Private and confidential

Agricultural Banking Stanbic Bank Uganda

“

Experiences in developing agricultural financial loans – the role of market information

” September 2011.

Outline

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Overview of Stanbic Bank (U) Ltd Changing agriculture sector landscape and the improving market information : creates opportunity for Africa Standard Bank Agricultural Banking The smallholder farmers and Agribusiness funding scheme Success Factors and Key constraints Key message 1

Private and confidential

Section 1

Overview of Stanbic Bank

Stanbic Bank : African Roots with Global Reach

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Stanbic Bank (U) Ltd – largest branch network

• 97 branches; over 60%upcountry •Extensive expertise and strong track record of operating in emerging markets, mainly in Africa. • The largest African bank by geographic spread, assets, earnings and market capitalization • Winner of the Development Finance Initiative of the year. Agribusiness Investment Award 2010. Africa Investor

Background

•Established in 1862 •Listed on the JSE •Largest trader of African currencies in the world

African Footprint

• 17 African countries • Over 1,000 Branches & 7,500 ATMs across these geographic regions

Key regional offices

• Offices in key regional financial centre's including London, Moscow, New York, Hong Kong, Sao Paulo and Dubai 3

Out Africa footprint

Country

Cape Verde Gambia Guinea Bissau Western Sahara Mauritania Senega l Guinea Sierra Leone Liberia Morocco Mali Algeria Burkina Faso Benin Ivory Togo Coast Ghana Tunisia Niger Nigeria Equatorial Guinea Cameroon Gabon Libya Chad Central African Republic Congo Angola Namibia Sudan Democratic Republic of Congo (DRC) Zambia Zimbabwe Botswana South Africa Egypt Eritrea Ethiopia Tanzania Malawi Lesotho Djibouti Mozambique Swaziland Rwanda Burundi Somalia South Africa Botswana* Swaziland Namibia Zimbabwe* Zambia* Malawi Mozambique Ghana* Seychelles Nigeria* Madagascar Mauritius Kenya* Lesotho Uganda* DRC* Angola* Tanzania* Mauritius * Trading as Stanbic Bank

Branches

664 10 11 44 18 12 19 34 21 96 16 15 98 2 1 11 1

Corporate Banking

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Retail

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Banking

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Private and confidential

Section 2:

Changing landscape in the agriculture sector: creates opportunity for Africa

The role of Market information in banking product development and offering

 Market Information Plays a leading role in the Banks product development and offering; – Prices of agricultural Commodities at Key points in the value chain – Reliable Historical data gives an indication of future price movements and demand – Data on movement of prices and demand in agricultural commodities forms a strong basis in product development and offering 6

Changing landscape in the global agriculture sector

Some key trends

 Global consumption of food & livestock to increase significantly by 2019 (by about 50% for developing countries)  Food prices increases (mainly due to increase in energy price)  Global food inflation increased sharply from 2007-10 (mainly for low and low-middle income countries)  Africa realizing significant annual growth: > 5% GDP growth  Agricultural yields stagnated in spite of average per capita production increase 7

Opportunities

 Africa has the potential to increase production and productivity to meet growing demand food demand  Establish functional and more lucrative supply chains  Agric commodity export opportunities for Africa  Import substitution that will arise from increasingly competitive African agribusinesses.

Private and confidential

Section 3

Agricultural Banking – Integrated value chain finance approach and product offering

Banking the Agricultural Value Chain: Needs and Products Value Chain Activities & Needs Finance instruments Input and Logistics Suppliers Farmers (small and commercial) Commodity Traders Primary Processors Food & Beverage Companies  Fert and seed co’s aim to increase  penetration by facilitating input finance Need to manage raw materials cost, and price volatility for buyers  Capex for plant , equipment and infra  Need timely production finance for inputs   to ensure yields MTL to expand the businesses Price hedges to mitigate price volatility  risk Crop insurance to mitigate risks  Need finance to purchase crops (quality and  quantity) at optimum time Need risk mitigation instruments for margin payments and support for carry trades  Need finance for expansion and a acquisition targets    To secure control over raw material Liquidity to buy at optimal time Hedging of revenues where processed  commodity tradeable Need finance for expansion and acquisition targets  Need liquidity to buy at optimal time, but  want to reduce w. capital and credit risk Need finance expansion and acquisition targets     Repurchase Agreements Warehouse financing Project finance Vehicle and Asset Finance (VAF)   Input Finance Crop Advance (prepayment  for crop) VAF  Commodity finance – – Repurchase Agreements Receivables Finance – Warehouse receipt finance Leverage and acquisition finance    Commodity finance – Repurchase Agreements Receivables finance Leverage and acquisition finance   Commodity finance Leverage and acquisition  finance VAF Risk* and Other Products    Physical brokering Price hedges (fertiliser, fuel?) Currency and ex rate hedges, FX  Research   Physical brokering Commodity price hedges, for own benefit and to facilitate financing  Crop and weather Insurance    Physical brokering Commodity price hedges Currency and ex rate hedges, FX  Research      Physical brokering Commodity price hedges Currency and ex rate hedges, FX M&A Advisory Research      [Physical brokering] Commodity price hedges Currency and ex rate hedges, FX M&A Advisory Research Wholesales and Retailers * Note, derivatives still restricted to SA (Safex) and some African imports and exports

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Current product offering

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Stanbic Bank in partnership with AGRA and Kilimo Trust set up the

Agri-Business Loan Scheme (Small holder Financing)  The Government Agric Facility  Vehicle and Asset Financing  Ware house receipt financing  Danida aBi Guarantee  Commercial Agriculture

“Flexible and Innovative Agric Financing”

Overview of the Agribusiness Scheme

 The scheme is a three year program and will disburse up to $100 million targeting 750,000 smallholder farmers and agribusinesses in 4 African countries: Uganda, Tanzania, Mozambique and Ghana  Risk partners provide partial risk cover (1 st participation) loss guarantee and 50% risk  The scheme relies on value chain finance to leverage on the interlocking arrangements among the value chain actors  The scheme leverage on partnerships to take the advantage of mechanization, TA support and precision agriculture to improve production efficiencies  The scheme financial instruments include: – Input finance and agricultural production loans, – Commodity finance, – Agricultural machinery/equipment finance 11

Our partners are:

• KILIMO Trust, • The Alliance for a Green Revolution in Africa (AGRA) •OPEC Fund for International Development (OFID) • Risk participation: • 1 st loss guarantee and • 50%/50% risk sharing 12

The Small holder farmer funding model:

Risk sharing Partners

RSG Contract and monitor TA providers

Off-taker Bank

Off-taking agreement

Technical Assistance Provider Co-ops Agric input / equipment providers Smallholder Farmers

Aggregate portfolio performance

• Financed more than 70 projects • Total number of smallholder farmers benefiting from the scheme is about 5,000 14

Country Specific financing

•Agricultural Production Crops •Agricultural production Livestock &poultry •Marketing including commodity trade •Processing and light industries 15

Private and confidential

Section 5

Success factors and key constraints

Some success factors

• Specialized Agricultural Banking: products and expertise • Structured finance approach: • Structured finance approach • Self-liquidating and cash flow based finance • Leverage on partnerships: lead firms, NGOs, etc • Legally binding contracts. e.g. tripartite agreements, TA provision agreement and joint liability guarantee • Increasing production efficiencies: • Agronomy services and crop husbandry • GIS mapping and soil testing • Agricultural production manual & guidelines • Mechanization: partnership with John Deere for the provision of agricultural equipment. • Upgrading the value chains. Example, enabling farmers access to market through partnership with WFP and large domestic, regional and international agribusiness 

Cross selling opportunity: 55,000 smallholder farmers accessing finance through this scheme. How to bank them?

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Some key constraints

• Maximizing the value chain finance concept in a context where: • Inexistent/ underdeveloped value chains (mainly food crops) • Loans are generally high volumes but relative small values • Weak CBOs (producer groups, associations and co-operatives) • Climate change: heavy reliance on rain fed agriculture • Unorganised supply and demand • High post harvest losses • Erratic production due to weather shocks and seasonality • High transaction costs resulting from information asymmetry and poor information flow. (adverse selection and moral hazard) • Weak systems for contract enforcement (legally binding contracts) • Lack of legislation and/or regulations suitable to agriculture financial intermediation (e.g. commodity finance supporting instruments) 18

MIS requirements for appropriate Agric-financing

 Agricultural produce pricing – Farm gate prices – Wholesale prices – Export / main off taker prices  Quantities and Quality  Price and quantity movements over time  Expected costs involved  Seasonality of crops and regional differences  Storage and processing capacities availability and location  Availability of markets and major market players  Ease of delivery to markets 19

Private and confidential

Section 5

Key message

Key messages for conducive policy

• Addressing market failures: information asymmetry • Appropriate policies and regulations • Avoid market distorting policies. e.g. government funding schemes, marketing and price control, etc • Strengthen CBOs (producer groups, associations and co-operatives) to enable access to farmers • Build climate change resilience and adaptation: e.g. investment in small and medium scale irrigation systems, • Investing in public goods and infrastructures • Adopting policies and strategies to re-risk agriculture sector: e.g. risk sharing and price hedging • Harnessing legal systems for contract enforcement • Harnessing legislation and/or regulations suitable to agriculture financial intermediation (e.g. commodity finance supporting instruments) 21

Contact Details

Richard Wangwe

Head, Agriculture Stanbic Bank (U) Ltd, 0417154210 [email protected]

Thank you