprises or people
  experienced in their work
• Borrower training, other than orientation to the
  loan program, is not required to receive the loan

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Loan Approval and Disbursement

• Train staff to evaluate the character of
  borrowers and capacity to repay
• Base loan amounts on borrowers repayment
  abilities from their current income flows
• Simplify loan applications and take credit
  decisions quickly at the lowest-level outlet
• Borrower transaction cost are relatively low
  because forms and procedures are simple

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Loan Collection and Procedures

• Lending institutions bear the credit risk
• Staff who approve loans are responsible for
  their collecting
• Credit officer monitor borrowers whose loans are
  in arrears
• Borrowers may re-borrow if they have good
  repayment record
• Borrowers who do not repay are not permitted to
  borrow again
• Borrowers can be offered incentives for prompt
  payment
• Borrowers who miss a payment are visited
  immediately
• Late payments are recorded promptly

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Loan Portfolio Management

• Loan accounting and reporting are simple and
  transparent
• Loan loss reserves and provisions are adequate
  and regularly reviewed
• Accord priority to delinquency measurement and
  management
• Outlets that make loans are regularly and
  carefully supervised
• Make routine and careful estimates of loan
  demands
• Prioritise and carry out frequent and regular
  asset-liability management
• Loan portfolios are diversified with regard to
  enterprise type

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Saving Mobilization

• Teach staff that the poor do not need to be
  trained in order to save
• Mobilise savings from people who love or work
  near the institution
• Loans and savings accounts are designed, priced
  and managed together
• Savings instruments are not compulsory
• Provide good security, quick and friendly service
  and effective cash management
• Set interest rates on fixed deposits at or near
  the rates of the nearest banks
• Train staff to identify potential savers
• Keep savings and deposit accounts confidential
• Make special arrangements to collect savings on
  payday
• Visit clients regularly at their homes and places
  of work
• Locally appropriate public relations activities
  are emphasized

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Delivery Network and Relationships
Land Bank
Municipalities
Provincial DoAs
Post Office
DBSA
Provincial DFIs
IDC
MAFISA Rural Financial System
SAVVEM
Donors
Agri-Cos
Khula
APEX Fund
Banks
Agri-Coops
Rural MFIs
User-Owned
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Financing Strategy
APEX FUND
DoA
DBSA
Banks
Land Bank
KHULA
Agri Cos
Post Office
Donors
IDC
MAFISA
Provincial DFIs
PDAs
Local Govt
Agri Coops
MFIs
Traders
FARMING, AGRIBUSINESS NON-FARM RURAL COMMUNITIES
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Sources of Funding
Operational Income
MAFISA
Grants
Investments
Parliamentary Appropriation
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Phased Implementation Plan

• Cabinet approval
• Conclude MOUs and SLAs with partner institutions
• Develop and launch quick win products in selected
  areas
• Prepare a MAFISA Concept Document
• Prepare a MAFISA Business Plan
• Establish a statutory basis to establish MAFISA
• Appoint MAFISA Board and CEO
• Establish MAFISA organisational structure
• Gradually expand the MAFISA branch network
• Conduct staff training and deployment
• Build strong partnerships and alliances
• Monitor and evaluate implementation and
• Assess impact on the livelihoods of the rural
  poor.

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THANK YOU