Farmers and MSMEs in the vanilla, clove and ylang ylang value chains face high transaction costs and a lack of accurate information about markets. In addition, they typically possess limited collateral for borrowing. With available financing limited to internally generated funds, loans from family and friends, or high-interest credit from moneylenders, operators in the three sectors were unable to scale up production and invest in improving the quality of their products. To overcome these limitations and reduce the default risks perceived by banks, ITC has worked with banks, producers and processing companies to improve organization, credit profiles, risk evaluation procedures, and knowledge of available financial instruments.
“This project is achieving outstanding results. This is the first time that a commercial bank (the Banque pour l'Industrie et le Commerce, or BIC) has agreed loans to agricultural producers in the the Comoros. Only the savings and credit unions, Meck and Sanduk, have financed the agricultural sector until now. The project has proved that farmers can attract investment when they are part of cooperative companies with mutualised collateral and proper mentoring in business and financial management,” said Emma Ngouan-Anoh, Deputy Resident Representative for the United Nations Development Programme in the Comoros.
“We have approved a loan application of 64 million Comorian francs ($155,407) at an interest rate of 8% to the clove cooperative company KARANFOU NDJEMA. This funding is for the harvesting of the equivalent of 22 tonnes of cloves for export. If the pilot is successful, BIC Anjouan will be happy to provide, in a few months, the total amount of $4 million requested by the cooperative company to buy 55 containers, or 605 tonnes, of cloves for export,” said Housnat Mdjassiri, Managing Director of BIC Anjouan, the local branch of BNP Paribas.
ITC facilitated the contractual arrangements between the cooperatives and the financial institutions. The Meck and Sanduk saving and credit unions have agreed to provide lower interest rate loans at 8% per annum because a group of ITC-trained Financial Management Counsellors (FMCs) worked with processors and their farmer suppliers to reduce risks and improve record keeping. As part of the project, ITC in 2016 trained six FMCs to support cooperatives to assess their loan capacity, prepare balance sheets, present business plans and approach financial institutions. The counsellors also provide post-finance mentoring, working with loan recipients to improve their management and technical capacities and reporting on funds use. As a result, the FMCs mitigate first-time financing risks, thus encouraging financial institutions to lend to MSMEs (and at more affordable rates).
“I have always been scared by debt and the banking sector as I do not understand the bank requirements as well as the products available for ylang ylang producers and distillers like me. All our cooperative company members are positive that this project will change the banks’ perspective on the agricultural sector and therefore unlock doors for finance,” said Nafouanti Daroussi, a ylang ylang producer and distiller, and member of the cooperative company Producteurs Distillateurs et Exportateurs des Huilles Essentielles de Mohéli (COOPDEHEM) in Mohéli Island.