Advancing Agricultural Finance Policy Coordination in Africa

Jun 29, 2015
Agricultural finance has been deemed a "policy orphan" in Africa. The lack of coordination among stakeholders further deters the process of establishing common guidelines that are necessary to pull the required public and private resources towards the achievement of a common goal: providing adequate and affordable financial services to the agricultural sector. Access to agriculture financial services remains a challenge throughout Africa, affecting both the capacity of smallholders to generate sustainable income from their farming activities, and the ability of countries to attain food security and self-sufficiency. An overall financial systems approach to agricultural finance, rather than a "funding agriculture" approach, should be adapted to unleash the potential of the agricultural sector. As such, there is need for a strong agricultural finance policy coordination to guide the often-fragmented interventions that are ineffective among government ministries, regulatory and supervisory authorities. To address the challenges facing access to agriculture financial services, the Making Finance Work for Africa (MFW4A) Partnership has been supporting the implementation of the Kampala Principles, a set of 11 policy principles that suggests the actions most urgently required to unlock agricultural finance in Africa. Since the first Kampala Principle called for the existence of "a single entity as the advocate of agricultural finance", it became apparent to examine the state of agricultural finance policy coordination in Africa, in order to assess not only the different policy frameworks of the various countries, but also the level of coordination for the potential establishment of agricultural finance policy in these countries. A recent study
commissioned by MFW4A, in collaboration with GIZ, drew on the agricultural finance policy case study experiences in five African countries across different sub-regions. It suggests recommendations to enable country-level stakeholders to strengthen agricultural finance policy coordination, and provides the relevant background and orientation for the Partnership and its Agricultural Finance Stakeholder Working Group (AFSWG) for future advocacy and implementation activities in agricultural finance. The result of the study confirms the lack of agricultural finance policy coordination across case-study countries, despite the existence of well-articulated agricultural sector policy documents. The study also reveals the strength of agricultural development policy documents drafted as a result of the Comprehensive African Agricultural Development Program (CAADP) process. However, key players such as central banks and other financial sector regulatory and supervisory authorities, private sector financial institutions, agribusinesses and civil organisations along value chains have often not been involved in the drafting process of the CAADP investment plans. Moreover, agricultural development policy documents do not address the key issues of access to finance in a holistic way, failing to take into considerations constraints to access agricultural finance faced by smallholder producers and institutions. Lack of collateral, high transaction costs, weak legal and regulatory frameworks, limited appropriate financial instruments, high perceived risks of agricultural loans, weak financial infrastructure, limited financial literacy of clients are some of the shortcomings to agricultural finance. While these constraints are common to most African States, each country uses different mechanisms to address them, and are often fragmented. A dedicated policy response is necessary to address the challenges posed by agricultural finance. This will result in building a sound financial system able to increase financial intermediation in favour of the agricultural sector. A policy response will also serve as the basis on which financial institutions and the private sector would develop adequate products, tools and mechanisms to meet financial needs of various actors along the agricultural value chains. In the process of developing an agricultural finance policy, the role of a coordinating body becomes even more important. Such an entity will not only bring all the relevant stakeholders from the public and private sector around the same table, but it will also ensure that elements of agriculture and elements of finance are both considered when establishing an agricultural finance policy framework. The juxtaposition of agricultural development and financial systems policies in one policy document will result in responding to specific needs expressed by the agricultural sector. The National Agricultural Investment Plans (NAIPs) developed as part of the CAADP process highlight issues of agriculture finance in some countries. While the CAADP process could offer a coordination avenue to address agriculture finance in a holistic way, NAIPs have tended to focus primarily on public sector investments. The active participation of the private sector in the CAADP process could lead to successful agriculture finance mainstreaming in the NAIPs, provided key aspects of sound-practice agricultural finance policy are integrated in the process. Erick Sile joined GIZ/MFW4A in November 2014 as the Agricultural Finance
Senior Advisor to support NEPAD/CAADP. Previously, he worked for the United Nations Capital Development Fund (UNCDF) as Regional Technical Advisor, helping to promote financial inclusion. As Program Manager and Project Director at the World Council of Credit Unions (WOCCU), he worked in several countries in Africa developing policies and procedures, implementing various methodologies of reaching out to the unbanked. Erick holds an MBA in Finance and Information Systems from the University of Wisconsin, Madison, USA.

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