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Library
Inventory Credit
This publication addresses a problem which has emerged in recent years in countries which have liberalised their agricultural marketing systems. Government marketing organisations usually had ready access to finance to purchase and store crops. After liberalisation private traders have been expected to take over these marketing functions but they lack the finance to do so. This has placed the burden of storage, particularly of food crops, on farmers who not always equipped to store efficiently. One consequence has been high levels of seasonal price instability.
Inventory credit is one way of overcoming financing constraints. It involves placing stocks of products in a bonded warehouse and obtaining finance by pledging the stocks as security. The system can be used by traders, processors or farmers as a means of obtaining credit, provided warehouses and reliable warehouse operators are available and appropriate legislation is in place to facilitate trade in warehouse receipts.
This FAO publication includes a number of case studies from the Philippines, India, Mali and Ghana. It explains how inventory credit can be implemented and who can benefit from it. It also examines the risks involved and how to manage them. The main conclusion which emerges is that inventory credit should not be targeted at particular users but should be offered without subsidy to those who are able to use it profitably. Similarly, the exercise should be profitable to lender and borrower alike and lending decisions should be made by banks without any kind of external pressure.