AASF Value Chain studies to help PFIs finance the agriculture sector in Albania

The Albania Agribusiness Support Facility (AASF) has completed a sector support study regarding the Agriculture Value Chains in Albania over the past quarter.

 

The agriculture sector in Albania contributes approx. 20% to the total GDP and employs almost 40% of the total active labor force in the country[1] . Despite fertile land and mild climate, the agriculture sector is characterized by low production yields, limited investments in mechanization and automation and low levels of organization among producers.

 

In recent years, there are visible investments from SMEs and a constant government striving towards enabling the development of the agriculture sector in Albania through grants, consulting support and tax incentives. In addition, the growing local and international demand for agricultural products provides great potential for investments in the Albanian Agriculture Sector. Despite the growing exports of agricultural products (2018 – EUR 270 Million, 6.5% increase from 2017), imports are still far ahead accounting for approx. EUR 900 Million per year (estimate 2018)[2] .

 

According to the study the underdevelopment of the agricultural sector in Albania, among others, is related to a lack of stable supply of raw materials and limited access to finance, short and long term, for the local farmers. Financing agriculture is challenging as farmers often are not risk diversified and sector risks as weather and price fluctuations may have impact on the portfolio of a financial institution. Further, limited collateral availability and higher transaction, costs compared to other business clients, make the traditional approach to financing agriculture little attractive.

 

Study findings hint that the value chain financing approach can be an innovative way to financing the agricultural sector. Value chain financing tries to look at the entire agricultural value chain from a helicopter perspective. This means assessing the potential of the value chain based on the final products; analyzing the structure of the value chain and relationships between value chain actors and stakeholders; using the information to design adequate credit facilities with the objective of financing the whole value chain and not only the individual participants. Financial institutions can benefit from leveraging on information and as such can quickly expand the market penetration and benefit from lower risk products.

 

Because of that, AASF has provided the value chain financing study as an approach that supports the banks decision-making process in financing agricultural clients. The study supports financial institutions in designing financial services and products through mutual three-party agreement. The value chain approach allows a better customer segmentation and the establishment of KPIs with focus on increased efficiency of transactions and cost reduction. Agriculture Value Chain Financing enhances the financial assessment process by using Tech Cards and predefined KPI’s. It also facilitates strict control of usage of funds and enhanced repayment monitoring through transactions within the bank accounts of the institution.

 

AASF provides access to finance for the agribusiness sector in two ways: senior loans and/or portfolio risk sharing to both MFIs and banks. The institutions benefit from a first loss risk cover that was made available by the Government of Albania. AASF represents an innovative financial instrument to encourage lending by financial institutions to the whole agribusiness value chain.

[1] http://www.instat.gov.al/

[2] https://www.export.gov/article?id=Albania-Agricultural-Sector