Promotion of agricultural financing for agri-based enterprises in rural areas

Project description

Title: Promotion of agricultural financing for agri-based enterprises in rural areas – part of the special initiative One World – No Hunger
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Supraregional: Benin, Zambia
Lead executing agency: Benin: Ministère de l’Agriculture, de l’Elevage et de la Pêche (MAEP); Zambia: Ministry of Agriculture and Livestock (MAL)
Overall term: 2016 to 2021

Context

In many African countries, agriculture, along with its upstream and downstream enterprises, plays a key role in economic development. It provides employment for more than 80 per cent of the rural population. However, most rural, small-scale enterprises are not geared to market needs and are barely integrated into the monetary economy.

The agricultural sector has many special characteristics, which the financial system does little to accommodate, although progress has been made in the last 20 years. Banks and (micro)finance institutions mainly focus on urban areas and offer few financial products that are adapted to the seasonal nature of agriculture or the risks attached to prices and weather. This limits or prevents investments in agricultural production, processing and marketing.

Until now, financial service providers to smallholder farmers or to agriculturally-based small and medium-sized enterprises in Benin and Zambia have made only a limited contribution to the development of the rural economy. On the demand side, there are very few business models deserving of financing, while on the supply side there is a shortage of adapted financial services.

Objective

The provision to agricultural enterprises and agri-based companies in rural areas of financial products tailored to their business models has improved.

Approach

The project promotes the development and introduction of needs-oriented financial services for agricultural enterprises and agri-based companies in rural areas. On the supply side, it is supporting the expansion of national financial institutions into the agricultural sector and promoting the use of financing solutions introduced through financial cooperation in Benin and Zambia. On the demand side, the project is encouraging the further development of business models in areas of production, processing and marketing. Through training and coaching measures, it supports the development of entrepreneurial and financial skills on the part of agricultural enterprises and agri-based companies. The project provides access to its analysis and training instruments, and to its lessons learned for projects in other countries.

Sharing successfully piloted models more widely represents a significant contribution to the emergence of effective markets for needs-oriented financial services. Exchange platforms for state representatives and actors from the agricultural and financial sectors can influence the underlying conditions for rural development, and contribute indirectly to better cooperation within and between the two sectors.

The measures take into special consideration the needs of enterprises headed by young people and women. If women have access to advice and capital, it strengthens their economic and social participation and enhances gender equality.

The market potentials of agricultural value chains in Benin and Zambia provide entry points for the project. These potentials have been identified by bilateral and regional projects of financial cooperation, and by the Green Innovation Centres for agriculture and the food sector. The project also ties in with the refinancing measures for selected financial institutions planned as part of financial cooperation with the two countries.