Accelerating economic prosperity in nigeria through agribusiness value chain financing

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Transcript of Accelerating economic prosperity in nigeria through agribusiness value chain financing

Background

Agriculture in Nigeria contributes about 33%

of GDP and over 70% of employment.

Value chain finance as a concept

refers to financial products and

services that flow to or through any

point in a value chain in

order to increase returns on

investment, growth and

competitiveness of that chain.

Value chains are mechanisms

that allow producers, processors,

buyers, and sellers - separated by

time and space - to add value to

products and services as they pass from

one segment of the chain to the next,

until the product gets to the final

consumer

How can we accelerate the creation of

productive jobs in agribusiness value chain

through private sector growth via a wide range

of innovative financial products and services

such as insurance, overdrafts, factoring and

leasing, as well as investment loans,

guarantees, etc?.

• Value chain development has almost become

a magic formula for sustainable agricultural

investments.

• The fastest way to catalyze the economic

growth of Nigeria while diversifying from the

non-oil export economy.

• Banks and other financing institutions

need to understand investment opportunities

at various segments of value chains, to better

develop and provide different financial

products that suit the various actors and

segments of the chain.

• There are many development programme that

support value chain development. In parts

they also deal with the issue of finance.

However, the type of finance they provide is

not sufficient to cover the needs of the entire

value chain.

• The existing financial products are

tailored to needs for equipment and

short-term working capital.

• Financial needs are particularly acute for

farmers, who can rarely access a sufficient

amount of finance to operate their businesses

profitably.

• Providing large-scale loans to a few eventually

promising agro-processing units will not

render quick-wins if the rest of the value

chain is not receiving necessary support as

well.

. Value chain segments in rural areas are

not well-served by formal financial

institutions, particularly commercial banks

• There is a need to build vertical linkages in the

financial sector and to leverage the existing

chain linkages to provide sufficiently

comprehensive financial services to value chains

1. Lending to actors in agricultural

value chains requires a thorough

assessment and understanding of the value

chain and careful identification of needs and

opportunities on the different levels of the

chain.

Firstly, as with any borrower, finance providers

to any value chain actor need to

assess risks of lending to the sector

(production/yield, price/market, and

diversification).

Secondly, finance providers need to assess the

individual creditworthiness of the borrower,

which entails a process of screening, and contract

enforcement.

Thirdly, the issue of collateral is crucial for the

design of appropriate financial products.

2. In the design of any value chain finance support

scheme one needs to be aware of the existing

forms of formal and informal finance provision in

specific value chains.

Demand for non-financial services exists at all

points along the chain (improved technologies,

business planning, market development,

management technical

assistance).

3.Commercial banks and lending institutions

should work towards new ways of securing

loans to businesses beyond traditional

collaterals by making use of the flow of

product.

4.By encouraging the commercial banks to

engage in agricultural lending by providing

concessional loans through the African

Development Bank that acts as the MDB for this

region.

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