NATIONAL MICROFINANCE BANK PLC
“FROM FARM TO FOOD!”
(Sustainable Lending to Agriculture in Tanzania:
Challenges & Opportunities for the Financial
Sector)
Presented by Mark Wiessing
1
About NMB
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Privatised in 2005, listed 2008
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From savings and payment “factory” to broad based universal bank
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Key segments:
 Retail: Personal, Micro enterprises, SME
 Wholesale: Corporate, Institutional, Government / Public sector, Agribusiness
• Key Products:
 Liabilities: Current and Savings, Fixed Deposits
 Lending: Salaried Workers’ Loans, Overdraft, Short Term Loans, Capex loans
 Transactional: Payments, Trade, Collections
 Treasury: Forex, Money Market
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
2
About NMB
• Distribution:
 170 branches (25-30% of all bank branches in Tanzania)
 600 ATMs (35-40% of all ATMs in Tanzania)
 60,000 e-money cash points
 NMB Mobile (1 million users)
• Total assets of $ 2.2 bi, total loans $ 1.1 bi, Market cap $ 1.3 bi
• Our Passion:
 Financial Inclusion: 2 million customers
 Rural Presence: 60% of branches are in rural areas
 Agriculture and agribusiness: 26% of total loans are in food and
agribusiness!!
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
3
From farm to food: The Recipe
“Ingredients”
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Land
Rain / Irrigation
Farmer
Input supplies
Off taker
Processor
Trader
Retailer
Consumer
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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From Farm to Food: The Recipe
“A well equipped kitchen”
 “Enabling Environment”
 Planning (the rains always start at the same time!) – Follow Crop Calendar
 As little Government intervention as possible, as much as needed
 Reliable input suppliers and strong off-takers (i.e. traders, processors..…)
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
5
From Farm to Food: The Recipe
Clear “Cooking Instructions”
 Coordinated value chain actors – Chain leaders required
 Genuine & timely delivery of inputs
 Good Agricultural Practices especially on agronomy support
 Storage and market infrastructure
“Serves”
The world, population 7 billion – 9 billion by 2050!
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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Recent Headlines
 “Farmers up in arms over “fake” seeds from agents”
 “Unscrupulous importers force Kenya to hold up maize purchases from Tanzania”
 “Adulteration of tobacco leaves irks councillors ”
 “Crack down on illegal sugar imports on cards”
 Cotton farmers threaten to strike over high seed prices but Government refuses to yield”
 “Government stance on grain surpluses lacking market this week”
 “Farmers assured over sale of surplus maize”
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
7
Recent Headlines
“Invest more in agriculture, appeals Minister”
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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Tanazania’s Compelling Statistics: Macro
 44Mn Ha’s of Arable land - only 25% being utilized for agri-production
 Out of 44Mn Ha’s; 29Mn Ha’s are suitable for irrigation – only 1% irrigated
 80% of the 45Mn Tanzania population earn living from Agriculture activities
 28% of the Country GDP is contributed from Agriculture sector
 7% expected economic growth
 Higher imports than exports indicates available Demand
 TZ among few Countries in Africa with highest agri-investment potentials
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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Tanzania’s Distressing Statistics: Micro
 16.8% of rural households use improved seeds - hence TZ farmers realizes less than 40% of
world average yields
 19.3Kg/Ha average fertilizer application rate as compared to 150Kg / Ha world average
 92% of TZ farmers still use hand hoes and farm on average of 0.5 - 5 Acres
 6.5% of rural households have access to credit resulting to lack of WC to buy inputs, farm
preparations and other costs
 24% of the rural people have access to reliable all season roads - hence higher costs of
transportation on average 83% of mkt. costs
 35-40% post harvest losses due to little or no storage infrastructure
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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Slowest Growing Sector
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CONTRIBUTION TO GDP GROWTH
RATE IN PERCENTAGE.
Service
Industry
2013 PERCENTAGE SECTOR GROWTH.
25.0%
Agriculture
20.6%
20.0%
59.2
56.3
59
56.9
15.0%
13.2%
10.0%
8.2%
24.7
14.2
2010
24.3
23.2
12.9
2011
5.0%
23.6
14.1
13.7
2012
2013
NMB Plc – COFI Presentation: November 2014
7.8%
7%
4.3%
0.0%
Presented by Mark Wiessing
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Main obstacles for access to finance in agriculture
Farm level
Institutional level
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Lack of economies of scale
Rain fed, vulnerable to weather risk
Infrastructure / transport
Lack of affordable inputs
Low penetration of machinery
Low prices post-harvest
Lack of collateral/land title/capital
Lack of financial documentation
Lack of skills
Lack of understanding bank requirements
Weak cooperatives
Bank level
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NMB Plc – COFI Presentation: November 2014
Unpredictable government services
Political intervention in agri markets
Lack of supporting legislation (e.g. warehouse
receipt law contract enforcement)
Lack of understanding of agriculture markets
Large distance between bank branch and
farmers
Mismatch in financial products and sector
needs
High perceived risk in financing agriculture
Lack of long-term funding
Presented by Mark Wiessing
12
NMB Agriculture lending
26% OF NMB TOTAL LOAN PORTFOLIO IS IN FOOD & AGRIBUSINESS AS AT END OF 2013
Input
Supplies
Crop
Farming
Pre-Harvest Finance
Post-Harvest
Post - Harvest
Transport &
Processing
Distribution
& Export
Warehouse receipt
collateral management
Retail &
Marketing
Working capital
Trade finance
Presented by Mark Wiessing
13
NMB Agri-lending approach
Corporate
Traditionally
bankable
farms
Commercial
farmers
Emerging farmers
Traditionally
unbankable
Commercial smallholders
(cash crops)
Subsistence farmers
Relationship approach, lending and capex
needs, cross sell trade, forex
Retail / SME approach with "agri twist" lack
of financials, need for benchmarking,
technical assistance on agro & financial skills
Scheme based approach (eg out grower
schemes), use coops for coordination and
aggregation
Via SACCOs, coops, saving based loan
schemes, etc
Presented by Mark Wiessing
NMB Agri-lending approach
• Strategic partnerships with leading chain actors
• Distribution network close to VC actor to borrower & monitor loans
• Modern / upgraded creditworthiness criteria (6 Cs – Character, capital,
capacity, collateral, conditions, & credit history)
• Recruit strategic partner’s with capacity for agri-production support
throughout the season
• Tri-partite agreements with leading chain actors to facilitate purchase of crops
and pay on behalf of the farmers directly to bank
• Ensure support services, technical advice, on-going visits and monitoring
• Cash flow and knowledge based lending unlike purely asset based
• Need partners for risk sharing for more business opportunities
Presented by Mark Wiessing
NMB Agri lending approach
 Dedicated agriculture team at Head Office
 Dedicated agri loan officers in selected branches
 Well defined primary agriculture segments:
 Corporate, commercial
 Emerging
 Smallholder, outgrower
 Selected crops only:
 Cashew
 Tobacco
 Coffee
 Rice
 Sugar
 Food and agri research team (FAR)
 NMB Foundation for Agricultural Development (NFAD)
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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NMB Experience
Tobacco
Crop input finance to 120 Amcos (with 200 to 300 farmers per group)
Cashew
Input finance, asset finance and warehouse receipt finance to 180 Amcos (with 200 to 300 farmers
each)
Outgrower Schemes Input finance based on offtake / contract farming agreements
• Sugar (10 associations with 1,000 members each)
• Paddy (18 associations / Amcos with 100 to 200 members each)
• Barley (20 emerging farmers)
Commercial / corporate farms
• Only a handful of real commercial and corporate farms
• Some serve as nuclear farms supporting clusters of outgrowers
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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NMB Experience (continued)
 Satisfactory performance, though higher than average NPLs
 Most Amcos credit facilities are approved without financials but with robust due
diligence on planted acreage, input validation and coordination with input supplies
and offtakers
 Several value chain incidents have had significant impact
o Tobacco: power struggles between PCs, Apex and Unions resulted in sideselling
and frauds
o Cashew: dispute on market prices, “bail-out” at higher than market prices
resulted in sideselling and frauds
o Rice / sugar: duty free imports and reported smuggling can significantly impact
prices and result in severe adverse impact on commercial farms and outgrowers
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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NMB Experiences – NMB Foundation
Outreach
• 1,092 AMCOS, SACCOS, Farmer Organizations & associations trained
• Total of 291,607 members trained
• 6,306 Leaders trained
Structure
• Training (governance, record keeping, cash flow preparation, loan management)
• Grants (dam construction, seedlings, computers)
Delivery
• Through branches and NFAD dedicated officers in key agri-zones (visit farmers in their farms)
Issues
• Effectiveness of governance training is low if not coupled with better agronomy standards
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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NMB Experiences – Research
Research topics & papers released
 End to end value chain analysis: cashew, tobacco, coffee, sugar, rice…. Etc
 Detailed seasonal crop budgets for loan officers
 Market outlook and trends for key crops
 Internal sector guidelines
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
20
NMB Experiences – Research
Key Outcomes / Learnings
Value chain structures
• Too many players along the value chain?
• 5 national initiatives, 9 crop boards, 32 support institutions, at least 50 NGOs
• Complex value chains, uncoordinated: need to simplify and empower value chain leaders to coordinate
Value added / production cost breakdown
• Unempowered farmers remain at the bottom of the pile in uncoordinated value chains
• All making money, except farmers?
• Well managed chains generate more returns to farmers
Industry structure
• Many small scale projects
• Few commercial farmers despite huge potential
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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Summary
Experiences / Challenges
Food is politics! Politics drive policies
• Commodity market system interventions - Price setting (floor prices)
• Export restrictions or duty free imports
Regional / District Interventions
• Regional & District authorities intervention in commodity and input financing systems
• High cess charges not going back to support famers or infrastructure (storage, roads)
Frauds / Collusion from service providers and partners
• Collateral management losses
• Warehouse receipt operators confiscating bank owned stocks to pay for AMCOS warehousing bills
• Overestimation of inputs needed by farmers (side selling of inputs - frauds!)
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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Summary (continued…)
Value Chain delays
• Not following specific crops calendar to catch up with the farming seasons
• Late signing of input supply contracts
• Late signing of offtake contracts
• Late issuance of ECGS guarantees
• Late disbursement of loans!
Politics
• Borrowings at PCS vs Apex / Union level
• Internal power struggles within Amcos
Industry structure
• Fragmented industry structure
• Multiplicity of NGO projects and initiatives focused on poverty reduction
• Lack of scale, not enough attention to professional farming and wealth creation
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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Summary (continued….)
ECGS and other guarantee schemes
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Issuance delays
Payout delays
Complexity in reporting
Credibility of guarantees is crucial especially for the financing of the bottom of the pyramid!!
Scale:
– Mobilisation of agricultural loan officers over large distances is costly
– Lack of standardisation, multiplicity of exceptions
– Uncoordinated value chains create risks
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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Lessons learned in agri financing
• Approach agriculture as a business and not as a social sector
• Knowledge is key so invest in agri sector knowledge and systems
• Segment the market in sectors and customer segments and adjust your financing
approach accordingly
• Focus on payment capacity, financials, collateral and guarantees comes second
• State owned agri banks don’t work (too many debt write-offs & recapitalisation)
• Commercial banks with rural stakeholders seem appropriate model
• Be close to your customer, e.g. via rural branch network
• Be careful with going down market (e.g. smallholders) too fast
• Capacity building (e.g. of coops) can enhance the bank’s risk management
• Work closely with traders and processers since they know the reliable suppliers
• Farm blocks work: Large nuclear commercial farms and outgrowers
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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Way forward for NMB
 Committed to agriculture despite challenges
 Differentiate social schemes (poverty reduction) versus commercial & emerging
farming (wealth creation)
 Active engagement with stakeholders, including GOT, value chain partners (extension
services, off-takers…..etc), guarantors
 Supportive of any initiatives improving the fate of farmers:
o Better farm gate pricing
o Higher yields
o Encourage increased acreage / scale
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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Way forward for NMB
NMB Plc – COFI Presentation: November 2014
Presented by Mark Wiessing
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