Project area: The PAPSFRA, a specialised finance project, will start initially as complementary to the value chain focused Project for Rural Economic Growth (PACER), which targets the rice, pineapple, horticulture and cassava value chains, and will intervene in 59 communes while concentrating on 22. The PAPSFRA will focus on the supply of adapted rural financial services, while the PACER focuses on developing the bankability of the demand side. Initially, the area of intervention of the PAPSFRA will coincide with the concentration areas of the PACER. As partnerships evolve to include actors in the value chains targeted by the PACER but supported by other technical partners, the area of intervention of the PAPSFRA will most likely expand to reach beyond the concentration areas of the PACER.

Target group: The direct beneficiaries are the partnering financial institutions (at least five) through which a minimum 150,000 rural clients will benefit from adapted financial services.

Project objectives: PAPSFRA’s overall goal is to contribute to rural poverty reduction in the project areas. Its specific development objective is to sustainably improve the supply of financial services tailored to the needs of small and medium-sized farms and agribusiness in the project areas.

Project description: The project develops around three components:

• Institutionalization and professionalization of the Financial Service Associations (FSAs). This component aims at transforming the current FSAs network into one viable microfinance institution operating according to the standards of the profession. The law regulating decentralized financial services in the West African Monetary Union (WAMU), presents an opportunity to institutionally transform the FSAs (a network of 194) into one institution. Existing FSAs would then become branches or points of sale of the main financial institution. Simultaneously, the PAPSFRA will address other weaknesses in the FSA operating model.

• Strengthening of institutions and Strategic Partnerships. Under this component, the programme will strengthen the key players in the decentralized financial sub-sector. Interventions aim to enhance the skills of these key players, reduce transaction costs, improve performance, improve sector information and market transparency, increase outreach and access to refinancing from financial institutions.  This programme will also foster strategic partnerships with banks and microfinance institutions with a view to leverage respective comparative advantages.

• Development of adapted rural financing services. The objective of this component is to support the creation of adapted financial products tailored to the needs of small and medium-sized farms and agribusiness (PMEAPA) involved in the value chains targeted by the PACER. In doing so, the PAPSFRA will capitalize on the lessons learned from other value chain financing schemes in the region. Under this component, the key objectives are: to clearly understand the needs for financial services of small and medium rural farms for the targeted value chains and support the development of  new financial products. This component will consist of two sets of activities: the primary activities are to conduct value chain analyses to understand the need of financial services for all actors (by type of activity, gender and age categories); and secondary activities to engage the partnering financial institutions in the product development process by following the best practices of the industry.

Important features:
The proposed project is complementary to the on-going agricultural value chain project – The Rural Economic Growth Support Project (PACER). It proposes interventions in the financial sector at three levels: macro, meso and micro. At the macro-level, the project will contribute to the creation of an enabling framework, supporting the dissemination and adoption of the new microfinance law. At the meso-level, while creating linkages between micro-finance institutions (MFIs) and other financial institutions (FIs), PAPSFRA will strengthen the capacity of technical service providers and key players such as the Consortium Alafia, the Cellule de Surveillance des Systèmes Financiers Décentralisés (CSSFD) and the Direction de la Promotion de la Microfinance. At the micro-level, the project will support the institutionalization of the Financial Service Associations (FSAs). PAPSFRA will also assist partner MFIs in developing appropriate financial products. To implement this ambitious plan of work, the design has budgeted considerable funds for both international and national technical assistance.

The project directly supports the national poverty reduction goals. It will contribute to the objective of thethird Poverty Reduction Strategy Paper (PRSP 3) covering the period 2011-2015. It is also aligned with the National Microfinance Policy and will address its four strategic pillars. In addition, the new regulation governing Decentralized Financial Systems in the West African Monetary Union, ratified by Benin on 26 January2012, requires a new legal status for the FSAs different from the current one.

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Potential cofinanciers and domestic contribution: The total project cost is US$35.2 million. IFAD will finance approximately 87% of the total costs with US$ 27.0 million (of which 50% as a grant). The Government will contribute US$3.2, and partnering financial institutions a further US$1.4.