Project ID: 1162
Executive Board Document: EB-2000-70-R-20-Rev-1

Agricultural Financial Services Project

This five-year IFAD-initiated project will be the second focusing on the provision of financial services to smallholders in the countrys rural areas. The core rationale is that inadequate financial services continue to inhibit the development of small- and medium-scale viable economic activities in the agricultural sector. Over the medium term, access to financial services will be essential to smallholder producers if they are to:

(i) meet the economic, technical and managerial standards needed to realize agricultural potential;

(ii) improve rural living standards; and

(iii) obtain the benefits of greater linkages with European agriculture and markets.

The goal of the project, therefore, is to improve the standard of living of the rural poor through sustainable delivery of agricultural financial services and complementary technical and managerial development support. An initial 3 000 direct beneficiaries will receive combined credit and training. In the longer term, the financial and technical concepts pioneered by the project will benefit all private smallholders in rural areas. The project is designed to provide a comprehensive portfolio of financial and technical services across a broad spectrum of beneficiaries, ranging from short-term microfinance for very small individual producers to loans and training for smallholders, agriculture-related entrepreneurs and traders. The projects support policy will be shaped primarily by the considerations of commercial viability and poverty impact in terms of increased rural incomes, food security and nutrition. These can result either from improvements in beneficiary production and productivity or from employment generation within enterprises.

Innovative features:

The project will, for the first time:

(i) establish an Agricultural Credit Discount Facility (ACDF) for wholesale lending through private banks;

(ii) promote complementary relations between the ACDF and an Agricultural Productivity Centre to ensure the development of enhanced capacity at the smallholder level; and

(iii) support a range of partnerships with civil society to provide information and technical, managerial and financial support for smallholder farmers and rural entrepreneurs.

The establishment of a sustainable discounting mechanism in order to provide attractively priced capital for the provision of rural financial services is a new approach to addressing the needs of rural smallholders. In addition to improved access to investment capital for project beneficiaries, the acquisition of agricultural lending experience by participating financial institutions will help build the linkages between rural clients and commercial banks that are needed for market-led growth and development.

Loan amount:

SDR 6.2 million (approximately USD 8.0 million) on highly concessional terms.

Total project costs:

Estimated at USD 17.3 million, of which USD 3.1 million will be provided by cofinancers to be determined, USD 244 000 by the Government, USD 3.2 million by national financial institutions and USD 2.7 million by the beneficiaries.

Cooperating institution:

UNOPS.