NENNEN Tuscany Retreat 2010 Tuscany Retreat 2010

Rural Finance in Selected IFAD-Rural Finance in Selected IFAD-financed Operationsfinanced Operations

IFAD’s Approach to Rural Finance:IFAD’s Approach to Rural Finance:Six Guiding PrinciplesSix Guiding Principles

support access to a variety of financial services;

promote a range of financial institutions and modalities;

support demand-driven and innovative approaches;

encourage market-based approaches;

focus on sustainability and poverty outreach;

promote an enabling environment for rural finance.

* * in compliance with microfinance best practices

Selected IFAD Experiences: Selected IFAD Experiences: SanadiqSanadiq

SanadiqSanadiq in Syria in Syria

Concept

Sanduq is an improved version of a savings and credit association;

four operational pillars: self-reliance; autonomy; sustainability; outreach to the poor.

SanadiqSanadiq in Syria in SyriaAchievements

76 sanadiq created, with 13,500 members (45% women);

22,000 loans extended, amounting to USD 17 million;

loans are short-term with maximum 1 year duration;

sanadiq enable the operation of micro-businesses;

scaling up: now operating in all Syria projects, with similar model in Sudan, Somaliland, Yemen and other regions.

SanadiqSanadiq in Syria in Syria

Way Forward

legalisation of sanduq as financial institution;

creation of Apex institution for financial and other services;

linkages for refinancing from financial institutions;

innovative forms of capitalisation.

Selected IFAD Experiences: Refinancing FacilitiesSelected IFAD Experiences: Refinancing Facilities

Refinancing FacilitiesRefinancing Facilities

Concept

MT and LT refinancing capital to a range of selected financial institutions for onlending to farmers and small agribusinesses;

provision of capacity building services to financial institutions and their clients;

refinancing facilities financially sustainable for all stakeholders.

Refinancing FacilitiesRefinancing Facilities

Achievements in Rural Areas

Armenia: 9 PFIs; loans approved USD 13.9 million;

Moldova: 9 PFIs; loans approved USD 22.6 million;

Macedonia: 7 PFIs; loans approved USD 11.6 million;

Bosnia & Herz.: 13 PFIs; loans approved USD 20.8 million;

PFIs leverage IFAD funds with their own resources;

near-perfect repayment rates (PAR 30 days).

Refinancing FacilitiesRefinancing Facilities

Impact – Financial institutions are now:

increasing rural outreach and attracting new clients/resources;

adapting financial products/services to rural/agricultural demand;

investing their own funds and leveraging additional funds;

introducing innovative collateral requirements (e.g. forward contracts).

Refinancing FacilitiesRefinancing Facilities

Way Forward

diversification of financial instruments (e.g. micro-leasing; equity financing); already operational in some countries;

technical assistance to mobilise deposits and savings (as an exit strategy).

Equity FinancingEquity Financing

Concept

temporary strategic investments in rural enterprises (often family-owned) with growth potential and job creation;

combined with non-financial advisory services (managerial, technical, market access);

the foundation is the value chain approach.

Equity Financing – Value Chain ApproachEquity Financing – Value Chain Approach

Equity Financing in ArmeniaEquity Financing in Armenia

Methodology

creation of an appropriate Equity Fund to channel IFAD resources;

ongoing investments in rural enterprises through equity participation combined with optional debt financing;

pre-defined exit strategy based on enterprise sustainability at nominal value.

Equity FinancingEquity Financing

Way Forward

policy dialogue with Government to improve the conducive environment for rural investments;

access to stock exchange to source private or institutional strategic investors;

equity participation in microfinance institutions to expand rural operations.

IFAD’s Rural Finance Approach in YemenIFAD’s Rural Finance Approach in Yemen

Instruments

public-private partnership to manage the programme, invest IFAD/cofinancier funds, and introduce corporate social responsibility;

equity participation in pro-poor microfinance institution(s);

venture capital and equity investments in SMEs;

leveraging resources and services from commercial banks.

IFAD’s Rural Finance Approach in YemenIFAD’s Rural Finance Approach in Yemen

risk management (e.g. life insurance for borrower; weather index-based insurance for activity; credit insurance for lenders);

value chain approach as the foundation (PA forward contracts);

dialogue with Government on improving the policy framework for rural investment.

IFAD’s Rural Finance Approach in YemenIFAD’s Rural Finance Approach in Yemen

Key Indicators

three programmes valued at USD 150-200 million cofinanced with a number of strategic partners;

focus on economic opportunities within selected value chains (initially coffee, honey, horticulture, fish products, natural stone, ornamental flowers).

IFAD’s Rural Finance Approach in YemenIFAD’s Rural Finance Approach in Yemen

Outputs

win-win; value addition across the supply chain; on-farm, off-farm and non-farm business profitability; equitable profit distribution;

rural job creation;

rural economic growth and sustained poverty reduction;

strengthened financial institutions with improved rural outreach.

QA QueryQA Query

should a PMU become a financial intermediary?