Financial Sector Development in Africa: Opportunities ... - World Bank

Financing Agriculture: Selected Approaches for the Engagement of Commercial Finance 89
The success of apex banks varies in different markets. It is a generalization,
but an experience founded in logic, that apex institutions in which
rural and cooperative banks have an ownership and management stake
will be more successful in meeting the needs of this market than apex
institutions where rural and cooperative banks have no role in ownership
or governance. For example, many of the most successful apex institutions
were formed by, capitalized by, and in response to demand from
rural and cooperative banks themselves. Institutions that have been “artificially”
created by governments and/or development agencies tend not to
be as responsive to the needs of financial institutions. Often these
government- or agency-formed entities have wider economic development
objectives that may not easily reconcile with the interests of the banks
they purport to support.
It is not our view that cooperative or rural banks should necessarily be
“captured” within a single network or structure. Other commercial banks
should be free to collaborate with rural or cooperative banks, and compete
with each other as well to offer the most competitive arrangements,
depending on the needs of a specific institution. These arrangements
could range from offering wholesale credit lines to rural financial services
providers to applying private sector credit assessment skills to allocate
finance to high-performing institutions. Cooperation with commercial
banks (and other financial services organizations such as insurance,
m-banking, and money transfer firms) in terms of strategic partnerships
and agency arrangements should also be encouraged. It may also be that
rural banks could be open to equity investments or even acquisition by
commercial banks that value the rural banking business, but feel they can
enhance profitability by adding balance sheet strength and cutting costs
by centralizing some operations.
Finance for Markets
In relation to finance for markets, supplier and buyer finance with and
without the involvement of commercial banks can be an extremely useful
tool in helping address the severe lack of working capital hampering agricultural
value chain actors. This section considers the need to expand and
lower the costs of working capital, which, in turn, helps agribusiness and
producers to retain earnings for investment and, in the long run, makes
them more attractive for bank lending. The section also notes that there
is more opportunity in shorter- to medium-term credit than long-term
lending in this area.