FINANCIAL MARKET ASSESSMENTS
FOR THE AGRICULTURAL SECTOR
Glossary
Aggregators – A buyer or broker of a good or service, who packages it and sells it to consumers (or another
value chain actor). (MEDA definition)
Agribusiness – Encompassing farming and farming-related commercial activities and entities. Agribusiness
involves all the steps required to send an agricultural good to market: production, processing, and
distribution. It is an important component of countries with arable land, since agricultural products can be
exported. (www.investopedia.com)
Agricultural Capital Stock – Livestock, tree-stock, and fixed capital used for agricultural production
(MEDA).
Agricultural Commitment Savings – A type of agriculture financing.
Agriculture Finance – Shaped by the arrangements the value chain actor has with the individuals and/or
businesses with whom the actor buys/sells from in order to produce and deliver products/services (eg. input
credit, inventory credit, infrastructure credit, factoring, leasing, agricultural insurance, agricultural
commitment savings). (Calvin Miller and Prasun Das – Ag. Value Chain Toolkit)
Agricultural (Crop) Insurance– A type of agriculture financing purchased by agricultural producers
(including farmers) to protect themselves against either the loss of their crops due to natural disasters (eg.
hail, drought, and floods) or the loss of revenue due to declines in the prices of agricultural commodities.
(MEDA definition)
AMCO – Agriculture Marketing Cooperatives, set up by NMB Tanzania.
Client-Centric – An approach to doing business that focuses on the customer. Client centric businesses
ensure that the customer is at the center of a business's philosophy, operations or ideas. These businesses
believe that their clients are the only reason that they exist and use every means at their disposal to keep the
client happy and satisfied. (www.investopedia.com)
Collateral – Assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event
of default (www.investorwords.com). Also defined as a security given by a borrower to a lender as a pledge
for the repayment of a loan. Securities comprise financial securities (funded securities), accounts receivable,
material assets or mortgages on real estates. They are generally estimated at the moment of the loan at their
market value or at a forced sale value. (www.aecm.be)
Collateral Management (CM) – Collateral managers provide the safeguarding and administration of a
commodity or other physical assets pledged as collateral on behalf of the recipient of the collateral for
securing a loan. A collateral management agreement is formed between the financing party, the borrowing
party or the owner of the commodities and collateral manager. (Calvin Miller and Prasun Das – Ag. Value
Chain Toolkit)
Collateralization (or Collateralized Loan) – The act where a borrower pledges an asset as recourse to the
lender in the event that the borrower defaults on the initial loan. (www.investopedia.com)
Collection Accounts – The collection account is an active debt, such as a loan, that it was purchased from or
transferred from the original lender to a loan collector or specialized agency. (www.experian.com)
Comparative Advantage – The ability of a firm or individual to produce goods and/or services at a lower
opportunity cost than other firms or individuals. A comparative advantage gives a company the ability to sell
goods and services at a lower price than its competitors and realize stronger sales margins.
(www.investopedia.com)
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FINANCIAL MARKET ASSESSMENTS
FOR THE AGRICULTURAL SECTOR
Glossary
Contract farming – A form of arrangement in which buyers of agricultural products, usually large food
processing companies or traders, provide inputs to farmers and agree under contract to take a specific
quantity of product at harvest time, at a specified price. (M. Winn and Miller)
Credit – The ability of a customer to obtain goods or services before payment, based on the trust that
payment will be made in the future (MEDA definition). A contractual agreement in which a borrower
receives something of value now and agrees to repay the lender at some date in the future, generally with
interest. (www.investopedia.com)
Development Agency – An agency whose goal is to help develop and support humanitarian aid or economic
growth within a specified city, region or state by providing necessary resources and assistance.
(www.entrepreneur.com)
Enabling Environment – The sets of policies, institutions, support services and other conditions that
collectively improve or create a general business setting where enterprises and business activities can start,
develop and thrive. (FAO, 2013, Enabling Environments for Agribusiness and Agro-Industries Development)
Ex-Ante – is a phrase meaning "before the event". Ex-ante is used most commonly in the commercial world,
where results of a particular action, or series of actions, are forecast in advance (or intended). The opposite of
ex-ante is ex-post (actual). (Dictionary.com)
Export Finance – Funds disbursed to an exporter against assigned offtake (purchase) contracts of
commodities, i.e. loans to facilitate sales to a foreign country such as a commercial letter of credit. (FAO
Bulletin, 1992)
Export receivables financing – Funds disbursed to an exporter against assigned off-take contracts of
commodities. (Rural Finance Innovation, The World Bank Report, 2005)
Factoring – Factoring is a financial transaction whereby a business sells its accounts receivable or contracts
of sales of goods at a discount to a specialized agency, called a factor, who pays the business minus a factor
discount and collects the receivables when due. (FAO Bulletin, 1992; Oxford Dictionary of Finance and
Banking)
Financial Institution (FI) - An establishment that focuses on dealing with financial transactions; such as
investments, loans and deposits. Conventionally, financial institutions are composed of organizations such as
banks, trust companies, insurance companies and investment dealers. (www.investopedia.com)
Financing – Provide funding for a person or enterprise. (MEDA definition)
Focus Groups – A group of people assembled to participate in a guided discussion about a particular
product or service, or to provide feedback. (www.business dictionary.com)
FDL – Fondo de Desarroloo Local is the largest MFI in Nicaragua with a portfolio of USD 63 million, FDL
are a non-profit, non-deposit-taking MFI operating since 1992. (Emilio Hernandez, 2014)
Forfaiting – A type of financing in which a specialized forfaitor agency (usually a bank or a finance
company) purchases an exporter's receivables of freely-negotiable instruments (such as unconditionallyguaranteed letters of credit and 'to order' bills of exchange) at a discount, and takes on all the risks involved
with the receivables. (FAO Bulletin)
Formal Financial Sector – The financial sector is firms that provide financial services to commercial and
retail customers. The formal entities in this sector includes banks, investment funds, insurance companies
and real estate. (www.investopedia.com)
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FINANCIAL MARKET ASSESSMENTS
FOR THE AGRICULTURAL SECTOR
Glossary
Forward contracting – An agreement entered between two parties to buy or sell an asset at a future date for
an agreed price. It is a cash market transaction in which a seller agrees to deliver a specific cash commodity
to a buyer at some point in the future. (www.investorwords.com)
Futures – An agreement between two parties to buy or sell a specified quantity and quality of asset at a
certain time in future at a certain price agreed at the time of sale. Futures are forward contracts that are
standardized to be traded in futures exchanges. (www.investorwords.com)
Financial lease is a lease-purchase contract which effectively allows a lessee to finance the purchase of an
asset and use (lease) it in the meantime even though the ownership of the asset is transferred to the lessee at
the end of the lease term when agreed payments have been made. (Miller and Jones, 2010)
Gross Domestic Product (GDP) – The monetary value of all the finished goods and services produced
within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It
includes all of private and public consumption, government outlays, investments and exports less imports
that occur within a defined territory. (www.investopedia.com)
Illiquid – The state of a security or other asset that cannot easily be sold or exchanged for cash without a
substantial loss in value. Illiquid assets also cannot be sold quickly because of a lack of ready and willing
investors or speculators to purchase the asset. The lack of ready buyers also leads to larger discrepancies
between the asking price (from the seller) and the bidding price (from a buyer) than would be found in an
orderly market with daily trading activity. (www.investopedia.com)
In-depth Interview – Conducted usually on one to one basis, designed to reveal the underlying motives of
the interviewee's attitudes, behaviour, and perceptions. (MEDA definition)
Infrastructure credit– A type of agriculture financing.
Informal Sources of Finance – In agricultural value chains informal finance often comes from value chain
actors (eg. Wholesalers, trades, warehouse operators, producer associations, etc.), when formal finance is
unattainable. (MEDA definition)
Input Credit– A type of agriculture financing, purchasing inputs on credit from input suppliers.
Inventory Credit– A type of agriculture financing credit or short-term loan made to a company so it can
purchase products for sale. Those products, or inventory, serve as collateral for the loan if the business does
not sell its products and cannot repay the loan. (www.investopedia.com)
Lag – Period of time between one event or transaction and another. (MEDA definition)
Leasing– A type of agriculture financing in which one party agrees to rent property from another party. A
lease guarantees the lessee (the renter) use of an asset and guarantees the lessor (the property owner) regular
payments from the lessee for a specified number of months or years. Both the lessee and the lessor must
uphold the terms of the contract for the lease to remain valid. (www.investopedia.com)
Loan guarantee –A loan insured by the government or an insurance or guarantee fund but processed
through a financial intermediary, usually at lower-than-market interest rates. Other guarantees may involve
collateral or co-signers. (FAO Bulletin, 1992)
Machinery Investment Loan – A type of agriculture financing.
Macroeconomic – The field of economics that studies the behavior of the aggregate economy.
Macroeconomics examines economy-wide phenomena such as changes in unemployment, national income,
rate of growth, gross domestic product, inflation and price levels. (www.investopedia.com)
4
FINANCIAL MARKET ASSESSMENTS
FOR THE AGRICULTURAL SECTOR
Glossary
Outgrower – A contractual partnership between growers and/or landholders, and a company. Also known as
contract farming, it is binding arrangements through which a firm ensures its supply of agricultural products
by individual or groups of farmers. (www.oecd.org)
Pre-export financing – Funds advanced by a lending institution such as an export-import bank or trade
development bank against confirmed orders from qualified foreign buyers to enable the exporter to make and
supply ordered goods. In general, the exporter arranges a commitment from the buyer to make the payment
directly to the lender. Upon receipt of payment, the lender deducts the loan amount plus interest and other
charges, and forwards the balance to the exporter. (www.businessdictionary.com)
Microfinance Institution (MFI) – A type of banking service that is provided to unemployed or low-income
individuals or groups who would otherwise have no other means of gaining financial services.
(www.investopedia.com)
Public Sector – The part of an economy that is controlled by the government. (MEDA definition)
Public-Private Collaboration – A government service or private business venture which is funded and
operated through a partnership of government and one or more private sector companies.
(www.investopedia.com)
Private Sector – The part of the economy that is not state controlled, and is run by individuals and
companies for profit. The private sector encompasses all for-profit businesses that are not owned or operated
by the government. (www.investopedia.com)
Prototype – An original or first model of something from which other forms are copied or developed.
(www.merriam-webster.com)
Qualitative Data – Data relating to, measuring, or measured by the quality or type of the good or service
being measured. (www.merriam-webster.com)
Quantitative Data – Data relating to, measuring, or measured by the quantity of something. (www.merriamwebster.com)
Receivables-backed finance – Finance that relies on contractual obligations in the value chain, using a
purchaser’s legal commitments to pay for goods or services to be received under contract as a substitute for a
credit assessment of the borrower. This is valuable in situations where banks cannot accept the underlying
creditworthiness of a potential borrower. (Winn and Miller, FAO, “The use of Structured Finance
instruments in agriculture in Eastern Europe and Central Asia”, 2009)
Regional (or Idiosyncratic) Risk – Risk that is specific to an asset or a small group of assets. Idiosyncratic risk
has little or no correlation with market risk, and can therefore be substantially mitigated or eliminated from a
portfolio by using adequate diversification. Environmental, market-related, logistical/infrastructure, or equipment
risk. (www.investopedia.com)
Repurchase agreements (or Repos) – An agreement between two parties whereby one party sells the other a
security at a specified price with a commitment to buy the security back at a later date for another specified price.
(www.riskglossary.com)
Reserve accounts – A separate amount of cash or letter of credit to service a future payment requirement such as
debt service or maintenance. (www://financial-dictionary.thefreedictionary.com)
Risk – A situation involving exposure to danger. (www.merriam-webster.com)
5
FINANCIAL MARKET ASSESSMENTS
FOR THE AGRICULTURAL SECTOR
Glossary
Risk Management (RM) – The forecasting and evaluation of financial risks together with the identification of
procedures to avoid or minimize their impact. (www.merriam-webster.com)
Savings and Credit Union (SCU) – Member-owned financial co-operative. These institutions are created and
operated by its members and profits are shared amongst the owners. (www.investopedia.com)
Securitization – The process of creating a tradable financial instrument (a security) from a non-tradable financial
asset, such as a bank loan (Oxford Dictionary). Securitization can be classified as an alternative to traditional
sources of funds such as debt and equity offerings. (Hull, 1989)
Small-holder (Farmer) – Usually holding a plot of arable land, usually smaller than a farm but larger than an
allotment, usually under 50 acres (20 ha). (www.en.wikipedia.orgéwikiésmallholding)
Special-purpose vehicle – A firm or legal entity such as a trust that may be established to perform some narrowly
defined or temporary purpose such that the sponsoring firm will not have to carry any of the associated assets or
liabilities on its own balance sheet. (Calvin Miller and Prasun Das – Ag. Value Chain Toolkit)
Structured finance – flexible, tailor-made financial product design used whenever the requirements of the
originator or owner of an asset cannot be met by a standard financing product or instrument. It is often built
around cash flow projections and arrangements to reduce risk. (Calvin Miller and Prasun Das – Ag. Value
Chain Toolkit)
Survey – A detailed study of a market or geographical area to gather data on attitudes, impressions,
opinions, satisfaction level, etc., by polling a section of the population. (www.businessdictionary.com)
Systemic Risk – The risk inherent to the entire market or an entire market segment. Systematic risk, also
known as “undiversifiable risk,” “volatility” or “market risk,” affects the overall market, not just a particular
stock or industry. This type of risk is both unpredictable and impossible to completely avoid. It cannot be
mitigated through diversification, only through hedging or by using the right asset allocation strategy.
Typically political, policy/institutional or natural disaster-inflicted risk. (www.investopedia.com)
Trader – (or agent) A person (value chain actor) who buys and sells goods. (MEDA definition)
Transaction – An agreement between a buyer and a seller to exchange goods or services.
(www.investopedia.com)
Pre-finance or supplier finance – A form of credit in which a manufacturer or supplier allows a dealer
several weeks or months to pay for goods received. The dealers in turn may provide similar credit to subdealers who extend credit to retailers. The final consumers of the goods used for production or consumption
may then be able to purchase them on credit to be paid later in single or multiple payments. Payments are
often made at harvest or time of sale of produce through discounting done by the buyer on behalf of the
creditor. (FAO Bulletin, 1992)
Total factor productivity (TFP) – TFP, also known as multi-factor productivity, is a measure of the
difference between growth in total output, and the contribution associated with labor and capital. TFP is thus
a residual (often called the Solow residual,) representing the effects in total output not caused by inputs.
Technology growth and efficiency are regarded as two of the biggest sub-sections of Total Factor
Productivity. (Adapted from http://en.wikipedia.org/wiki/Total_factor_productivity).
Value chain – The set of actors (private, public, and including service providers) and the sequence of valueadding activities involved in bringing a product from production to the final consumer. In agriculture, they
can be thought of as a “farm to fork” set of processes and flows.
6
FINANCIAL MARKET ASSESSMENTS
FOR THE AGRICULTURAL SECTOR
Glossary
(Miller and da Silva, Value chain financing in agriculture, Enterprise Development and Microfinance, Vol.
13, Nos. 2 and 3, June/September 2007, Practical Action Publishing, Rugby.)
Value chain analysis – Assessment of the actors and factors influencing the performance of an industry, and
relationships among participants to identify the driving constraints to increased efficiency, productivity and
competitiveness of an industry, and how these constraints can be overcome.
(Miller and Jones, 2010)
Value Chain Finance – Any or all of the financial services, products and support services flowing to and/or
through a value chain to address the needs and constraints of those involved in that chain, be it a need for
finance, a need to secure sales, procure products, reduce risk and/or improve efficiency within the chain
(Miller and Jones, 2010)
Warehouse receipts (also known as inventory credit and warrant credit) – A secure system whereby stored
agricultural commodities can serve as collateral, be sold, traded or used for delivery against financial
instruments including futures contracts. These receipts are documents that state the ownership of a quantity
of products with specific characteristics and stored in a specific warehouse.
(FAO. Inventory credit: an approach to developing agricultural markets, 1995)
Warehouse Receipt Financing – A form of financing when commodities (e.g., bars of copper) are stored in
a warehouse, vault, or depository as collateral. A warehouse receipt to the borrower that certifies the quantity
and quality of the stored goods or commodities. (www.investopedia.com)
Wholesaler – An individual intermediary or entity in the distribution channel that buys in bulk and sells to
resellers rather than to consumers. In its simplest form, a distributor performs a similar role but often
provides more complex services. (www.businessdictionary.com)
Working Capital – The capital of a business that is used in its day-to-day trading operations, calculated as
the current assets minus the current liabilities. A measure of both a company's efficiency and its short-term
financial health. The working capital is calculated as Current Assets/Current Liabilities, and indicates
whether a company has enough short term assets to cover its short term debt. (www.investopedia.com)
7