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Climate Change: Opportunities and Challenges

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Climate Change: Opportunities and Challenges Prepared and Presented by: Mr SEEKU JAABI Microfinance Department Central Bank of The Gambia West Africa English Speaking ... – PowerPoint PPT presentation

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Title: Climate Change: Opportunities and Challenges


1
Climate Change Opportunities and Challenges
  • Prepared and Presented by
  • Mr SEEKU JAABI
  • Microfinance Department
  • Central Bank of The Gambia
  • West Africa English Speaking Regional Workshop
  • On Innovations in addressing rural finance
    challenges
  • in Africa held on March 31- April 2, 2008 in The
    Gambia

2
Table of Contents
  • Introduction
  • Rationale for Climate Change Response
  • Climate change risk management
  • Value Change Financing
  • Stages of Agricultural finance
  • Financial Linkages
  • Technology Innovation
  • Tools to Mitigate Risks
  • Govt Policies on climate change
  • Conclusions

3
1. Introduction
  • Need for FIs to recognise global response to
    climate change
  • Fls face a great challenge of coping with a
    rapidly changing risk landscape from which global
    sustainability issues continues to emerge
  • Its clear that the risks posed by climate change
    are serious and immediate while the opportunities
    largely go untapped
  • In Africa, we can economically use energy for
    development, contribute to poverty reduction be
    aware of environmental issues with global warming

4
1. Introduction Cont.
  • Africa needs to increase its carbon foot print in
    a sustainable manner with resources available in
    terms of wind mills for poor rural masses, water
    mills, solar panels, biomass furnaces, solar
    cookers, LPG burners which are economically and
    less impact on environmental pollution and
    sickness.
  • The question is, are our FIs ready to finance
    these opportunities available, given that we have
    God given abundant solar energy?

5
2. Rationale for Climate Change Response
  • Majority of Africans live directly off land in
    rural areas i.e farming for sustenance
  • Food for all is produced from the land and
  • Land has been the first to feel the effects of
    climate change
  • Understanding climate change in rural areas is
    scanty and no mechanism has been developed to
    cope with the changes
  • Neither have FIs realised the changes present
    problems but create opportunities of products
    that can help preserve the environment

6
2. Rationale for Climate Change Response
  • SSA is poor and out of 49 poorest countries in
    the world, 34 are in Africa, rural areas have the
    highest poverty levels
  • It is evident that most severe impact of climate
    change (extreme weather events, drought, crops
    failure) will fall most severely on poorest
    regions that are least able to cope with and
    adapt to impacts of climate change
  • Africa is already behind in understanding changes
    more so putting in place mechanisms to deal with
    it
  • To address this, FIs need to understand climate
    change, finance new innovations and technologies
    to ensure Africa and its local institutions are
    not left behind

7
3. Climate Change Risk Mgt
  • With the risk posed by climate change, there is
    no doubt that investment environment has to
    change as a result
  • Need for CEOs to position their institutions to
    leverage new investment opportunities as well as
    how to manage climate-related risk in their
    client relationship
  • This includes assist clients to assess exposure
    to climate change, provide products and services
    that improve clients risk mgt and integrate its
    related risks into investment and lending
    policies
  • Forming strategic partnerships in financing to
    mitigate risks, improve competition, increase
    profits and environmental protection in the
    process

8
Investment to conserve environment
  • Banks to provide access to supportive elements
    that promote care of ecosystem
  • Investments also directed to measures that
    conserve environment- waste reduction initiatives
  • Issues to pollution in China, India etc
    threatening boycott of Olympic in China
  • FIs should start reduce their own direct impact
    on environment- use of huge energy resources

9
AFRACA Assists in Disseminating Information on
Climate Change
  • Foster cooperation by supporting regional
    conferences on topical rural and agric finance
    issues
  • Initiate and support multi-country studies on
    problems of common interest
  • Facilitate training of staff from member
    institutions through TCDC exchange programme
  • Commission a study on effects of climate change
    on agric prodn and food security and role of FIs
    for SSA in Benin- April 2008
  • Organise various forums-central banks, commercial
    banks, agribanks, microfinance and determine way
    forward

10
4. Value Chain Financing
  • What is Value Chain Financing?
  • Defined as sequence of value adding activities
    in a supply chain from production to consumer,
    through processing and marketing
  • Set of processes and flows from inputs to
    production, processing, warehousing, marketing
    and the consumer
  • It is about financing the flows along the chain
  • For centuries, traders have provided finance to
    farmers for harvest, inputs and other needs
  • Traders in turn receive finance from millers and
    processors who in turn are finance by wholesalers
    and exporters in the forward/backward linkages

11
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12
5. Agricultural Financing
  • Govts and donors realised that majority of rural
    households do not effectively have access to
    agric and agribusiness finance
  • Their direct intervention to correct the
    imbalance failed due to host of reasons
  • However, businesses have come to realise that
    with the new innovations in technology,
    information mgt and business models, wealth of
    new opportunities are there to profitably work
    directly or indirectly together
  • With increase attention to value chain,
    opportunities for promoting and facilitating
    access to finance became apparent

13
5. Stages of Agricultural Finance
  • Agricultural Credit Era
  • (1950 a 1985)
  • Directed production credit
  • Subsidized credit
  • High transaction costs of lending
  • High loan losses
  • Government and donor refinanced lines of credit
    through agricultural banks and others
  • Informal family and trader finance for small
    farmers
  • Donor Microfinance Era
  • (1980 a 2000)
  • Rapid, small working capital loans
  • Group lending approaches
  • Focus on non-agricultural activities
  • Forces groups savings
  • Separation of financial services and business
    support services.
  • High cost of microfinance

14
5. Stages of Agricultural Finance (cont.)
  • Value Chain Finance (2005 to present)
  • Strategic focus on market potential of businesses
  • Linkages among suppliers, producers marketing
    companies
  • Growing importance of standards
  • Greater use of risk mitigating tools
  • Growing integration between banks and business
  • Growing use of new technologies
  • Commercialization of MFIs
  • (2000 to present)
  • Formal MFIs
  • Little subsidy
  • Multiple Products
  • Expansion and competition
  • New technologies
  • Interest by capital market investors and lenders

15
6. Financial Linkages- Strategic Partnerships
  • Large businesses may integrate credit and other
    financial services directly or indirectly at many
    or all stages in the chain by providing upstream
    and downstream in the chain
  • They can facilitate/intermediate from third party
    to the client in the chain, eg export company
    arrange funding for producers it buys from
  • Being within the chain often better placed chain
    actors obtain funding from FIs
  • Innovations in technology has made value chain
    financing saver and profitable

16
6. Financial Linkages
NGOs Credit Unions Village Banks Agro-processor
s Input Suppliers Marketing Companies Leasing
Companies Warehouse Operators Supermarket Chains
Farmer Associations
Private Banks State Banks Postal Banks
Insurance Cos. Non-bank financial
institutions Investment funds
Farmers / Rural Clients
Partnering for better access, services and
efficiency
17
7. Technology Innovation
  • Communication Technology --
    M-PESAKenya G-Cash--Philippines
  • Purchases sales
  • Commodity prices
  • Money transfers, top-ups air time, electricity
  • Payments
  • Point of Sale Access
  • ATM Smart Cards

18
7. Technology Innovations Cont.
  • Smart cards, internet, cell phone make
    communication with banks, farmers,
    agribusinesses, suppliers, exporters easier
  • Partnering in value chain financing increases
    efficiency, mitigate risks and increase profits
    than traditional banker doing all alone
  • Access to market information is available for
    buyers and sellers with SMS eg Trade Net
    Solutions in Ghana

19
8. Tools to Mitigate Risks
  • Use of futures and options
  • Warehouse receipts as well as warehouse storage
    capacity
  • Market information services
  • Contract farming
  • Insurance
  • Access to technical assistance

20
8. Risk Analysis Incorporating New Elements
  • Client /business capacity
  • Repayment capacity
  • Security coverage
  • Cash flow
  • Market growth and risk
  • Competitiveness

21
8. Tools to Mitigate Risks Cont.
  • Traditional loan risk assessment is still
    important but MF gives more emphasis on market,
    competitiveness and cash flow
  • Giving less to conventional collateral, hence a
    big benefit for the poor
  • This is facilitated by a new and improved
    technologies and product

22
9. Government Policies to Support Value Chain
Finance
  • Business capacity building and market integration
  • Contract farming and out grower schemes
  • Technical capacity in market norms and standards
  • Commodity exchanges and active futures markets
  • Insurance innovation, data collection and
    initiation
  • Market information and access
  • Infrastructural investment
  • Product and service innovation and diversity
  • Technology adaptation and access

23
10. Conclusions
  • With the understanding of climate change, FIs
    will take up challenges and plan to accommodate
    new opportunities
  • New ways of managing risks, enabling environment
    for new industries and products to prevent
    environmental degradation
  • Agric finance is essential as an employer of the
    majority of population and food security purposes

24
10. Conclusions Cont.
  • However, financing to this sector has been
    disappoint due to its inherent risks
  • Govts and donors initial attempts to turn-around
    the situation failed
  • However, entering into strategic partnerships in
    value chain financing became a viable way forward
  • Alternatively, to remain sustainable, is to
    diversify into products and services by
    exploiting within the agric value chain

25
THE END
  • THANK YOU FOR YOUR ATTENTION

26
Contact Address
  • Mr Seeku Jaabi
  • Microfinance Department
  • Central Bank of The Gambia
  • Tel 00220- 4223168 / 9911775
  • Fax 00220 4226969 / 4201405
  • Email sjaabi_at_hotmail.com
  • jaabiseeku_at_yahoo.com
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