Warrantage in Niger: Adaptations for a developing country

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Warrantage in NigerAdaptations for a developing
country
Emilio Hernandez Agricultural Finance
Officer FAO/AGS 20 September 2012
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IntroductionSome country facts

• GDP per capita is USD 800
• 43.6 of population below USD1.25/day
• Exports go to Nigeria (68.3) USA (12.2) and
  Ghana (9.8)
• Paved roads coverage 3,912 Km
• 39 of GDP is agriculture, with sorghum and
  millet as staples
• Government-owned fertilizer monopoly

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Warrantage systemsThe local adaptation
Source Adapted from LeCoutois and Olofsson, 2010
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Warrantage systemsSome recent facts

1. All of the 132 MFIs in the country offer
   warrantage products
2. In 2009 it represented roughly 8 of their
   portfolio value
3. Repayment rates are above 97
4. In 2004 there were 104,741 clients rural
   penetration rate of warrantage estimated at 5.3
   (up from 3 in 2001)

Source The MIX, 2012 and LeCoutois and Olofsson,
2010
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Why does warrantage work in Niger?1) Predictable
timing of price peaks
Source Afrique Verte International, 2010 and the
author
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Why does warrantage work in Niger?2) Constant
demand outlet to Nigeria

• 68 of exports go to Nigeria, most of them
  consisting of millet, sorghum and onion surpluses
• Nigeria as a net importer of cereal and having
  higher purchasing power absorbs any surplus Niger
  is able to produce

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Why does warrantage work in Niger?3) Functional
federations and coops

• The constant demand for cereal imports from
  neighboring Nigeria has created stable business
  opportunities for farmers in Niger

• Through their organizations, farmers have worked
  steadily to benefit from these opportunities by
  building storage facilities and making joint loan
  requests backed by cereal stocks

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Why does warrantage work in Niger?4) MFIs know
the value of stocks

• Understanding cereal markets enable MFIs to
  accept stocks as collateral, given their ability
  to liquidate it in case of default

• The character-based assessment of
  creditworthiness, enables MFIs to lend to
  producer organizations under a weak contract
  enforcement framework

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How do agricultural households use warrantage
credit?Its all about smoothing cash flows

• Households use loans to finance trading and
  marginally for vegetable production. Very rarely
  is the loan used to purchase agricultural inputs
  for the main staples

• These short-term activities enable the generation
  of cash while cereal prices improve and revenues
  are used to pay the loan

• From 2001-2010, a sample of 34 POs shows cereal
  price differentials were superior to principal,
  interest and fees in 71 of the cases

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Conclusions and policy implications

• The combination of stable agribusiness
  opportunities, strong farmer organizations and
  lenders familiar with agricultural markets that
  makes warrantage work in the country

• The core business condition is not easy to
  replicate by governments and development agencies
  in other contexts

• It is key that interventions recognize this
  condition to support warrantage initiatives led
  by local farmers, traders and lenders

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Thank you!