Accessible financing for the family agricultural sector and MSMEs

agriculture financing
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Accessible financing for the family agricultural sector and MSMEs
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Financials
Corporate and Retail Banking
Business Model Description

Provide accessible financing for the family agricultural sector and MSMEs through:> Conventional loans from traditional or second-tier banks, as well as other financial institutions> Fintech solutions, using for example B2C formulas (Business to consumer, companies that offer services or products to customers), where credits are awarded using mobile phones or online services, such as digital credit services, or P2P models (peer to peer, direct marketing between bidders and demanders on a platform), or other types of models

Expected Impact

Increase financing alternatives to improve agricultural outputs, reduce poverty and ensure food security

Indicative ReturnDescribes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
10% - 15% (in IRR)
Investment TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Short Term (0–5 years)
Market SizeDescribes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
30% MSMEs are formalized (263,106)
Direct ImpactDescribes the primary SDG(s) the IOA addresses.
Zero Hunger (SDG 2) Industry, Innovation and Infrastructure (SDG 9) Decent Work and Economic Growth (SDG 8)
Indirect ImpactDescribes the secondary SDG(s) the IOA addresses.
Reduced Inequalities (SDG 10) Responsible Consumption and Production (SDG 12) Life on Land (SDG 15)
Country
Regions
  • Paraguay: Cordillera
  • Paraguay: Guairá
  • Paraguay: Misiones
  • Paraguay: Paraguarí
  • Paraguay: Alto Paraná
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Financials
FN

Development need: In 2013, the bank coverage index was 30% (as a proportion of debtors in the economically active population) and 26.73% (as a proportion of deposit holders in the economically active population). active).

Policy priority: The government is fostering financial inclusion growth

Gender inequalities and marginalization issues: Lower bancarization of rural population and women

Investment opportunities introduction: Of the number of adults who have access to financial services, less than 1 million have access to the banking system as debtors; therefore, there is a market of 3 million people that can be developed.

Key bottlenecks introduction: Lack of digitalization is an obstacle to financial inclusion

SubsectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Corporate and Retail Banking
FN.2

Development need: In 2013, the bank coverage index was 30% (as a proportion of debtors in the economically active population) and 26.73% (as a proportion of deposit holders in the economically active population). active).

Investment Opportunity Area

Accessible financing for the family agricultural sector and MSMEs

Business Model

Provide accessible financing for the family agricultural sector and MSMEs through:> Conventional loans from traditional or second-tier banks, as well as other financial institutions> Fintech solutions, using for example B2C formulas (Business to consumer, companies that offer services or products to customers), where credits are awarded using mobile phones or online services, such as digital credit services, or P2P models (peer to peer, direct marketing between bidders and demanders on a platform), or other types of models

Market Size (USD)Describes the value in USD of a potential addressable market of the IOA.
30% MSMEs are formalized (263,106)

> The number of MSMEs (from different sectors including agriculture) is 900,000 (2020), of which only 30% are formalized (263,106). (41)

> In 2019, the MIC, together with other multilateral organizations, put financing available to the MSMEs sector for 200 formalized companies.

> Loan rates for this sector range from 7% to 18% per year with grace periods. (42)

IRRDescribes an expected annual rate of growth of the IOA investment.
10% - 15%

> According to the evaluation of a microcredit financing project between 3,000 and 5,000 USD at 28% in Ecuador, the resulting IRR is 33% in a project evaluation period of 5 years. (28)

> The estimated rate of return for an investor would be 10.53%. The rate provided is a benchmark calculated as a cost of capital with the country risk premium that translates into an average return required by active investors in the subsector. (35)

TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Short Term (0–5 years)

> The evaluation of a microcredit financing project between $3,000 and $5,000 to 28% in Ecuador, the recovery period is approximately 3 years. (28)

Market - Highly Regulated
Lack of formalization of companies, which prevents them from having access to these benefits.
Sustainable Development Need

The percentage of adults with an account at a bank or other financial institution or with a mobile money service provider in 2017 was 48.65. (14)

There are still challenges in Paraguay to achieve SDG 9, especially in the existence of significant digital gaps in Paraguay depending on the socioeconomic, cultural, academic level, among others.

many companies do not have a bank account. This is the case, for example, of 92.7% of SMEs, 51.3% of medium-sized companies and 11.8% of large companies. Most of the companies carry out their financial transactions through cooperatives. (4)

Gender & Marginalisation

The proportion of agricultural production units served with credit fell from 33.6% in 1991 to 17.7% in 2008

41.7% of the employed population in rural areas is dedicated to family farming. Half of the population employed in family farming is in a situation of poverty (49.4%), with a higher incidence among women. (3)

poverty affects 34.6% of the total rural population, while in the case of residents in urban areas the percentage affected is 17.8%. (20)

Expected Development Outcome

> Increase the production capacity of small producers

Increase the proportion of small industries that have obtained a loan or a line of credit and provide liquidity to SMEs , farmers and direct beneficiaries

> Reduce the cost of capital and its obtaining and increase access to the financial market

Gender & Marginalisation

Reducing rural poverty and inequalities in access to credit for rural population and females

Primary SDGs addressed
2 - Zero Hunger
Zero Hunger (SDG 2)

2.3.2 Average income of small-scale food producers, by sex and indigenous status

2.3.1 Volume of production per labour unit by classes of farming/pastoral/forestry enterprise size

9 - Industry, Innovation and Infrastructure
Industry, Innovation and Infrastructure (SDG 9)

9.3.2 Proportion of small-scale industries with a loan or line of credit

8 - Decent Work and Economic Growth
Decent Work and Economic Growth (SDG 8)

8.10.2 Proportion of adults (15 years and older) with an account at a bank or other financial institution or with a mobile-money-service provider

Secondary SDGs addressed
10 - Reduced Inequalities
Reduced Inequalities (SDG 10)
12 - Responsible Consumption and Production
Responsible Consumption and Production (SDG 12)
15 - Life on Land
Life on Land (SDG 15)
Directly impacted stakeholders
People
Farming families amount to approximately 900,000 people.
Gender inequality and/or marginalization
Populations in communities that live from family farming;
Corporates
Micro, small and medium-sized enterprises (21), particularly those without access to a bank account or to a loan in priority sub-regions
Indirectly impacted stakeholders
Public sector
Ministry of Agriculture and Livestock: backing financing for family farming will allow MAG to meet demand and deal with some of the worst performing regions in the country, as they are currently in charge of agricultural loans family
Corporates
Banks and finance companies that can access populations in remote places
Outcome Risks

> Abuse of the system and lack of loan repayment (16)

> Over-indebtedness of SMEs and small farmers (16)

> Lack of credit history and the need for information ex ante increases the risk of financing and leads to an increase in the required return, to request guarantees. (3. 4)

Impact Risks

Execution risks:> Lack of awareness and the absence of regulation of Fintech solutions (19)

Stakeholders:> High interest rate volatility could make it less attractive for investors and financial institutions to lend (18)

Drop off:> High credit risk and low rate of return on investment (18)

Unexpected risks:> Regulations that prevent scalability of operations

What

Positive impact providing microcredits with a focus on agriculture and MSMEs in order to maintain liquidity and improve their productivity

Who

MSMEs and farmers facing liquidity problems and employees in danger of layoffs, companies that want to develop

Risk

There is a risk that the money will be underutilized due to the limited knowledge and management capacity of the owners of MSMEs and small farmers.

Impact Thesis

Increase financing alternatives to improve agricultural outputs, reduce poverty and ensure food security

Policy Environment

National Development Plan 2030 - Its goals include increasing the productivity of family farming and increasing the share of household income

Agrarian Strategic Framework 2013 - The general objective of Axis 2 of the Agrarian Strategic Framework includes contributing to the process aimed at improving the quality of life with substantive reduction of poverty in Family Farming,

National Financial Inclusion Strategy 2014 - The final objective of the ENIF is to reduce poverty and boost economic growth in Paraguay. Likewise, the Strategy seeks to promote greater financial services in a competitive and safe market. (23)

Financial Environment

Financial Development Agency (AFD) -PROPYMES - Financing for small and medium-sized companies- It is intended for those interested who qualify as subjects of credit

Financial Development Agency (AFD) Mi Crédito - Financing for micro and small companies for operating capital, fixed assets, and productive housing, in terms of up to 5 and 12 years. (26)

Development Finance Agency (AFD) Fimagro- Financing for the purchase of agricultural machinery with terms of up to 6 years. (26)

Regulatory Environment

Law No. 4,457 / 12 establishes benefits for MSMEs. Among them, Art. 34, 35, 36 and 37: Special conditions for access to credits, financing and technical cooperation of MSMEs (12)

Law N ° 5,628 - Which creates the guarantee fund for micro, small and medium-sized enterprises

Law No. 5,669 / 16 Fostering the Entrepreneurial Culture - Fostering the entrepreneurial spirit and culture in all educational establishments in the country

Private Sector

Banco Regional (Paraguay), Nexoos (Paraguay), Sudameris Bank (Paraguay), Banco Itaú (Paraguay), Banco Familiar (Paraguay)

Government

Ministry of Agriculture and Livestock, National Development Bank, Development Finance Agency, Agricultural Habilitation Credit (CAH), FOGAPY, Central Bank of Paraguay (BCP)

Multilaterals

IDB, European Union (EU), World Bank

Non-Profit

Fundación Paraguaya

country static map
Paraguay: Cordillera
Cordillera, Guairá, Misiones, Paraguarí: In these departments are located the traditional peasant population, where the production of self-consumption items is combined with those of rent.
Paraguay: Guairá
Cordillera, Guairá, Misiones, Paraguarí: In these departments are located the traditional peasant population, where the production of self-consumption items is combined with those of rent.
Paraguay: Misiones
Cordillera, Guairá, Misiones, Paraguarí: In these departments are located the traditional peasant population, where the production of self-consumption items is combined with those of rent.
Paraguay: Paraguarí
Cordillera, Guairá, Misiones, Paraguarí: In these departments are located the traditional peasant population, where the production of self-consumption items is combined with those of rent.
Paraguay: Alto Paraná
Alto Paraná is a region with a lot of potential has about 1,200 hectares dedicated to export crops (37)
Sector Sources
  • (I) (United Nations, 2016) (II) (Cambridge University Press, 2020) (III) (Ministry of Agriculture and Livestock, 2013)
IOA Sources
  • (1) (Ministerio de Agricultura y Ganadería, 2013) (2) (Agencia de Cooperación Internacional del Japón & Coordinación Interinstitucional y Multisectorial de Contraparte, 2010) (3) (FAO, s. f.) (4) (Naciones Unidas, 2016) (5) (FAO, s. f.) (6) (Gustavo Baruj, 2017) (7) (La Nación, 2020) (8) (Banco Interamericano de Desarrollo – BID, s. f.) (9) (Ley No 6286 / DE DEFENSA, RESTAURACIÓN Y PROMOCIÓN DE LA AGRICULTURA FAMILIAR CAMPESINA, 2019) (10) (Gobierno Nacional, 2014) (11) (Banco Central del Paraguay, s. f.) (12) (Amalia Almada Alegre et al., 2019) (13) (LEY No 438/94 DE COOPERATIVAS, 1994) (14) (Cambridge University Press, 2020) (15) (InfoNegocios, 2020) (16) (Última Hora, 2020) (17) (Ley N°861 General de Bancos, Financieras y Otras Entidades de Crédito, 1996) (18) (Reuniones sectoriales, 2020) (19) (Ultima Hora, 2019) (20) (FAO, 2019) (21) (InfoNegocios, 2020) (22) (Diana Martínez & David Urrea, 2014) (23) (Melissa Cristina Gosling Rolón, 2019) (24) (Ministerio de Industria y Comercio, 2021) (25) (Ministerio de Agricultura y Ganadería, 2021) (26) (Financiamiento para compra de maquinarias agrícolas, 2020) (27) (CAH, 2021) (28) (FOGAPY, 2021) (29) (Centro de información mipyme, 2021) (30) (Maria Felicia Chamorro Cristaldo, 2018) (31) (Ultima Hora, 2018) (32) (Inversión de impacto en Argentina, 2017) (33) (Horacio Santander, 2017) (34) (Laura Rojas, 2017) (35) (Análisis de PwC basado en información y datos de Prof. Damodaran, 2021) (36) (DGEEC, 2020) (37) (ABC Digital, 2015) (38) (FOGAPY, 2020) (39) (Luis Jiménez & Damián Gualpa, 2012) (40) (BID, 2020) (41) ( La Nación, 2020) (42) (MIC, 2019)