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Access To Finance

Access To Finance. And Value Chains. Who Am I. I am a Farmer (With accessed finance to prove it) I chair the Fiji Crop and Livestock Council 3. I am an Agricultural Number Cruncher. What is the Problem. Interest rates to Agriculture are at a historic low (5% to 6%)

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Access To Finance

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  1. Access To Finance And Value Chains

  2. Who Am I I am a Farmer (With accessed finance to prove it) I chair the Fiji Crop and Livestock Council 3. I am an Agricultural Number Cruncher

  3. What is the Problem Interest rates to Agriculture are at a historic low (5% to 6%) Government directives to banks all banks to lend 4% of deposits to Agriculture Country awash with cash A farm with 60% equity and only 40% debt With a long track record With stacks of on farm data Professional accounts Linked to an established market With appropriate qualifications Would be turned down by most commercial banks

  4. Long Suffering FDB • Only one bank will lend to most farmers • Government policies financed through FDB • But is the system working?

  5. What is the Problem We can talk about issues of security, thin markets, lack of experience. We can look at Sugar with guaranteed markets and the banks get first cut of any payments but :- I believe there is a fundamental breakdown in communication between farmers and banks to a point where most banks reject any agricultural proposal. And they are possibly right to do so.

  6. High Risk • Agriculture and Agri-food businesses are perceived to have high credit risk because: • Most are technically start-up businesses and have inadequate collateral to satisfy the requirements of long term loans; • Managers often lack key financial management competencies to allow the production of bankable proposals; • Managers don’t have a clear understanding of banking lending requirements. • Banks and financial service providers often lack the time and the required resources to effectively address small business finance related needs.

  7. Efficiency If we are going to access finance for Agriculture the Agriculture must be efficient enough to carry the cost of Finance. (and other overheads) • Historically we are too optimistic, and therefore we fail and the banks won’t fund us. Farmers are up stream in the value chain. If they fail/are not competitive ………………..

  8. A long Value Chain 1Farmer 2Collection 3Agglomerate 4Transport to Processor 5Processing 6Wholesale 7Distribution 8Retail 9End User Everybody wants a $lice

  9. A Simpler Value Chain $ FarmerEnd User 1 This is the Maqiti Market (Or Domestic consumption) A lot of our Agriculture operates in the Maqiti market because our farming is less efficient

  10. Advantages and Disadvantages of Maqiti

  11. What are we doing International Trade Center, working with the Fiji Crop and Livestock Council and the recently established Credit Risk Task Force are working on four solutions to rebuild confidence between banks and farmers. This is a structured approach to investment appraisal for SME’s and is designed to properly assess the RISK. Developing a farm management manual that reflects the reality of farming in Fiji and will therefore be conservative in its projections To introduce proven “Access To Finance” mechanisms to all stakeholders. (Support Structure, Loan Com and Training) Funding the Council to improve farmer representation Working with agencies (FNU, FDB, FCLC,MOA) to properly host these system after the project ends.

  12. Farm Manual Standardized format for analysis of all crops Comparative analysis of different efficiency scenarios to determine how to improve Assessment parameters will be agreed by all stakeholders Multilayered document to cover financial and non financial aspects for better risk assessment. Most importantly, data will be drawn up in Fiji by using actual data from our farmers, not research data or world best parameters

  13. Manual Layers • FINANCIAL LAYERS • Enterprise specific Technical data to derive : • Gross Margin analysis • Full Costed Margin analysis • Investment Appraisal analysis • Including sensitivity analysis for risk (probability predictability with an emphasis on the impact of disasters ) SUPPORTING INFORMATION LAYERS • Technical summary and assumptions (building, soils, climate , production systems) • Quality issuesand defined Fiji standards • Fiji agricultural statistics (scale, structure and location , imports and export statistics) • Market options and risks • Fiji soil capability Mapping • Contacts , – suppliers, technical assistance industry players, government, agencies , FCLC?; • Risk analysis to drive the selection of sensitivity criteria.

  14. Manual Gross Margin Income

  15. Access to Finance Mechanisms Loan Com :- A computer data base that asks pertinent questions about a business plan, managements understanding and ability and the financial strength of the plan to gauge the preparedness of the proposal. The output is automatically calculated and is derived from a composite assessment of the criteria examined. It makes recommendations and identifies strengths and weaknesses and additional information required. The system runs on a lap top or PC and can be used as a quick cheap assessment tool.

  16. Training ITC will fund training and development in the operation of these systems. It will ensure the systems are supported with the appropriate IT support and backup and that they are available in accessible ways. It is intended to develop a carder of support officers knowledgeable in the operation of these systems and also knowledgeable in farm operations and efficiencies

  17. Access to Finance Support ITC MSME Competence Building Technical Assistance, Training, Farm Manual LOANCOM & other tools Finance options and Guarantees Local Institutions MSMEs Technical support MSME Financing Commercial Banks & Micro Finance Local Advisory Operators Structured Analysis

  18. Activities & Issues Meet with stakeholders and establish a Task Force. Determine what form of Fijian Advisers / Counsellors would work best. Identify who would need to be involved in organising workshops for financial management counsellors. Do Credit Risk Officers, MPI, FDB, RBF and others require coaching and advice on alternative forms of guarantees, potential financing and insurance mechanisms from ITC? Identification and evaluation of feasibility of index insurance for smallholder producers and disaster relief or crop failure payments. (FCLC) Resolve issues of liability when acting as an advisory body.

  19. Conclusion Finance of Agriculture is not working for numerous reasons. Over optimistic assumptions for efficiency are damaging. Our farmers know best. Structured, proven and properly funded mechanisms to improve “Access to Finance” can only be beneficial The Council provides an opportunity to firmly root this project in Fiji by accessing knowledge from farmers who are actually growing the crop

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