Innovation Challenges for Agricultural Microfinance: DID’s experience

1. Innovation Challenges for Agricultural Microfinance: DID’s experience IFAD Innovation Workshop Rome November 14, 2005

2. Summary of presentation • Who are we? • Conditions required to develop agricultural sector • Challenges facing agricultural and rural microfinance • Conclusion

3. 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

4. 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)

5. With over 1000 branches in the province of Québec, Desjardins serves most rural and urban regions. Desjardins office in Montréal Small rural Desjardins Coop

6. 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

7. BALANCED DEVELOPMENT FOR SUSTAINABLE AGRICULTURE M I R T I I S G K A T I O N T E C H N I Q U E S C A P I T A L M A R K E T SECURE ACCESS and PROPER USE of LAND and WATER

8. Rice, Alaotra Lake, Madagascar

9. 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.)

11. Challenges facing microfinance for agricultural and rural development • Most of the world’s 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.

12. 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?

13. 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). M M M

14. 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

15. PocketPC

16. 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

17. How can funds be mobilized? • Offer term savings with better rates/conditions • Share financial resources between coops • External funding

18. 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

19. 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.