Role of Local Banks in
Financing Jatropha and
Biofuel Projects
NOT AN OFFICIAL UNCTAD DOCUMENT
CHARLES GIDI
HEAD, CORPORATE DEVELOPMENT &
DEVELOPMENT BANKING
Introduction of MBG
– June 1971: Incorporated as the first
merchant bank
– March 2002: Converted into a universal
bank
– Pioneering role in the development of the
Ghanaian capital market
• Handled the public issue of about 80% of companies
prior to the establishment of Ghana Stock Exchange
(GSE)
• Initiated the preparatory work for establishment of GSE
Introduction of MBG (continued)
• Sponsored 13 of the listed companies on the GSE
• Provided advisory services relating to the dual listing of
Ashanti on both GSE and London Stock Exchange
• Registrar to about 50% of the listed equities on the GSE
• Promoted the setting up of a number of financial
services companies
–
–
–
–
hire purchase
leasing
discount houses
mortgage finance
• Involved in major mergers and acquisitions in Ghana notably,
SSB Bank by Societe’ Generale; Ashanti/Anglogold merger
Introduction of MBG (continued)
Core products:
– Corporate banking
– Trade finance
– Corporate finance
– Investment Banking
– Project management
– Advisory services and
– Asset management
How to Structure Finance - Based on
Future Cash Flows
• OUR VIEW POINT
– FINANCING MODEL SHOULD BE CASH
FLOW BASED
– MODEL SHOULD REFLECT:
• PROJECT COMPONENTS AND
• THEIR INHERENT RISKS
Key Issues Influencing the Design
of financing model
•
•
•
•
•
•
•
What are the project features?
What are the key project components?
What are the financing needs attributable to
each of these components?
What are the possible cash flow patterns
associated with these components?
Are there any risks inherent and systemic in any
of these components and related cash flows?
How can financing be structured to deal with
these risks
Why should local banks get involved?
Project Features & Financing (Cont)
• New and novel entity & industry:
Ø untested product and market
Ø no industry history and prior
experience
Ø uncertain but tremendous cash
flow potential
Project Features & Financing (Cont)
• Long-term investment in infrastructure,
plant, machinery & plantation
– long-term funding required
– Need to match fund-raising with uncertain
future cash flows
– Financiers need a “big heart”
• We need a model that provides the
desired comfort
Project Features & Financing (Cont)
• Agri-business:
– the project is predominantly agrobased
– Agricultural production in the subregion has its own problems
• lack of finance for basic inputs
• overdependence on the weather
• storage and marketing
• organisation of production
Project Features & Financing (Cont)
• Multi-faceted project
– multiple components
– multiple and diverse stakeholder interests
– multiple financial needs/requirements
• National development implications
– The financial package should reflect
national interest and should have in-built
incentives for financiers
Project Components
• Cultivation/production of jatropha:
– land preparation
– seed acquisition
– planting
– harvesting & storage.
Should processor be directly
involved in production or should it
be left to out-growers?
Project Components (Cont)
• Farm-gate purchases:
– how would purchases be organised?
– Agents?
– Processor buying directly from the farm-gate?
• Warehousing/storage
• Transportation
• Factory start-up costs, plant & equipment &
working capital
• Research and development
Payment Flows
Processor
related CostsEquipment,
working capital
etc
jatropha
cultivation:
financing farm
inputs
cultivation and
harvest.
Procurement
and storage:
-purchase of
produce
-transportation
-warehousing
Research
& Devp’t
Processor
Project
Revenue/
Cash
flows
Financiers
(Debt &
Equity)
Our Proposition
The interest and the level of participation by
local banks will depend on:
1. their perception of risks
2. the sort of support systems that exist
for the project
3. how the project risks will be mitigated
4. the closer the payment cycle the better
Model 1
•
Special equity/hybrid funds:
– banks/companies and individuals
encouraged by Govt to subscribe
– fund should operate as a private
commercial entity
– This fund could be used as follows:
•
•
•
by micro-finance institutions to support
farmer-based activities.
to support research and development
invest directly in fixed assets and working
capital of processors
Model 2
•
•
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Direct involvement through
debt/equity funding (syndication
advisable)
Finance specific components eg.
plant and equipment or working
capital
The instrument used should reflect
the associated cash flows eg.
Receivables-backed instruments
Other Support
1. Project advisory services
2. Corporate finance services
•
•
business plan and feasibility
fund-raising
Incentives
• Government support
• Partial & limited term guarantees
• Tax exemptions (on income from
jatropha finance)
• Companies engaged in the sector to be
given special dispensations by Govt
Case for Involving Local Banks
• Project is of national importance:
– addresses the issues of poverty reduction
and wealth creation
– caters for the energy needs of the country,
– foreign exchange generation
– employment creation and
– safeguarding the environment
Merchant Bank’s Interest
• We believe, as financial intermediaries,
it is our primary responsibility to help
channel resources from surplus units
to productive sectors
• We believe the solution is with us local
banks to champion the national
development agenda
• We in Merchant Bank, fully support this
project.
Thank you