Standard Bank - CIB Pitch Book - PPT 2007

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Private and confidential
Agricultural Banking
Stanbic Bank Uganda
“Experiences in developing agricultural financial loans – the role of market information ”
September 2011.
Outline
1.
Overview of Stanbic Bank (U) Ltd
2.
Changing agriculture sector landscape and the
improving market information : creates opportunity
for Africa
3.
Standard Bank Agricultural Banking
4.
The smallholder farmers and Agribusiness funding
scheme
5.
Success Factors and Key constraints
6.
Key message
1
Private and confidential
Section 1
Overview of Stanbic Bank
Stanbic Bank : African Roots with Global Reach
•Stanbic Bank (U) Ltd– largest
branch network
• 97 branches; over 60%upcountry
•Extensive expertise and strong
track record of operating in
emerging markets, mainly in Africa.
• The largest African bank by
geographic spread, assets, earnings
and market capitalization
• Winner of the Development
Finance Initiative of the year.
Agribusiness Investment Award
2010. Africa Investor
Background
African Footprint
Key regional offices
•Established in 1862
• 17 African countries
• Over 1,000 Branches &
7,500 ATMs across these
geographic regions
• Offices in key regional
financial centre's including
London, Moscow, New York,
Hong Kong, Sao Paulo and
Dubai
•Listed on the JSE
•Largest trader of African
currencies in the world
3
4
Out Africa footprint
Country
South Africa
Botswana*
Libya
Egypt
Swaziland
Namibia
Eritrea
Niger
Chad
Sudan
Zimbabwe*
Djibouti
Somalia
Nigeria
Ethiopia
Central African
Zambia*
Republic
Cameroon
Malawi
UgandaKenya
Gabon Congo Democratic
Mozambique
Republic of
Rwanda
Congo (DRC)
Burundi
Ghana*
Tanzania
Seychelles
Nigeria*
Angola
Zambia
Kenya*
Madagascar
Zimbabwe
Namibia
Lesotho
Mozambique
Mauritius
Botswana
Uganda*
Swaziland
DRC*
Lesotho
South Africa
Angola*
Tanzania*
Mauritius
Tunisia
Morocco
Algeria
Western
Sahara
Mauritania
Cape Verde
Mali
Senegal
Gambia
Guinea
Guinea
Bissau
Sierra
Leone
Burkina
Faso
Benin
Togo
Ivory
Coast Ghana
Liberia
Equatorial Guinea
Malawi
* Trading as Stanbic Bank
4
Branches
Corporate
Banking
Retail
Banking
664
10
11
44
18
12
19
34
21
96
16
15
98
2
1
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Private and confidential
Section 2:
Changing landscape in the agriculture sector: creates opportunity for Africa
6
The role of Market information in banking product development and offering
 Market
Information Plays a leading role in the Banks product
development and offering;
–Prices of agricultural Commodities at Key points in the value
chain
–Reliable Historical data gives an indication of future price
movements and demand
–Data on movement of prices and demand in agricultural
commodities forms a strong basis in product development and
offering
Changing landscape in the global agriculture sector
Some key trends
 Global
consumption of food & livestock to increase significantly by 2019 (by about 50%
for developing countries)
 Food
prices increases (mainly due to increase in energy price)
 Global
food inflation increased sharply from 2007-10 (mainly for low and low-middleincome countries)
 Africa
realizing significant annual growth: > 5% GDP growth
 Agricultural
yields stagnated in spite of average per capita production increase
Opportunities
 Africa
has the potential to increase production and productivity to meet
growing demand food demand
 Establish
 Agric
functional and more lucrative supply chains
commodity export opportunities for Africa
 Import
substitution that will arise from increasingly competitive African
agribusinesses.
7
Private and confidential
Section 3
Agricultural Banking – Integrated value chain finance approach and product offering
Banking the Agricultural Value Chain: Needs and Products
Value Chain
Input
and Logistics
Suppliers
Farmers (small
and commercial)
Commodity
Traders
Primary
Processors
Food & Beverage
Companies
Finance instruments
Risk* and Other Products
 Repurchase Agreements
 Warehouse financing
 Project finance
 Vehicle and Asset Finance
(VAF)
 Physical brokering
 Price hedges (fertiliser, fuel?)
 Currency and ex rate hedges,
FX
 Research
 Need timely production finance for inputs
to ensure yields
 MTL to expand the businesses
 Price hedges to mitigate price volatility
risk
 Crop insurance to mitigate risks
 Input Finance
 Crop Advance (prepayment
for crop)
 VAF
 Physical brokering
 Commodity price hedges, for
own benefit and to facilitate
financing
 Crop and weather Insurance
 Need finance to purchase crops (quality and
quantity) at optimum time
 Need risk mitigation instruments for margin
payments and support for carry trades
 Need finance for expansion and a acquisition
targets
 Commodity finance
–
Repurchase Agreements
–
Receivables Finance
–
Warehouse receipt finance
Leverage and acquisition finance
 Physical brokering
 Commodity price hedges
 Currency and ex rate hedges,
FX
 Research
 To secure control over raw material
 Liquidity to buy at optimal time
 Hedging of revenues where processed
commodity tradeable
 Need finance for expansion and
acquisition targets
 Commodity finance
– Repurchase Agreements
 Receivables finance
 Leverage and acquisition
finance
 Physical brokering
 Commodity price hedges
 Currency and ex rate hedges,
FX
 M&A Advisory
 Research
 Need liquidity to buy at optimal time, but
want to reduce w. capital and credit risk
 Need finance expansion and acquisition
targets
 Commodity finance
 Leverage and acquisition
finance
 VAF
 [Physical brokering]
 Commodity price hedges
 Currency and ex rate hedges,
FX
 M&A Advisory
 Research
Activities & Needs
 Fert and seed co’s aim to increase
penetration by facilitating input finance
 Need to manage raw materials cost, and
price volatility for buyers
 Capex for plant , equipment and infra
Wholesales and
Retailers
* Note, derivatives still restricted to SA (Safex) and some African imports and exports
10
Current product offering
Stanbic
Bank in partnership with AGRA and Kilimo
Trust set up the
Agri-Business Loan Scheme
(Small holder Financing)
The
Government Agric Facility
Vehicle
Ware
and Asset Financing
house receipt financing
Danida
aBi Guarantee
Commercial
Agriculture
“Flexible and Innovative Agric
Financing”
Overview of the Agribusiness Scheme
 The
scheme is a three year program and will disburse up to $100 million targeting
750,000 smallholder farmers and agribusinesses in 4 African countries: Uganda,
Tanzania, Mozambique and Ghana
partners provide partial risk cover (1st loss guarantee and 50% risk
participation)
 Risk
 The
scheme relies on value chain finance to leverage on the interlocking
arrangements among the value chain actors
 The
scheme leverage on partnerships to take the advantage of mechanization, TA
support and precision agriculture to improve production efficiencies
 The
scheme financial instruments include:
– Input finance and agricultural production loans,
– Commodity finance,
– Agricultural machinery/equipment finance
11
Our partners are:
• KILIMO Trust,
• The Alliance for a Green Revolution in Africa (AGRA)
•OPEC Fund for International Development (OFID)
• Risk participation:
• 1st loss guarantee and
• 50%/50% risk sharing
12
The Small holder farmer funding model:
Risk sharing
Partners
Contract
and
monitor TA
providers
Bank
RSG
Off-taker
Technical
Assistance
Provider
Agric input / equipment
providers
Off-taking
agreement
Co-ops
Smallholder Farmers
14
Aggregate portfolio performance
•
Financed more than 70 projects
•
Total number of smallholder farmers benefiting from the scheme
is about 5,000
15
Country Specific financing
•Agricultural Production Crops
•Agricultural production Livestock &poultry
•Marketing including commodity trade
•Processing and light industries
Private and confidential
Section 5
Success factors and key constraints
Some success factors
•
Specialized Agricultural Banking: products and expertise
•
Structured finance approach:
• Structured finance approach
• Self-liquidating and cash flow based finance
•
Leverage on partnerships: lead firms, NGOs, etc
•
Legally binding contracts. e.g. tripartite agreements, TA provision agreement and joint liability
guarantee
•
Increasing production efficiencies:
• Agronomy services and crop husbandry
• GIS mapping and soil testing
• Agricultural production manual & guidelines
•
Mechanization: partnership with John Deere for the provision of agricultural equipment.
•
Upgrading the value chains. Example, enabling farmers access to market through partnership
with WFP and large domestic, regional and international agribusiness

Cross selling opportunity: 55,000 smallholder farmers accessing finance through this scheme. How to bank them?
17
Some key constraints
•
Maximizing the value chain finance concept in a context where:
• Inexistent/ underdeveloped value chains (mainly food crops)
• Loans are generally high volumes but relative small values
• Weak CBOs (producer groups, associations and co-operatives)
• Climate change: heavy reliance on rain fed agriculture
• Unorganised supply and demand
• High post harvest losses
• Erratic production due to weather shocks and seasonality
•
High transaction costs resulting from information asymmetry and poor
information flow. (adverse selection and moral hazard)
•
Weak systems for contract enforcement (legally binding contracts)
•
Lack of legislation and/or regulations suitable to agriculture financial
intermediation (e.g. commodity finance supporting instruments)
18
MIS requirements for appropriate Agric-financing
Agricultural
produce pricing
–Farm gate prices
–Wholesale prices
–Export / main off taker prices
Quantities
Price
and Quality
and quantity movements over time
Expected
costs involved
Seasonality
Storage
of crops and regional differences
and processing capacities availability and
location
Availability
Ease
of markets and major market players
of delivery to markets
19
Private and confidential
Section 5
Key message
Key messages for conducive policy
•
•
•
•
•
Addressing market failures: information asymmetry
• Appropriate policies and regulations
• Avoid market distorting policies. e.g. government funding schemes,
marketing and price control, etc
• Strengthen CBOs (producer groups, associations and co-operatives) to
enable access to farmers
• Build climate change resilience and adaptation: e.g. investment in small
and medium scale irrigation systems,
Investing in public goods and infrastructures
Adopting policies and strategies to re-risk agriculture sector: e.g. risk
sharing and price hedging
Harnessing legal systems for contract enforcement
Harnessing legislation and/or regulations suitable to agriculture financial
intermediation (e.g. commodity finance supporting instruments)
21
Contact Details
Richard Wangwe
Head, Agriculture
Stanbic Bank (U) Ltd,
0417154210
[email protected]
Thank you
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