Challenges

Togolese agriculture contributes 38 per cent of the GDP and employs nearly 70 per cent of the working population. However, this sector is poorly financed by banks and financial institutions. This situation is explained by an insufficient organization of value chains, poor knowledge of the agricultural sector by financial institutions, a poor perception of the level of risks in the agricultural sector, the complexity of credit assessment procedures, the high level of transaction costs and a funding mismatch. 

Toward a Solution

To address these challenges, the Incentive Mechanism for Agriculture Financing Based on Risk Sharing (MIFA) aims to promote financial and insurance products adapted to the agricultural sector. The MIFA initiative, launched in June 2018, aims to: (i) address fragmentation in agricultural value chains; (ii) promote financial and insurance products adapted to the agricultural sector; (iii) facilitate risk sharing between the various actors in the agricultural sector; (iv) provide technical assistance to financial institutions, SMEs and agricultural producers; and (v) reduce the cost of borrowing for agro-industries. 

The initiative is supported by the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL); Banque Africaine de Développement; International Fund for Agricultural Development (IFAD), World Bank Group; International Monetary Fund (IMF); West African Development Bank (WADB); Khalifa Fund for Enterprise Development (KFED) of the United Arab Emirates; African Guaranteed Fund based in Kenya; Ecobank based in Togo and Bank of Africa based in Mali. It has been implemented by the Ministry of Agriculture, Livestock and Rural Development and the Ministry of Economy and Finance of Togo. 

MIFA is based on an integrated and multi-actor approach which provides a holistic solution to the problem of financing in the agricultural value chain. Beyond the mobilization of financing, MIFA works to organize producers into cooperatives, to strengthen their capacities and their mastery of techniques, and to help smallholders develop business plans. This approach is based on five cornerstones, namely risk sharing, insurance, technical assistance, interest rate subsidies and the establishment of incentives. Based on risk sharing, MIFA allows the State and its partners to act as a guarantor for producers, thus reassuring banks so that they agree to grant financing to farms considered to be “too high risk” and which, in the absence of collateral, had until now little chance of benefiting from loans. 

The project instruments are mainly: 

• Capacity building and training of farmers; 
• Organization of the primary sector: accredited suppliers, quality and quantity assurance, payment after delivery, elimination of the holding of liquidity; 
• Real-time information collection, geographic information system, drone mapping and multisectoral remote sensing;
• Guarantee of product purchases through aggregators, processors and structured markets; 
• Office for project monitoring, reporting and coordination of integrated projects. 

The Togolese government has mobilized the expertise of the existing agricultural risk sharing and financing mechanism in Nigeria, the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), in order to capitalize on the successful agricultural transformation experience found in this country. Studies and consultations were carried out involving national actors (banks, financial and guarantee institutions, insurers, producers, actors in the agroindustry, actors in the public and private sectors) in order to take an inclusive approach for the formulation of MIFA. 

After three years of implementation, MIFA has allocated 27 billion CFAF (approximately US$ 47 million) of credits to various agricultural actors. This funding has made it possible to create and consolidate more than 274,000 jobs, support more than 200,000 producers and structure 1,450 cooperatives. With a funding target of CFAF 50 billion (approximately US$ 87 million) to be facilitated in 2020 for 400,000 actors, MIFA has already introduced a portfolio of projects worth CFAF 30 billion (approximately US$ 52 million) with partner financial institutions. 

These results help to achieve SDGs 2 and 8, in particular targets 2.3 and 8.3. They also made it possible to fulfil certain commitments of the Istanbul Programme of Action (IPOA), in particular in the following priority areas: production capacity; agriculture, food security and rural development; mobilization of financial resources for development capacity building; commodities and trade. 

MIFA has brought about a paradigm shift in the agricultural finance sector. Its sustainability is guaranteed by the inclusion of different actors, including private banks, the Togolese Government and local SMEs. The success of the approach made it possible to privatize the structure, which allows it to set up an appropriate and more incentivizing framework in order to further mobilize private sector investments. This concept of risk sharing can be applied to the agricultural sectors of other countries which have the same realities as Togo, or in other fields of activity where the perception of risk works against the productivity of the actors. 

The lessons learned are as follows: 

• The intervention of the State and its leadership is necessary to instil a qualitative change in the processes in a given sector of activity; 
• The mainly technical support of a country of the South for the realization of a project of another country of the South is possible, mainly through the sharing of experiences. 

Maintaining a multi-stakeholder dialogue makes it possible to find innovative solutions for development issues.