Pacific Week of Agriculture in Review – Part 3: Innovative Financing Solutions to drive Pacific Agribusiness Development
Innovative policies, regulations and financing mechanisms will play a pivotal role in enabling Pacific agripreneurs to develop small and medium enterprises (SMEs) that can improve nutritious agri-food products and services, and generate income for rural communities.
A side event to the Pacific Week of Agriculture, which was officially opened in Apia, Samoa on Wednesday (October 3), heard that access to finance and investment is a serious obstacle for many small-scale entrepreneurs trying to start a business.
According to the World Bank, Pacific island nations are among the world’s most difficult countries in which to do business, with Samoa ranking 90 out of a total 190 economies surveyed in 2019. Vanuatu was ranked 94, Fiji 101 and Kiribati 158.
“Reaching the agriculture sector with finance in the Pacific is challenged by the fact that a large majority of users are low volume, and they have little access to markets, so as a result they get low returns, and therefore they use low inputs,” said Tawfiq El Zabri, Country Programme Officer for the International Fund for Agricultural Development (IFAD), which has partnered the Technical Centre for Agricultural and Rural Cooperation (CTA) in heading the Innov4AgPacific project for the past four years. “The role of finance is key to transforming that low input-low output model, but extending loans is very challenging because of the high transaction costs due to long distances, and the risk, and it’s very difficult to get banks to come in to this environment.”
Malava Atalinia Ainuu Enari, Governor of the Central Bank of Samoa, highlighted the problems of extending finance to small-scale agripreneurs. “SMEs are perceived to be very high risk, since they generally fail within the first three years, she said. “This is also exacerbated by the absence of credit information, so as to properly screen potential borrowers.”
However, to respond to this she said that the Central bank has initiated the first step of establishing a credit data bureau in the country. “The availability of credit data or information regarding all types of borrowers (including SMEs) will assist with the credit risk and credit worthiness checks by our licensed financial institutions. This is an important step to ensuring that the risk of high indebtedness (particularly by individuals and small businesses) in our small island economy is kept at a minimal. To do this, we would need the collaboration and support of the borrowers and banking institutions alike to ensure these important credit information are available.”
Called Innovative Financing Mechanisms for Pacific Agribusiness and Value Chain Development, the PWA side-event – jointly organised by CTA and the Development Bank of Samoa – set out to examine innovative financial instruments that can help to support Pacific farmers, fishers and agripreneurs to develop their businesses.
One finance mechanism under the spotlight was the Innovation Grant Facility, which has awarded 23 grants of up to €17,000 each to agro-based SMEs in six Pacific island states since it was launched in 2018 by CTA, together with IFAD and the Pacific Islands Private Sector Organisation (PIPSO).
The Innov4AgPacific Innovation Grant Facility (IGF) extends funds as a form of blended finance. Each SME is expected to contribute 20 per cent of the total budget. The money is used to access expertise, purchase small-scale equipment, build staff capacity, improve product quality, expand product offerings, enhance process efficiency and increase market share. Promising SMEs that have been awarded IGF funds range from a small-scale farm in Fiji producing organic honey to a start-up based on making and marketing a wild organic turmeric drink in Samoa.
Another successful funding mechanism presented at the PWA side-event included the Development Bank of Samoa’s Inclusive Development Facility for Women and Youth, one of a range of mechanisms aimed at financing agribusiness ventures. One model requires that farmers are part of a supply chain in order to access a loan. Another has involved going out into the villages of Savai’i Island in Samoa to teach farmers basic literacy skills and avoid their having to make the journey to the bank. A common feature is the involvement of the Village Council.
“If you launch a community-based initiative, you need to engage the Village Council,” said Susana Laulu, CEO of the Development Bank of Samoa. “The Village Council is well aware that if a member or a group defaults, they lose the opportunity for future loans.”