Africa Finance Forum Blog

The Voice of Africa in the Renaissance of Global Agricultural Finance Policies

11.04.2011Robin Hofmeister

“The African Union is delighted to support this pan-African initiative on agricultural finance and to raise the African voice within the G20 – let’s keep this fire and momentum burning.”

Boaz B. Keizire, CAADP Advisor, Africa Union Commission, Addis Ababa, Ethiopia

Why do we need to Refocus on Agricultural Finance?

The global food price crisis and the African Union, NEPAD and G20 focus on food security have moved agricultural finance on top of the African and international development agendas. Agricultural production needs to increase by 70 percent by 2050 to feed the world, while climate change and urbanisation will heavily reduce the area of cultivable land. One key to this problem lies in the agricultural production of the African continent. Not only is a massive increase in the production and productivity of African agriculture needed to feed the large and growing population in African countries, but the increasingly industrialised and urbanised African countries and rapidly rising food consumption, especially in the Middle East and Asia, offer a huge market and export potential. Agriculture is and will be a major building block in the economic success and the achievement of the MDGs in most of Africa.

Facilitating access to finance to fund the growth of African agriculture is one of the greatest challenges for stakeholders with an interest in both financial and agricultural sector development, on the continent. Agriculture, in most parts of the world, has traditionally been a difficult sector for lenders and investors. It is often exposed to high systemic risks, both in terms of the environment (e.g. drought, flood, disease etc) and markets (e.g. price volatility, trade policy barriers, dumping, transport and logistical challenges etc).

In order to tackle these challenges, African governments, G20 members, private institutions and development partners are teaming up to enhance finance for food and agricultural development. Internationally, there are two major parties which bring forward this issue, namely: the G20 Subgroup on Agricultural Finance and the Africa-wide Task Force on Agricultural Finance, initiated by the partnership for ‘Making Finance Work for Africa’ (MFW4A). Currently, African players take a lead role within this international process. The major tasks ahead are: To establish clear guidelines for Africa, to feed these results into the global G20 policy paper on agricultural finance and to implement these outcomes in Africa and beyond.

African Agricultural Finance

Initiated by the Partnership MFW4A, African governments, private institutions and development partners have gathered to form a comprehensive, Africa-wide Task Force on Agricultural Finance. The Task Force is closely linked to the African Union Commission and NEPAD Planning and Coordinating Agency (NPCA), as drivers of the CAADP agenda, as well as to AfDB and AFRACA - the African Rural and Agricultural Credit Association. Development and private partners such as the World Bank, AFD, UNCDF, FAO, IFAD, USAID, German Development Cooperation, FinMark Trust, AGRA and Stanbic Bank are supporting the Task Force. The Central Bank of Uganda (BoU) hosted the first technical meeting of the Task Force in Kampala at the end of March. At this meeting local private sector institutions, such as aBi Trust and Centenary Bank, as well as public sector representatives, joined the international partners. The technical discussions focused on laying the technical foundation for an Africa-wide policy paper on agricultural finance.

Based on these outcomes, an international conference will be held in Kampala, in June 2011, bringing together more than 250 high-level representatives of Africa’s financial and agricultural sectors. The targeted results are: Clear guidelines on policies and practices geared to supporting substantial increases in investment in African agricultural sectors. These guidelines will be endorsed through the Kampala Declaration for Agricultural Finance Policies in Africa and synthesized in one major African agricultural finance policy paper.

Moving beyond Kampala it is expected that these guidelines will jointly be incorporated by the AUC and NPCA as part of the CAADP investment plans, used by the G20 and taken up by African governments and development partners on the continent.

The African Union Commission and NEPAD

So far half of the African Union member states have signed the CAADP Compact, nineteen CAADP national agriculture and food security investment plans have been developed and the first ones are in the process of implementation.

In order to keep the momentum of this new development in the history of African Agriculture and to strengthen the implementation at country level, the mobilization of private sector financing and public-private partnerships, in addition to resources coming from public resources, multilateral and bilateral agencies as well as international foundations, is needed.

Agricultural Finance within the G20

Parallel to this African initiative, agricultural finance enjoys a top position within the G20 development agenda and there is substantial room for collaboration. Financial inclusion spearheads the G20 Seoul Development Action Plan and France, as current G20 chair, is focusing on food security. Agricultural finance is thus on the G20 development agenda, as well. Germany chairs the G20 Subgroup on Agricultural Finance, with the goal of defining key policy guidelines, leading up to the French G20 summit in Cannes, in November 2011. Germany has expressed particular interest in collaborating with the Africa-wide Task Force on Agricultural Finance

The African Voice within the G20

The Africa-wide Task Force on Agricultural Finance has established a clear linkage to the G20 Subgroup on Agricultural SME Finance. G20 representatives will be present at the MFW4A Conference in June and the Kampala Declaration will be a major input for the G20 policy paper on Agricultural Finance. Susanne Dorasil, representing the German chair of the G20 stream on agricultural finance says: “We welcome the African initiative on Agricultural finance and we will work together with our African partners to make sure that the Kampala results will be adequately reflected in the G20 policy paper”. Through this collaboration, the Task Force has gained the power to reach out beyond Africa and to represent the voice of Africa within the international discussion on agricultural finance.

Robin Hofmeister works for GIZ’s programmes “Promoting Financial Sector Dialogue in Africa: "Making Finance Work for Africa" and “Sustainable Economic Development in Nigeria”. Within the former program he is leading the research activities and the policy dialogue in the field of agricultural finance. Robin has been studying at the Universities of Münster and Stellenbosch, where he received his MSc in Business Management.

The article was co-authored by Achim Deuchert. He works at the GIZ headquarter in Germany as an advisor to the German Development Ministry (BMZ), and has formerly worked within the GIZ team to support MFW4A. He is involved in bringing together the strands of agricultural finance within MFW4A and the G20 subgroup on SME finance.

Tunisian Banking System: Looking forward to bold reforms

24.03.2011Dhafer Saidane

I – The impasse: A banking system beset by bad practices

After twenty years of impasse, the Tunisian banking system should emerge from the doldrums

Today, considering the country’s size, it is not unfair to say that the Tunisian banking system is made up of a constellation of small banks. At the regional and international levels, they count for very little. With some US$ 30 billion in total assets, Tunisia’s major banks are far behind their African counterparts - South Africa: US$ 570 billion, Egypt: US$137 billion, Morocco: US$102 billion, and Nigeria: US$87 billion.

For over twenty years, no major reforms have helped stimulate the banking environment, especially with regard to restructuring. The banks are observing each other, and due to constraining private practices and the high stakes, they are unable to attain their real potential to finance the economy. Trapped by their capital structures and conflicts of interest, they have opted to live discretely off their investments. Cradled by the market, a degree of sluggishness has set in. What has therefore become of their mission of contributing to development efforts?

A demanding anti-economic environment and missed opportunities

During these times of financial and political crises, it is fair to denounce and condemn banks. No! Tunisian banks are not responsible for the issues facing the Tunisian society. They have respected the logic of the markets that was imposed and administered upon them. They have mobilized skills and capitalized on expertise. Unfortunately, their efforts were thwarted by an anti-economic environment characterized by « business » and private interests that were unfavorable to entrepreneurial initiative and creativity. The banker was incapable of playing their  role because they hadn’t the means or rather, the power to do so. As for the entrepreneurs, they could not express their talent because they neither had visibility nor hope. The lack of convergence between the Tunisian banker and the entrepreneur represents serious “economic failure”. We are unfortunately paying a huge price for this in terms of job creation.

II – Hope: Mobilizing resources through meaningful measures

Consolidating and reforming the banking system to enable it play its role as an engine of growth

Bold reforms are expected. Regardless of the situation, bank regroupings are essential. It is an opportunity to restructure and consolidate the capital of both public and private banks. Mergers are vital and even urgent. It’s the opportunity to introduce good practices. It’s also time to send a strong message to the international community, the rating agencies that are watching us, our historical partners, and investors. It’s time to finally rebound and restore the confidence that we henceforth deserve and which will mark our accession to a mature financial system.

Prudent financial liberalization which avoids excesses and unnecessary mimicry

We should not throw out the baby with the bath water. No! Ignoring the past and resetting the financial and banking sectors would be a serious mistake. Similarly, adopting a status quo would be the best way to discredit our economic and human potential in the eyes of the international community. Financial liberalization can be a source of efficiency if it is well managed. Opening up the economy, including the dinar’s convertibility, should be done without excesses and zeal. We are still a fragile economy. Seeking to please others amounts to putting in place conditions for chaos.

Dhafer Saidane is a professor at the Université de Lille III and the Skema Business School. He also acts as an expert for the United Nations Economic Commission for Africa (UNECA) and the United Nations Conference on Trade and Development (UNCTAD), and is an advisor to the Club of Banking and Financial Institution CEOs in Africa for the Maghreb region. He is the author of numerous works on the topic of finance, including such prominent publications as “La Finance Islamique à l’Heure de la Mondialisation” and “Les Banques, Acteurs de la Globalisation Financière”.

Can MIVs help increase Access to Finance?

14.03.2011Eugenie Sow Camara

Sub-Saharan Africa is one of the poorest regions of the world, with almost half of its population living in extreme poverty.

Financial exclusion is one of the multiple facets of this poverty. It translates into a total or partial lack of access to mainstream financial services, preventing people and small enterprises from seizing opportunities that would help them break out of the vicious cycle of poverty.

Formal microfinance, channelled through microfinance institutions (MFIs), is considered an effective means of combating financial exclusion and fostering economic development. However, the viability and effectiveness of microfinance is often threatened by the uncertainties around its long-term sustainability. Commercial funds are believed to be a solution to this concern. They, however, raise further concerns about the ability of microfinance to continue serving the poorest, on the one hand, while  providing substantial returns to investors, on the other hand.

Commercial funds (provided by, among others, investment funds and banks), do have a positive impact on MFIs by responding to their funding needs, fostering responsible behaviour and good management practices. Thus, getting private investors involved in microfinance is seen as a solution to filling the funding gaps faced by MFIs.
Microfinance Investment Vehicles (MIV) are funds that exclusively invest in microfinance assets. The number of these Microfinance Investment Vehicles is growing fast and the amounts involved are “booming” through much of the world -- in spite of the recent financial crisis -- underscoring the growing interest of investors in the new area.

Yet Africa still lags behind. Only 6.2% of the 4.8 billion USD assets under MIV management in 2009 were dedicated to Sub-Saharan Africa. This ‘neglect’ is generally attributed to Africa’s poor business environment.

The general business environment on the continent is said to discourage entrepreneurs, particularly foreign investors, from involvement in microfinance. Indeed, from the MIVs' standpoint, Sub-Saharan Africa is dominated by a large number of small, unprofitable MFIs, constrained by high operating costs and poor regulation. The returns of African MFIs' are also lower than those in other regions.

To develop Microfinance Investment Funds in Africa, microfinance stakeholders, governments, and donors must work together to build a more conducive environment and positive reputation that in which Africa is seen as ‘ready for business’ and not as a continent ridden with ‘financial aid and corruption’. Improved financial performance, good governance and transparency are  essential if the micro-finance industry is to attract the necessary investment, grow and thrive in Sub-Saharan Africa.

With regard to funding, donors should cede more space to private investors by focusing their action on MFIs that work with the poorest and are less able to mobilise private capital. Their role in risk mitigation, here, can also be valuable.

As for fund promoters, they have to strengthen their knowledge of the continent and their technical expertise at all levels of management in order to encourage private investors to invest in African microfinance.
In conclusion, it seems the main challenge faced by the African microfinance industry in Africa is largely twofold. The first is proving the value of microfinance as a profitable investment and diversification instrument, and the second is building an enabling environment that will convince private investors that the Sub-Saharan Africa region can offer worthwhile investment opportunities in the sector.

Aissatou Eugenie Sow Camara is a Financial Analyst with 10 years of experience in life insurance, banking and financial markets, including investment and risk management in Europe and Africa. She holds a Master of Science degree in Statistics and Decision Methods from the University Paris 1–Panthéon-Sorbonne (France) and a MSc. Degree in Development Finance from the University of Reading (United Kingdom). Her main interests include development issues related to financial sectors in Africa.

Enda inter-arabe: Making the Case for Micro-Finance

28.02.2011Michael Cracknell

Current troubles in several Arab countries have led to serious job losses. Self-employment through micro-enterprise supported by micro-credit can provide one solution to this. But micro-credit itself is today under scrutiny.
The international NGO, Enda inter-arabe, has been operating in Tunisia since 1990. It began micro-credit in 1995 and has been specialised in supporting micro-entrepreneurs since 2001. Today, Enda inter-arabe has 60 branches throughout Tunisia and employs 770 people, of whom some 640 are young university graduates, a category desperately in need of jobs. With a portfolio of some 80 million Tunisian Dinars (41.11 million Euro), Enda currently serves 160 000 people, 73% of whom are women. With a growth rate of 30% per annum, it expects this number to rise to 300 000 by end-2012.

Having begun with grants from the European Union and the Spanish cooperation agency, Enda inter-arabe is today self-sufficient. Its income covers all costs and it is refinanced by commercial loans from Tunisian banks and international financial institutions.
Twenty-five per cent of Enda’s portfolio is now in rural areas and includes local shops, artisans and other categories, as well as agriculture. Enda plans to introduce loans for animal rearing and for agricultural production. There are also loans for home improvement and to assist with back-to-school expenses. These can also be used for adult training courses.
Since the “father” of micro-credit, Mohamed Yunus, won the Nobel Prize in 2006, the micro-credit industry has come under scrutiny and doubts have been raised about its ability to help the poor grow out of poverty. Many claim the cost of micro-credit is  exorbitant and this is certainly true in some cases.

So is micro-finance effective in helping the poor? Studies tend to show that access to credit at least allows the poor not to get poorer while the alternative - money lenders - costs much more. Yet there are many potential pitfalls in the microfinance industry. Serving tiny loans to multiple clients is very expensive, the risk is high, refinancing is costly, inflation eats away at capital... A lack of rigour in management and especially failing to ensure a repayment rate of at least 95% can lead to a culture of non-repayment that dilapidates capital. There is also the risk of providing loans that are too large, with the risk of over-indebtedness and, again, non-repayment.

There are, however, many examples of successful micro-credit initiatives and there is now the risk of throwing out the baby with the bathwater by lumping together the efficient with the inefficient providers.

Given the current questioning of the real impact of micro-credit on poor people, it is essential for the industry to respond. The focus must be on the many and real success stories to counterbalance the failures and weaknesses - and there are also many - that the press tends to focus on.
As Enda and many others have shown, properly managed, Micro-Finance Institutions that stress their social mission of providing the poor with access to financial services, do assist the poor and help them manage the poverty equation.
An important aspect of micro-entrepreneurship is empowerment of women. Once women generate even a small personal income, they gain a say in family affairs and in dignity. With rising unemployment, the female micro-entrepreneur sometimes even becomes the main family bread winner.
To conclude, it is unfair and unrealistic to expect too much from this single sector as a path out of poverty. It is most effective as a complement to efficient government poverty-relief policies. To the contrary, structural adjustment programmes, by severely reducing services to the poor, like health and education, have shown themselves to be the path into poverty.

The debate on micro-credit should be placed in context.

Michael Cracknell is British. He co-founded enda inter-arabe in 1990 with his Tunisian wife, Essma Ben Hamida. He has degrees in Arts, in Political Science and in development studies, as well as a Doctorate of laws. He was Secretary General of the Paris-based International Federation of Agricultural Producers for 12 years ending in 1985 and has worked as a consultant for FAO, IFAD and other UN organisations.

Financing Africa’s Infrastructure Gap

14.02.2011Mohamed Hassan

When we talk about Africa’s infrastructure finance gap it is easy to be pessimistic.  I am not.  I am an optimist.
Some see the gap as a problem, a major challenge. But while I agree this finance gap is a challenge, I see it primarily as an opportunity – an opportunity for the private sector to maximise returns on their investment in what is a nascent market.

The highly-regarded Africa Infrastructure Country Diagnostic study (don’t be put off by the title) recently concluded that an annual investment of over $90 billion is required over the next ten years if Africa is to bring its infrastructure to the levels of other developing regions of the world.
About half of these investment needs are currently being met through official development assistance, foreign private sector investment  and, often overlooked, domestic investment  from within Africa.  In fact, the African taxpayer is the biggest investor in African infrastructure.  So it is not all gloom.  

African governments are not only committing public resources to infrastructure development.   They are also creating an economic environment that encourages private sector investment – micro-economic reforms, institutional reforms, efficiency improvements – alongside a commitment to improved corporate and economic governance.  Further,  enabling legislation for effective public-private partnerships (PPPs) is also being introduced.   

These improvements might not be consistent across all of Africa’s nations, but they will certainly continue.  And this improving climate will increase the opportunities for private sector involvement in Africa’s infrastructure sectors.  
The pessimists say that Africa is too risky for investors.  Yet we know that no investment is without risk, in any part of the world.   Indeed, the belief that investing in Africa is a higher risk than in other regions is a myth.  A recent study by the ratings agency Moody’s, which analysed project finance loans in Africa over 20 years, found that only one of the 92 loans defaulted.
What about rates of return?  Africa is an emerging market, so returns are high for those who invest early.  Many privately financed infrastructure projects in Africa are seeing returns that compare well with other parts of the developing world.    

Africa’s infrastructure finance gap is the result of demand and real growth -- demand that comes from Africa’s recent solid growth.  Some countries in Africa have seen double-digit growth and  Africa is now one of the world’s fastest growing economies, with GDP growth rates that are often at par with China and Brazil.  That growth produces demand – for power, for water, for transport and for communications.  Projects in all of these areas are bankable.

Even the recent economic downturn has shown that Africa is not the economic basket case some would like to believe it is. Across Africa, real GDP grew by 5% from 2000 to 2008. Hitting a peak of $1.56 trillion in 2008, the financial crisis brought Africa’s collective GDP down to $1.4 trillion in 2009. The negative impact was therefore not as great as in other parts of the world.  Importantly, Africa’s growth is built on solid foundations and is rebounding. 2010 finished with growth at 4.5% and economists expect growth to reach 5% in 2011.  

Ultimately, it seems we, the optimists, have both the facts and the figures in our favour. If you are an investor, you can’t ignore Africa.  And you can’t ignore infrastructure.  You will want to back a winner.


Mr. Hassan is the Coordinator of the Infrastructure Consortium for Africa (ICA) Secretariat housed by the African Development Bank in Tunis, Tunisia. He holds an MBA in International Banking and Finance from the University of Birmingham in the United Kingdom and a Masters Degree in Economics from François Rabelais University in Tours, France. He has 18 years of experience as a Financial Analyst and Investment Officer in the infrastructure sector.


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