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Expert Meeting on Managing Risks in Financing Agriculture

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AGRI-FINANCE AFRICA

           Presentations                                Proceedings (forthcoming)  

Findings

The expert meeting on integrated risk management was organized to review and discuss good practices and available instruments for financial risk management in agriculture, and the characteristics that are typical of practices that have brought increased access to agricultural finance to farmers and other agents along the supply chain.

Africa World
  1. Financing for agriculture is viable and sustainable if supported by sound risk assessment and risk management at all levels, including at the farm, the financial institution (commercial risk), and the agricultural value chain. 
  2. Cooperative financial institutions and mutuals are often well positioned and effective in providing financial services for agriculture, and other financial institutions can draw valuable lessons from their experiences.
  3. Mutually beneficial partnerships through which risks and benefits are shared lower risk by creating holistic solutions and by enabling cost-efficient delivery of packaged financial and nonfinancial products and services.
  4. Aggregation of clients can facilitate the development of, and access to, risk management services, such as price risk management and insurance, as well as other services such as collective input purchasing and output marketing. 
  5. Good banking practices, combined with understanding of the agriculture sector and the client, are the core of sound institutional management and operations for financing agriculture.
  6. Government policy and intervention should be oriented towards public goods and infrastructure (physical and non-physical), aiming to promote an enabling environment for the development of agricultural finance and insurance services, through public private partnerships.
  7. Well designed and qualified technical assistance, taking into consideration existing local knowledge and built on understanding of effective demand for financial services, is key to the development of efficient and well-performing financing of agriculture.
  8. Insurance is one tool in an overall risk management strategy to promote agricultural finance at all levels (micro, meso and macro). There is a need for continuing development of insurance products and services adapted to developing countries, in particular that are addressing agricultural production and livestock losses.
  9. Innovations in agricultural finance could build on and improve existing products and processes to deliver new and more efficient services.  Investment costs of innovation may deter good initiatives. Cost-sharing, through the development of partnerships for example with other service providers, is necessary both to initiate and to scale up innovation.
  10. Price risk management is very important and equally difficult to achieve, but could be promoted through aggregation.  Hedging instruments have only limited availability in developing countries, particularly for small farmers, and are only applicable to internationally traded commodities. Contract farming offers another approach to price risk management for small farmers and their financial institutions.
  11. Innovative forms of collateral and collateral substitutes can be employed in order to improve access to finance for farmers who lack suitable conventional physical assets for loan guarantees.
  12. Financial literacy is a particular challenge for financial institutions serving farmers and other clients in the agricultural value chain in developing countries. Financial literacy education will contribute to improving risk management in agricultural lending and is equally important both for staff and clients of financial institutions.
  13. Leasing offers the potential to reduce some of the risks of traditional loan provision for investment financing in agriculture.  Leasing can provide an alternative financing solution for small farmers and rural enterprises with limited collateral and credit history for the acquisition of equipment and other production assets.
  14. Certification of agricultural producer organizations can allow improved access to national and international markets, and capacity building. Reduced market risks for farmers and financial institutions alike can enhance access to affordable finance.



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