Financing Agricultural Term Investments

Topic :

As the last book in the FAO/GTZ series Agricultural Finance Revisited, this publication focuses on the ways in which rural financial institutions can successfully provide term finance products and services, such as medium and longer term loans, leasing and equity.

The book is divided into four (A-D) parts comprised of 10 chapters. Part A (Chapter 1) reviews the different types of risks associated with agricultural term investments. The review is organized according to the risks faced by the investor (farmer) and those faced by the financier (banker). Part A concludes with a discussion on the costs of providing term finance from the financial institution perspective and a review of the feasibility of provisioning term finance.

Part B (Chapters 2-6) illustrates agricultural term finance in practice, featuring case studies and desk reviews from Bolivia, India, Madagascar, the Philippines, South Africa, Thailand, Benin, Ghana, Indonesia, Kenya and Mali. This section reviews the main features of the case study institutions and their motives for engaging in term finance. In addition, it examines the guiding principles for building up a term finance portfolio and discusses the main elements for successful term lending technologies as exemplified in the case studies. The section also highlights the basic principles of leasing and presents it as a feasible alternative for the medium-term financing of farm equipment; and reviews other financial mechanisms and institutional arrangements for financing large-scale and longer-term investments, such as equity finance, nucleus estate smallholder schemes and joint venture companies.

Part C (Chapters 7-9) focuses on the generic constraints that limit the expansion of term finance which may require support and action by governments and donors. This section of the book focuses on the legal and institutional constraints of securing the use of collateral, accenting some areas for legal reform. It examines policy options and mechanisms for managing systemic risk, such as innovative crop insurance products. Part C concludes with a review of the importance of securing stable funding sources to deal with asset / liability management risks. In this context, the role of donors and governments in enhancing the availability of suitable funding sources to term finance providers is reviewed.

Part D (Chapter 10) features the main conclusions relating to increasing the availability of term finance products and services. It summarizes the key findings and presents a series of recommendations for financial institutions wishing to introduce term finance products, such as adopting a long term business strategy, taking a gradual approach to term finance product development, and pricing term loans according to client risk. Part D concludes with suggestions on the role that donors and governments can play in fostering the expansion of term finance, such as supporting product innovation through pilot projects and technical assistance, mobilizing long-term funding sources, and instituting measures for creating an enabling environment that supports secured lending, leasing and innovative insurance products.

  • Resource type
  • Author Hollinger, F.
  • Organisation,
  • Year of Publication2004
  • Region
  • LanguageEnglish
  • Number of pages175 pp.
  • EditionAgricultural Finance Revisited

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