Innovation Challenges for Agricultural Microfinance: DID

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Innovation Challenges for Agricultural
Microfinance DIDs experience

• IFAD Innovation Workshop
• Rome November 14, 2005

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Summary of presentation

• Who are we?
• Conditions required to develop agricultural
  sector
• Challenges facing agricultural and rural
  microfinance
• Conclusion

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Who are we? Canadian scene

• A cooperative founded in 1900 by Alphonse
  Desjardins to fight poverty in rural areas in the
  province of Québec
• Today Desjardins is the largest financial
  cooperative in Canada and the largest financial
  institution in the province of Québec.
• 5.5 million members (Québec pop. 7.6 million)
• 38,000 employees (largest private employer)
• Assets over US 100 billion

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Who are we? International scene

• Développement international Desjardins (DID) is a
  Canadian corporation specializing in providing
  technical support and investment for the
  community finance sector in developing countries
  since 1970.
• DID works with 28 networks in over twenty
  countries.
• DID supports 800 local institutions with 3.2
  member-users, assets over US 1 billion. (40
  located in rural areas)

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With over 1000 branches in the province of
Québec, Desjardins serves most rural and urban
regions.
Desjardins office in Montréal
Small rural Desjardins Coop
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Conditions required to develop agricultural sector

• Secure access and proper use of land and water
• Better access to lucrative markets
• Optimum productivity level (know-how tools)
• Good yield, low cost for competitiveness and
  sustainability
• Risk management tools
• Crop insurance, diversified sources of income,
  production contracts, risk sharing, etc.
• Better access to financial services

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Rice, Alaotra Lake, Madagascar
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Access to credit encourages

• Increased productivity
• by financing purchases of inputs
• by financing purchases of equipment
• Improved conditions for sales
• by avoiding dependence on market intermediaries
  who usually finance small-scale farmers
• by making it possible to stockpile harvests in
  order to sell them later when prices are better
• (warehouse receipt financing or inventory credit)
  
• Diversification of family income
• new crops or types of livestock
• added value (processing)
• new activities (small business, craftwork, etc.)

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Challenges facing microfinance for agricultural
and rural development

• Most of the worlds poorest people live in rural
  areas.
• Better access to financial services in rural
  areas is one way to fight poverty.
• Delivering professional financial services when
  facing lower profitability, increased risk and
  higher transactional costs is a real challenge
  for rural microfinance institutions.

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Challenges facing microfinance for agricultural
and rural development

• How can financial services be made accessible?
• How can the needs and capacities of farmers be
  assessed and met?
• How can operating costs for microfinance
  institutions in rural areas be lowered?
• How can funds be mobilized?
• How can risk be lowered?

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How can financial services be made accessible?

• Encourage and support the development of
  financial institutions in rural areas
• Create new institutions and/or deploy services
  from existing institutions.
• Small and medium branches affiliated with larger
  diversified networks (urban, semi-urban and rural
  branches).

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How can costs be lowered?

• Set up cost-effective service outlets
• Mobile staff can collect deposits and process
  loan applications in the field
• Use latest computer technology such as PocketPCs
• Transfer data over cell phones

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PocketPC
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How can the needs and capacities of farmers be
assessed and met?

• Design farm credit products adapted to the
  production cycle (cash flow)
• Recruit staff with specialized knowledge and
  training in agriculture
• Set up agricultural microfinance centres
• Develop the supply of medium and long-term loans
• Make interest rates lower than the rate of return
  on agricultural investments

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How can funds be mobilized?

• Offer term savings with better rates/conditions
• Share financial resources between coops
• External funding

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How can risk be lowered?

• Improve credit methodology
• Diversification strategies for loan portfolios
• Set up solidarity guarantee funds
• Access external guarantee fund
• Introduce or foster market facilitation
  mechanisms for rural and agricultural finance
• Insurance against the risk of fluctuating prices
• Insurance against the risk of natural
  catastrophes

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Conclusion

• Microfinance institutions can contribute
  significantly to the development of agriculture
  and as a result fight poverty in rural areas.
• The likelihood of success improves when
  microfinance institutions are associated into an
  overall regional development approach that
  supports productivity, marketing, improvement of
  farmer management capabilities, environmental
  protection and risk management.