Learning

Financial Market Assessment for the Agricultural Sector

Category:

When you have completed the five training modules, you will:

  • Recognize critical challenges in the development of agricultural finance products and the role of financial market assessment in overcoming those challenges
  • Analyze the strategies through which financial institutions are sustainably delivering agricultural finance
  • Identify principles, data sources and tools that can be used to design and deliver cost-effective agricultural finance products
  • Examine the opportunities and limitations of public private collaboration for increasing access to agricultural finance

Resources

Module 1 – Analysing Agricultural Financial Markets
Overview This module begins with a general introduction to the training, and then provides an overview of key trends and opportunities in the agricultural finance market. It also introduces data sources and analytical methods that financial institutions can use to narrow down their potential market.  Once they have done this, they’ll be in a better position to design successful products (which is the focus of Module 2). Total time required for standard delivery of the module: 2 hours 50 minutes Objectives (OBJ) 1.       Analyze recent market trends in agriculture and agricultural finance 2.       Differentiate between agricultural finance and general finance from a client’s perspective 3.       Identify four weaknesses in the current supply of agricultural finance 4.       Examine data sources and an analytical process that can be used to identify growing clients niches in the agricultural sector Key Takeaways (KT) 1.       Quantitative analysis can help identify target markets engaged in agricultural value chains with growth potential. 2.       Quantitative analysis reduces the scope of the product design process, making it more manageable 3.       The growing availability of quantitative data makes the analysis of agricultural financial markets more cost-effective. 4.       Financial institutions should screen potential market opportunities for alignment with their mission and comparative advantage.
Module 2 – Principles for the Design of Agricultural Finance Products
Overview: This module focuses on the design of successful agricultural finance products and the critical importance of tailoring a strong value proposition based on understanding client needs and client relationships within agricultural value chains.  Having developed a deeper understanding of agricultural client and market characteristics, participants will be better able to identify and respond to product risks (which is the focus of Module 3). Total time required for standard delivery of the module: 2 hours and 15 minutes Objectives (OBJ) 1.       Examine common financing needs for clients engaged in different agricultural value chain segments 2.       Recognize critical complementarities between general finance and agricultural finance products 3.       Identify opportunities for market insights to inform the design of products that have a strong value proposition 4.       Apply lessons learned to create a process for gathering market insights that can inform effective product design and delivery Key Takeaways (KT) 1.       Financial market assessment helps financial institutions design products with a value proposition that is better than the current scenario. 2.       To build a strong value proposition, one must understand individual clients’ needs as well as their relationships with key value chain stakeholders. 3.       Qualitative research techniques, such as in-depth interviews and rapid prototyping, are critical to cost-effective product design. 4.       Prototype testing is an iterative process that should include clients and key stakeholders affected by clients’ use of the product.
Module 3 – Tailoring a Financial Risk Management Strategy for the Agricultural Portfolio

Overview:

Having explored agricultural markets and client characteristics relevant to initial product design, this module focuses on the role of risk management in effective product design and delivery, with particular emphasis on the unique risks in agriculture that must be identified and addressed.  Concrete examples of risk management by financial institutions active in providing agricultural finance help anchor an understanding of the role of risk management, and set the stage for participants to begin exploring issues related to cost-effective product delivery (which is the focus of Module 4).
Total time required for standard delivery of the module: 2 hours 15 minutes

Objectives (OBJ)

1.       Identify risks that are unique to agricultural finance

2.       Build a process for embedding risk management into product design

3.       Analyze strategies and tools being used by financial institutions to manage risk in agricultural finance products

4.       Compare strategies for covering the cost of risk management

Key Takeaways (KT)

1.       For an agricultural finance product to be sustainable, risk management must be embedded in its design.

2.       Leveraging existing capacities and tools helps minimize the cost of embedded risk management.

3.       Even when risks are properly assessed, mitigation measures may lie outside a financial institution’s capacity.

4.       Financial market assessment should identify the most relevant risks as well as potential partners with informational and risk management advantages.

5.       Risk management in product design is an iterative process that continues even after the product is launched.

Module 4 – Defining a Cost-Effective Product Delivery Strategy
Overview: This module addresses some of the best practices and principles informing cost-effective product delivery.  After analyzing agricultural markets and identifying targeted clients, the design process leads to a client-focused, tailored product prototype, which is then adapted to reflect identified risks and embedded risk management.  In this module, we face the test of determining how to deliver the product so it continues to offer a strong value proposition while at the same time meeting management expectations about commercial returns.  A variety of examples from different financial institutions help to demonstrate alternative approaches, including risk and cost-transfer through partnerships – which will be the focus of Module 5. Total time required for standard delivery of the module: 2 hours Objectives (OBJ) 1.       Articulate three common principles for cost-effective delivery of agricultural finance products 2.       Draw lessons from institutions’ varied approaches to financial product delivery 3.       Identify major factors influencing the financial viability of a delivery strategy 4.       Design a product delivery strategy that applies lessons learned   Key Takeaways (KT) 1.       To facilitate cost-effective product delivery, use local channels and build win-win collaborative relationships. 2.       Transfer the cost of non-financial services away from financial institutions to specialized partners. 3.       Since cost-effective solutions are often found in unexpected places, financial market assessment needs to identify all relationships and communication channels in a targeted market. 4.       Knowing management expectations on rates of return and profits at the beginning of the process will enable the design of a feasible delivery strategy.
Module 5 – Public-Private collaboration potential to launch agricultural finance products
Overview: This module focuses on collaboration partnerships, with an emphasis on finding solutions that reflect the needs of each partner (win-win) and building on the different mandates/objectives of private and public stakeholders.  It is also an opportunity to point out how certain government interventions can distort agriculture markets. At the end of the module, you will have an opportunity to review the training as a whole, and re-emphasize those point that you feel are most important to provide to participants.  Remember to leave time for participants to fill in the evaluation form. Total time required for standard delivery of the module: 1 hour 50 minutes Objectives (OBJ) for the module 1.       Review the incentives that drive public and private sector interest in working together to promote rural and agricultural financial services 2.       Compare roles played by public and private actors in recent collaboration models 3.       Debate the effectiveness of subsidies in enabling agricultural finance 4.       Share ideas for applying at least one new principle, process or tool acquired during this training Key Takeaways (KT) for the module 1.       The financial inclusion of poor rural households in developing countries is a goal around which private and public interest have merged. 2.       Financial market assessment can help you understand whether incentives exist or can be created to drive public-private collaboration. 3.       Subsidies can be used in specific finite interventions to facilitate innovation. 4.       Business models with the most expansion potential are those in which an increase in product delivery does not depend on an increase in public funds.