We stand by you

1. Innovative Approaches to Rural Financial Services Provision with Emphasis on Smallholder Producers: The SA Experience AFRACA Sub-regional Workshop, South Africa We stand by you

2. Presentation Outline • Introduction • Problem Statement • Best Practice • South African Rural Financing Context • Land Bank and the Development Finance Imperative • Other Innovations in Rural Finance • Challenges • Conclusion

3. Introduction • Limited access also an SA phenomena • Also suffered from the same ailments as international experiments • In SA we also grapple with appropriate design and delivery questions • However, we also have to address the inequities of the past

4. Problem Statement • High administration cost • Spatial dispersion and poor communications • Lack of productive assets • Lack of insurance markets • Lack of income history and/or technical expertise • High covariant risks (price, pests and climate) • Seasonality issues • Simultaneous demands and repayments • Strategic default • Riskiness of smallholder agriculture

5. Best Practice • Viability: The interest rates charged should allow the institution to remain viable and sustainable • Self reliance: Credit programs should aim to encourage self-reliance among rural communities by offering attractive savings incentives

6. Hallmarks milestones or Best Practice • Sustainability: Preservation of natural resources should be encouraged and reflected in lending programs • Outreach: Special efforts should be made to broaden the range of financing services available for the rural poor • Impact: One of the main aims of credit programs should be to assist smallholder producers to empower themselves through savings, investments and other means

7. Lessons from Best Practice • Reach a large number of clients • Continually improve on clients services • Build up the clients asset base • Mobilize savings • Decrease transaction costs • Ensure sensible financial regulations • Implement risk-reducing mechanisms

8. The SA Rural Agricultural Finance Approach • Legislative and policy driven • Government program supported • Sector supported • Following integrated rural development strategy • Targeted at the previously disadvantaged and poor • Holistic – also non-financial issues • Seeks best practice

9. Policy Support • Forms part of the over rural development strategy which incorporates agrarian reform • The Strauss Commission report noted “ The rural areas represent an opportunity for releasing South African creativity. The provision of appropriate financial services in these areas should be one of the important mechanisms in a rural development potential”

10. Legislative Support • 1995 White Paper on Agriculture • 1995 Broadening Access to Agricultural Thrust • 1998 Discussion Document on Agricultural Policy in South Africa • 1998 White Paper on South African Land Policy • 2000 Integrated Sustainable Rural Development Strategy • 2002 Land and Agricultural Development Bank • 2002 National Water Act • 2002 Communal Property Association Act • 2003 Agricultural Cooperatives Act

11. Government Program Support Manifestations • Land Resettlement for Agricultural Development, LRAD • Food Security • Veterinary Services • Soil Conservation • Poverty Reduction • Drought and Flood Relief

12. Sectoral Support • Sector Strategy • Joint Ventures • Public Private Partnerships • Incentified Programs (LB) • Commodity Approaches

13. Mission Land Bank is an agricultural DFI that supports sustainable economic growth through the provision of retail, wholesale, project and micro financial services to agriculture and related services.

14. Mandate • To promote rural development by providing financial products and services, focusing on the following four areas: • Service all sectors of the agricultural economy • Meeting the needs of resource poor farmers and the rural poor • Matching financial sector norms for cost efficiency, effectiveness and customer service

15. The Land Bank Small Farmer Finance Products

16. The Land Bank Small Farmer Finance Products (2)

17. Land Bank (December 2003) • Retail portfolio – total number of accounts – 43 887, estimated at R7.68 billion • 26,000 were Commercial accounts • Development portfolio – R600 million • To approximately 18000 clients • Out of 27 branches and 43 satellite offices

18. Other Innovations • Strategic partnership models • Stakeholders • Government as facilitator • Farmers as producers • Private Sector as investors • Examples • Restructuring of irrigation schemes • Cotton joint venture model • Tobacco joint venture • Interlinking models – Sugar, Cotton and other

19. Other innovations • Strategic operational partnerships • Broadening access and improving best practice • Commodity groups such as NERPO • Women Development Bank • Development Bank of SA • Other government institutions (ARC, OBP,NAMC,) • Farmer Organizations such as NAFU • Other regional finance rural structures such as Ithala

20. Challenges • Repositioning within the IRDP to focus on this market • Building more capacity in the bank to focus on rural and small farmer finance to include expanding project finance • Information generated through own sources and external sources and research • Using the information in redesigning products and delivery system, thus improving access to the bank • Non-financial issues - Access to land, to skills and capacity building, access to information and technology, access to markets

21. challenges • Further exploitation of regional collaborations to include SADC and Nepad generated markets • Networking • Expansion of Black Economic Empowerment concept to include rural finance

22. Thank You