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

96 Coates and Hofmeister
Technical assistance in buyer and supplier finance. In some cases, technical
assistance in developing and marketing a buyer/supplier finance
product is recommended. The nature of the assistance needed depends
very much on the market. For example, many commercial bankers will
not need assistance with the concept of the product, but instead they will
find challenges in the know-how required to commercialize the product.
Consulting and assistance are likely to be more helpful in making the
business case than practical implementation, with which they are well
equipped to deal without outside assistance. This chapter advocates the
identification of best-practice case studies of buyer and supplier agricultural
finance in other markets (for example, Latin America or South and
East Asia, Eastern Europe, or even OECD countries—those in the
Organisation for Economic Co-operation and Development). It also
advocates the promotion of field visits by senior banking executives to see
how a product is working on the ground and to quiz senior-level counterparts
on the value of the product to their banking offer.
Additionally, although most African bankers are capable of grasping
the product, the banks themselves are often much less sophisticated.
They may struggle with institutional problems and are likely to require
more broad-based support to bring their institutions up to the basic levels
required for this type of product.
Other Approaches to Release Working Capital
We have chosen to expand more fully on buyer and supplier finance
arrangements both because they serve as useful examples to illustrate
how the relationships among banks, agribusiness, and producers tend to
work and because these products rarely need any further development of
financial sector infrastructure or the legal and regulatory environment.
However, other extremely viable and interesting alternatives can certainly
be used to expand or release working capital for agricultural value chains
if the circumstances are right.
One option currently being explored is the use of warehouse receipts,
which are in relatively common use in some other markets. Under this
arrangement, commoditized produce (for example, wheat, coffee, cocoa,
maize) is deposited in a warehouse by the owner and a receipt is issued
against it. This receipt stipulates the quantity, quality, and type of produce
deposited. The warehouse receipt is generally negotiable, meaning ownership
is transferable, making it quite suitable for collateral. Therefore,
financial institutions have proved willing to extend loans against this
security in the right environment.