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AGRICULTURAL CREDIT SCHEMES: THE MICRO-AGRICULTURAL FINANCE SCHEME FOR SOUTH AFRICA, MAFISA Presentation to Portfolio Committee Parliament: Marks Building Cape Town 07 February, 2005. Presidential Announcement.

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AGRICULTURAL CREDIT SCHEMES: THEMICRO-AGRICULTURAL FINANCE SCHEME FOR SOUTH AFRICA, MAFISAPresentation to Portfolio CommitteeParliament: Marks Building Cape Town07 February, 2005


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Presidential Announcement

  • Re-establish the agricultural credit scheme in the Departmentof Agriculture

  • Provide capital to increase support to agricultural activities in the communal land areas as well as other small–scale agriculture.

  • Leave the Land Bank to deal with the commercial sector

  • Make R1 billion immediately available to start the scheme

  • Work with the financial institutions to implement the provisions in the financial services charter relevant to the development of small-and medium-farming enterprises


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Why the Reversal ?

Pre-1997

Commercial Banks

Land Bank

Agricultural Credit Board

Agricultural Coops

Agricultural Coops

Agricultural Coops

Enterprises

Farmers

Enterprises

Farmers

Farmers


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Why the Reversal ?

1998-2004

Commercial Banks

Land Bank

Agricultural Companies

Rural Micro-Finance Institutions

Rural Micro-Finance Institutions

Enterprises

Farmers

Farmers

Farmers

Enterprises

Farmers

Farmers

Farmers

Farmers

Farmers

Farmers


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Why the Reversal ?

Post 2004

Commercial Banks

Land Bank

MAFISA: Micro-Agricultural Financial Scheme for South Africa

Enterprises

Farmers

Farmers

Farmers

Enterprises

Farmers

Farmers

Farmers

Farmers

Farmers

Farmers


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Global Microfinance Experience

  • Asia

    • BRI of Indonesia

    • BRAC of Bangladesh

    • BAAC of Thailand

  • Latin America

    • Bancosol of Bolivia

  • Africa

    • Rural Banks

    • Cooperative Banks

  • Europe

    • DGRV of Germany

    • Rabo Bank of the Netherlands

    • Agricole of France


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Policy Issues

  • Micro-finance demand among the working poor can be met by profitable and sustainable institutions

  • Successful commercial microfinance can be carried out by different institutions in widely different environments

  • Regulatory authorities must provide an enabling environment if institutional commercial microfinance is to succeed

  • Donors supporting the growth of commercial microfinance assist through capacity building initiatives


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Comprehensive Agricultural Support Programme

Agricultural macro-

system within

consumer economic

environment

Farm & Business

level activity

Household food

security &

Subsistence

The Hungry &

Vulnerable

AGRICULTURAL SUPPORT

Training & Capacity Building

Technology & Advisory Services

Financial Assistance

Marketing & Business Development

On & Off Farm Infrastructure

Information & Knowledge Management

PILLARS


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Farms and Agribusiness Structure

Large commercial farms & agribusinesses

1st Economy

IV

III

II

I

Small commercial farms & agribusinesses

2nd Economy

Emerging farms and agribusinesses

Subsistence farms andagribusinesses


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Socio-Economic Analysis

  • An estimate of 15 million rural poor people

  • Women-headed households

  • Women, youth and people with disabilities

  • Some form of access to land

  • Have some form of self-employment

  • Earn as little as R600 per month

  • Farming share less than 10% to total HH income

  • Move in and out of the 1st and 2nd economies in pursuit of household livelihood strategies

  • Are not severely malnourished, hungry or destitute

  • Use credit for high potential areas and high return activities


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Socio-Economic Analysis

  • Use savings for subsistence farming and low return productive activities

  • Rely on remittances, wages, disability, pension and child support grants for production and HH needs

  • Live in remote and dispersed areas with poor infrastructure

  • Participate in but do not benefit from the 1st economy

  • May be creditworthy below and above the poverty datum line

  • May engage into profitable self-employment investments

  • Use extended families and social networks to manage production, price and market risks and disasters


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Business Case

  • More savers than borrowers in a financial system

  • Households save more than they borrow

  • Enterprises borrow more than they save

  • If 10 out of 15 million rural people are savers, then 5 million rural people should be borrowers

  • If 10 million people save at least R200 per year, then there should be R2 billion in the rural financial market available for the 5 million rural borrowers


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Vision

Empowering the rural working poor, small entrepreneurs and farmers to improve their livelihoods


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Mission

MAFISA is the state-owned scheme that provides access to micro and retail agricultural financial services to households, individuals and entrepreneurs in the rural areas on a nation-wide, commercial, cost-effective and sustainable basis


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Scope

INPUT MARKETS

  • Manufacturers

  • Sources

  • Intermediaries

  • Distributors:

  • Fertilizer

  • Fuel

  • Seed

  • Chemicals

  • Mechanisation

  • Animal Feed

  • Finance

  • Insurance

  • Advisory

CONSUMER MARKETS

Handling

Storage

Preparation

Processing

Distribution

Transportation

OUTPUT MARKETS

VALUE ADDITION

PRIMARY AGRICULTURE


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Sustainable Livelihoods Framework

  • OUTCOMES

  • more income

  • more jobs

  • better well-being

  • reduced vulnerability

  • improved food security

  • better sustainable use of NR-base

  • ISRDP

  • STRATEGIES

  • LRAD

  • CASP

  • IFSNP

  • ARM

  • AgriBEE

  • MAFISA

  • Land Care

  • Non-NR-based

TRANSFORMING STRUCTURES & PROCESSES

  • CAPITAL ASSETS

  • Natural

  • Social

  • Physical

  • Human

  • Financial

  • VULNERABILITY CONTEXT

  • Trends

  • Shocks

  • Culture

STRUCTURES

Government

Private Sector

Laws

Policies

Incentives

Institutions

PROCESSES


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Sustainable Rural Financial System

Stakeholder participation

Non-Financial Services

Improved sustainable livelihoods

Financial Services

Rural Financial Infrastructure

Outreach

Conducive Policies

Regulation & Supervision


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Financial and Enterprise Viability Cycle

Viable Financial Institutions

Vibrant rural and agricultural economy

Growth

Growth

Viable Rural Enterprises


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Savings and Credit Household Cycle

Savings: Subsistence production and low return ventures

Rural and Agricultural Economy

Growth

Growth

Credit: High potential areas and high return ventures


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Households’ Savings and Credit Cycle

SAVINGS THROUGH

LUMP

SUM

AMOUNT

CREDIT

SAVINGS

TIME


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Strategy

Human and Social Assets

Strengthening the capacity of the rural poor and their organisations

Productive Assets and Technology

Improving equitable access to productive natural resources and technology

Empowering the rural working poor and enterpreneurs in their efforts to improve their livelihoods

Financial Assets and Markets

Increasing access to financial services and markets


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Principles

  • Rural livelihoods strategies;

  • Collaborate, share and reinforce;

  • Use or improve existing resources and efforts;

  • Offer and gain something of value;

  • Specialise in something of value;

  • Service delivery within the 20km target;

  • Target 10 million beneficiaries;

  • Optimise tax-rand value return; and

  • Rural financial services industry benchmark.


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Beneficiaries

  • Farm Workers;

  • Farm Tenants

  • Small Landholders;

  • Landless;

  • Food Emergency Beneficiaries;

  • Farm and Labour Tenants;

  • Land Reform and Agrarian Beneficiaries;

  • Small, medium and Emerging Farmers;

  • Household Food Producers;

  • Food Garden Producers; and

  • Rural Micro-Entrepreneurs.


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Products and Services

Poverty Datum Line


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Products and Services

Poverty Datum Line


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Functional Structure

Head office

District Branches

Local Branches

Local Branches

Village Branches

Village Branches

Village Branches

Village Branches

10 million Farm and Non-Farm Customers


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Competence and Expertise

  • Economics, politics, legal and social structures and practices;

  • Policies and regulations of national and regional practices;

  • Operations and dynamics of local markets, formal and informal;

  • Extent and types of demand for microfinance;

  • Clients, their households, businesses and rates of return;

  • Financial expertise to manage portfolio risk and liquidity;

  • Treatment of poor clients as valued and respected customers;

  • Locally effective ways to avoid pressure to direct credit;

  • PR skills and ability to sell products and services.


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Institutional Ownership

  • Understand the business opportunities of microfinance

  • Defined mission and an established governance structure

  • Act as commercial shareholders

  • Mandate to set interest rates and fees that cover costs and risks

  • Active, committed and accountable for the organization

  • Capacity to access additional capital as needed

  • Avoid or overcome bureaucratic and political hurdles.


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Organization and Management

  • Effective asset-liability management

  • Product and services for low-income households and enterprises

  • High loan repayment rates

  • Monthly income statements and balance sheets for each outlet

  • Effective cash management

  • Systems of staff recruitment, evaluation, promotion and incentives

  • Service locations and opening hours convenient for clients

  • High quality supervision, internal control and internal audit


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Human Resources Development

  • Develop a management career track within the institution

  • An effective recruiting methods for entry-level positions

  • Promotion tracks, career paths and compensation for staff

  • Management and staff training programs for microfinance

  • Develop a culture of accountability

  • Provide staff incentives based on performance indicators

  • Combine responsibility, accountability, training and incentives for staff members


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Corporate Philosophy

  • Trust

  • Incentives

  • Commitment

  • Simplicity

  • Standardization

  • Transparency

  • Flexibility

  • Accountability

  • Profitability

  • Staff Training

  • Market Knowledge


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Loan Products

  • Standardization of credit and savings products with flexibility

  • Design and price credit and savings products together

  • Offer loans to any creditworthy borrower

  • Provide loans to individuals or self-formed small groups

  • New borrowers start with small loans

  • Provide larger loans as borrowers prove capacity to repay

  • Most loans are for working capital, with relatively short terms and frequent payment installments

  • Make loans only to ongoing enterprises or people experienced in their work

  • Borrower training, other than orientation to the loan program, is not required to receive the loan


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Loan Approval and Disbursement

  • Train staff to evaluate the character of borrowers and capacity to repay

  • Base loan amounts on borrowers’ repayment abilities from their current income flows

  • Simplify loan applications and take credit decisions quickly at the lowest-level outlet

  • Borrower transaction cost are relatively low because forms and procedures are simple


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Loan Collection and Procedures

  • Lending institutions bear the credit risk

  • Staff who approve loans are responsible for their collecting

  • Credit officer monitor borrowers whose loans are in arrears

  • Borrowers may re-borrow if they have good repayment record

  • Borrowers who do not repay are not permitted to borrow again

  • Borrowers can be offered incentives for prompt payment

  • Borrowers who miss a payment are visited immediately

  • Late payments are recorded promptly


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Loan Portfolio Management

  • Loan accounting and reporting are simple and transparent

  • Loan loss reserves and provisions are adequate and regularly reviewed

  • Accord priority to delinquency measurement and management

  • Outlets that make loans are regularly and carefully supervised

  • Make routine and careful estimates of loan demands

  • Prioritise and carry out frequent and regular asset-liability management

  • Loan portfolios are diversified with regard to enterprise type


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Saving Mobilization

  • Teach staff that the poor do not need to be trained in order to save

  • Mobilise savings from people who love or work near the institution

  • Loans and savings accounts are designed, priced and managed together

  • Savings instruments are not compulsory

  • Provide good security, quick and friendly service and effective cash management

  • Set interest rates on fixed deposits at or near the rates of the nearest banks

  • Train staff to identify potential savers

  • Keep savings and deposit accounts confidential

  • Make special arrangements to collect savings on payday

  • Visit clients regularly at their homes and places of work

  • Locally appropriate public relations activities are emphasized


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Delivery Network and Relationships

Land Bank

Municipalities

Provincial DoAs

Post Office

DBSA

Provincial DFIs

IDC

MAFISA: Rural Financial System

SAVVEM

Donors

Agri-Cos

Khula

APEX Fund

Banks

Agri-Coops

Rural MFIs

User-Owned


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Financing Strategy

APEX FUND

Banks

Land Bank

DBSA

DoA

KHULA

Agri Cos

Post Office

IDC

Donors

MAFISA

Provincial DFIs

PDAs

Local Govt

Agri Coops

MFIs

Traders

FARMING, AGRIBUSINESS & NON-FARM RURAL COMMUNITIES


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Sources of Funding

Operational Income

MAFISA

Grants

Investments

Parliamentary Appropriation


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Phased Implementation Plan

  • Cabinet approval;

  • Conclude MOUs and SLAs with partner institutions;

  • Develop and launch quick win products in selected areas;

  • Prepare a MAFISA Concept Document;

  • Prepare a MAFISA Business Plan;

  • Establish a statutory basis to establish MAFISA;

  • Appoint MAFISA Board and CEO;

  • Establish MAFISA organisational structure;

  • Gradually expand the MAFISA branch network;

  • Conduct staff training and deployment;

  • Build strong partnerships and alliances;

  • Monitor and evaluate implementation; and

  • Assess impact on the livelihoods of the rural poor.


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THANK YOU


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