Transcript Slide 1

Financial Mechanisms for
Green Water Credits
Davies Onduru
Fredrick Muchena
Sjef Kauffman
Contents
• Objective of the Study
• Approach and Methodology
• Findings
• Conclusions
Objective of the Study
To document financial mechanisms for the proposed Green
Water Credits Investment Fund:
• Conduct a study on farmers’ preferences on investment
mechanism for soil and water conservation;
• Identify and describe existing models and potential financial
mechanisms ;
• Identify and describe potential sources of funding for soil and
water conservation activities
Approach and Methodology
• Three sub-catchments covered to capture farmers’
preferences (129 smallholders interviewed using HH
questionnaire):
• Key informant interviews for selected institutions in Nairobi
and Upper Tana catchment using a checklist
Farmer’s preferences on type of
investment support on SWC
Technical Assistance:
• Advice/extension on SWC practices
• Training and demonstration
Investment support
• Inorganic fertiliser
• Crop protection material
• Off-farm available planting materials
• Tools and equipment
• Organic fertiliser
• Labour
• Locally available planting materials
Emerging issues
• The farmers prime interest is in production and therefore in seasonal short
term inputs
• Farmers interests are also in conservation and improvement of the
production resource base
Farmer’s preferences on form of
investment support on SWC
(a) Training for implementation of SWC practices
• Terrace layout and construction
• Soil erosion control
• Training on conservation measures; maintenance of strucrures
• On-farm water harvesting
• Group dynamics
• Agroforestry
• Composting
• Establishment of Structure stabilisers
(b) Access to planting materials, fertilisers at subsidised prices,
financial support (loans and grants)
(c) Physical tools and equipment being given directly as a
token/incentive or through credit (low interest loan)
Farmer’s preferred institutional
arrangement for investment support
Most respondents preferred arrangements involving:
• Government bodies (43%)
• Financial institutions/banks (15%)
• FBOs (14%)
• CBOs (12%)
• SACCOs (10%)
Majority of farmers (69%) perceived that no one organisation cannot
handle investment support alone.
Existing Financial Mechanisms
Models based on grants to beneficiaries:
Characteristics:
• Target legally registered community based groups or associations
(self-help groups, associations, Public trust etc.) with a group
approach seen as an efficient way of carrying out conservation and
or livelihood activities.
• Communities participating in the interventions partly contribute to
off-setting project activity costs either in kind (dominant) or in cash.
The in-kind contribution range from 10%-30%.
• Grant based models often have Government of Kenya participation
in partnership with donor and or credit lending agencies.
Models based on grants to beneficiaries
• The Community groups access the grants through a proposal
submitted to partner organisations, which screens the
proposals through various stages before approval.
• Grants are given in various forms, including cash grants,
vouchers that are redeemed at particular stores, tools for work,
food for work, cash for work etc.
• The communities are trained in the use of funds and project
implementation is monitored by partner organisations.
• Grants given to community groups are not returned to source
to establish a revolving fund, but some community groups may
set up income generating projects that allows them to set up
an internal revolving/credit system at group level.
Models based on grants to beneficiaries
• Run, often, through Project Management/Coordination Unit
with implementation committees at District and Divisional
levels when Government bodies are involved; and or
stakeholder fora at various administrative levels.
Examples
• Food for Asset Model of the Catholic Diocese of Meru
• Model of Water fees for conservation through WRMA/WSTF
• Natural Resources Management Project: Microgrants system
through World Bank Credit Facility
• Smallholder Horticultural Marketing Programme (SHoMaP)
• Njaa Marufuku Kenya
• NALEP Stakeholder Fora
Models based on Loans with risk
sharing/ Loan guarantee fund system
These models recognise that lending to smallholder farmers sector is risky due
to vulgaries of weather, pests and diseases and inadequate collateral. They
have the following characteristics:
•
Include banks/lending institutions in the Model design to offer loans and
administer credit scheme to smallholder farmers targeting selected crop
and or livestock enterprise, business entity (e.g. agrovets) etc.;
•
Integrate risk sharing mechanism where some partner organisations in the
Model sets up a fund to cater for risks that banks would incur suppose
smallholders default or production is negatively affected by vulgaries of
weather.
Models based on Loans with risk
sharing/ Loan guarantee fund system
•
Loan issuance in-kind for target activities rather than in cash: seeds,
fertilisers, tools etc. In some of the models farmers are given vouchers
redeemable at agrovet stores or particular shops.
•
Loans issued either at market lending rates or at negotiated interest rates
and pay-back period.
•
Loans issued to legally registered community groups, Societies, Public
Trust and individual farmers guaranteed by group members (group lending
methodology) and or partner organisations upon application or submission
of proposals.
Models based on Loans with risk
sharing/ Loan guarantee fund system
•
Loans issued quite often focus on income generating enterprises (high
value crops under irrigation and or rainfed farming, livestock with high
returns etc.) that would allow farmers to pay back.
•
Both loans and grant facilities are included in this model to enhance the
impacts of the Model. The latter is used for capacity building and training
in the value chain, community group, proposal development, subsidizing
costs of inputs to reach the vulnerable etc.
Examples
• Kilimo Biashara (AGRA, IFAD, Equity Bank, GoK, Amiran)
•
Rural Outreach of Financial Innovations and Technologies (PROFIT): Rural
finance and outreach component has a risk sharing facility for levering
commercial loans [GoK, USAID, IFAD, AGRA, BRAC Dev. Institute,
Consultative Group to Assist the Poor etc.)
Other Models based on Agri-business Value
Chain Development and Market Linkages
These models are clustered around selected commodities, which are for food
security and income generation
Examples
• Proposed 2SCALE (Towards Strategic Clusters in Agribusiness thro’
Learning and Entrepreneurship) of IFDC
•
Commercial Village Model promoted by Farm Concern International
Other Models based on Agri-business Value
Chain Development and Market Linkages
These models are clustered around selected commodities, which are for food
security and income generation
Examples
• Proposed 2SCALE (Towards Strategic Clusters in Agribusiness thro’
Learning and Entrepreneurship) of IFDC
•
Commercial Village Model promoted by Farm Concern International
Views of Respondents on Investment
arrangements
 Mix responses with some preferring grants, others credit and yet others a
mix of grants and credits
 Farmers: 61% of households preferred partly grants; and own farmer
contribution; 39% soft loans
 Few experiences exist on commercial loans directly targeting soil and water
conservation activities
 A mix of grants and suitable credit facility appears feasible from
respondents perspectives with the following elements:
(i) Grants: For
 Capacity building (sensitisation/farmer training), coordination and
management of activities;
 Enhancing farmers access to inputs e.g. through a voucher system
 Setting up risk-sharing and guarantee mechanism
(ii) Farmer contribution: Farmers own labour and tools etc
Views of Respondents on Investment
arrangements
(iii) Credit facility
• Linked to income generating enterprises that directly/indirectly target
conservation activities: high value crops on terraces, raising tree seedlings,
bee keeping in riverine areas etc.
• Credit facility that has:
 Risk sharing mechanisms and guarantee funds
 Initial investment fund set to kick-start the process; fund “multiplied”
over time
 Issuance of input loans in-kind for target enterprises; soft loans
Potential sources of funding
A) National sources
1. Farmer local contribution (contribute in kind in form of labour, and partly
tools and equipment)- 10-30%total costs
2. Water Resources Management Authority water fee; and Water Services
Trust Fund (through WRUAs Development Cycle)
3. Downstream Fees paid by large water users
• KenGen (fees to Regional Development Authorities, Kenya Energy
Sector Environmental Programme, KEEP)
• Nairobi City Water and Sewerage Company (Nairobi Water)-currently
pays water fee to WRMA.
• Irrigators (water fee paid to WRMA)
5. Carbon Credit
Potential source but is not fully developed yet in Kenya
KenGen, Lake Turkana Wind Power, Greenbelt Movement involved in
carbon trade
6.
Public funding: Potential public benefits include regulated river flows,
ground water recharge, reduced flood risk etc.
Potential sources of funding
B) International Sources
•
IFAD and other International Funds for TaNRMP to kick-start the GWC
Investment Fund
Conclusions
C1. Smallholder farmers are able to access locally available inputs for soil and
water conservation; however inputs obtained off-farm require purchases
C2. Smallholders preferred technical assistance and investment support on
soil and water conservation are in the form of short-term production
investments, thus a feasible investment mechanism need to take
cognisance of both short-term and long-term investments required for
SWC activities
C3. Smallholders prefer technical support (training and extension) to be given
directly by service providers (grants), but had varying opinions on which
form other areas of investment support should take.
C4. Majority of the respondents (69%) believed that no single organization can
handle the investment support alone. The majority of respondents (43% of
total) who selected Government organisations as their first choice also
said that Government bodies should not work alone but with Financial
Institutions, FBOs, CBOs, SACCOs and NGOs.
Conclusions
C5. Grant-based models, credit based models with risk sharing mechanisms
and models that emphasise value chain development and market
linkages can be combined in various shades to design a Sustainable
Commercial Investment Package (grant and credit/loan)
Discussion Points
Issues for the discussion groups
a)
What are the follow-up actions to further develop innovative financial
mechanisms/How to operationalize?:
•
Tana NRMP to include GWC approach/component (investment facility,
developing & strengthening institutional framework at field level etc.)
Link up with existing Agribusiness value chain development initiatives e.g.
2SCALE Project of IFDC having the same target farmers group as IFAD
supported Tana NRM Project
Support GoK to develop a Carbon Credit proposal for Upper Tana
catchment (maintenance to be quaranteed for a 20 years period)
•
•
b) Kick start the process now: What are the follow-up actions to make
existing financial mechanisms to support communities to start SWC work
along GWC approach?
• Water fees
• Water Services Trust Fund to start in 2 or 3 subcatchments
• Conservation fee (KenGen pays to TARDA)
Thank you for your
attention