Financial challenges and a range of supporting services to its member cooperatives By Dessalegn Jena

1. OROMIA COFFEE FARMERS
COOPERATIVE UNION (OCFCU)
Financial challenges and a Range of
Supporting Services to Its Member
Cooperatives
By
Dessalegn Jena
July, 2014
Nairobi
1

2. Outline
1. Role of Agriculture and an Overview of the Financial
sector in Ethiopia
2. Efforts of Financing the Agricultural Sector
3. ‘Unique’ challenges associated with farmers’ access
to finance
4. Efforts to Finance the Cooperative Sector
5. Establishment of CBO
6. Establishment of OIC
7. OCFCU’S success in the Last Decade
8. OCFUC’s Support to Farmers
9. OCFCU’s Plan (Immediate – Short-term)
2

3. Role of agriculture in Ethiopia
 Agriculture plays vital role in national
economy
 Agriculture accounts 46.3% of GDP 83.9% of
export and 80%of labour force.
Small scale producers contribute more than
90% of agricultural products.
3

4. An Overview of the Financial sector in
Ethiopia
• Formal Financial Sectors
Commercial Banks
Micro Finance Institutions (MFIs)
Insurance Companies
• Semi-formal Financial Sectors
Cooperative Financing
Saving and Credits (SACCOs)
• Informal Financial sectors
4

5. Efforts of Financing the Agricultural
Sector
• Government Banks
The loan is advanced by guarantee of Regional
Governments
• Micro Finance Institutions (MFIs)
Newly established system to mitigate risk of
default
• Financial Inclusion
• Warehouse Receipt Financing
5

6. ‘Unique’ Problems Associated with
Farmers’ Access to Finance
Agriculture is a less attractive field of business to the
established financial institutions:
 Agricultural sector is considered as high risk
 Perishable products and collateral issues
 High transaction costs (for banks)
Small farm size
Geographically dispersed clients
 Poor Financial management
6

7. Efforts to Finance the Cooperative Sector
Establishment of the Cooperative Bank of
Oromia (CBO) with the following objectives:
To provide ful-filaged commercial bank services
To solve the financial challenges of cooperatives
 To reach the rural community where the other
banks don’t reach,
To expand saving habit in rural communities
7

8. Current status of CBO
As of Dec 31,2013
 Asset Br.7.3 billion birr
Capital =901.34 million birr
Loan portfolio =3.2 billion birr
Coops’ Loan = 27-30%
Recovery rate =98.5%
Branch network = 102
8

9. CBO’s Financing experience.
.
Beneficiaries of Financing
Cooperative societies
Rural and Urban SACCOs
Cooperative Unions
 Cooperative Federations
Activities financed:
Production activities
Processing activities
Marketing activities
9

10. Role of CBO in addressing the financial
needs of Cooperatives
• The loan advanced to cooperatives 30%of total loan
portfolio:
 2012 $12,300,000.
 2013 $15,000,000
10

11. Establishment of Oromia Insurance
Company (OIC)
• OIC was established with a total share capital of $
7.7 million subscribed capital and $ 2.4 million initial
paid-up.
• Cooperatives and farmers in Oromia Regional State,
own subscribed shares capital of $1.3 in the
company .
11

12. Objectives of OIC
 To provide ful-filaged insurance services
 To provide Index based Livestock insurance
 To provide Farm insurance
 To support CBO as sister company
 To address the insurance need of the farmers
 etc
12

13. Role of OCFCU in establishing
CBO and OIC
Initiation of idea and implementation
Major share holder
Major client
Participating in Governance
13

14. Objectives of OCFCU
 To Provide market information to Co-op societies
 To sell their coffee product at better price at local and
international market,
 To improve and maintain the quality, productivity and
sustainability of coffee production
 To provide coffee farmers with social services
 To represent the coffee farmers at all forums
14

15. Farmer
Collector
Supplier
ECX
Exporter
Buyer
Roaster
Farmer
Cooperative
Union
Buyer
Roaster
Retailer
consumer
Retailer
Profit
Profit
Fair Trade
Premium
CooperativeAuction
The Coffee Value Chain
consumer 15

16. OCFCU’s success in the Last Decade
Membership (coops) : 34—311
Farming households: 22,500—288,201
Coffee sales (volume): 126 –-9000 tons
Profit generated: $ 24,000— $ 6.7 mil.
Dividend paid : $22,000—$ 3.4 mil.
Fair Trade premium $74,000---$ 1.6 mil.
Capital: $90,000 - $15.5 mil.
Farmers earning of FOB 35% --80%
16

17. Social Activities
School and related facilities 81
Health post and related facilities 20
Potable water 89
All weather Road 50km
Bridge 7
Coffee processing mills 4
Ware house 46
Flour mills 5
Coffee museum 1
17

18. OCFUC’s Support to Farmers
 Loan advancement to members
 Capacity building (including extension & advisory services)
 Provision of marketing services
 Supply of small farm tools, beehives, etc
 Establishing and supporting savings and credit associations
 Energy efficient cooking stoves
 Job creation (thousands of seasonal and permanent
employees)
 Value chain supporting facilities 18

19. Value chain supporting facilities
 127 wet mills
 26 dry coffee hullers
 2 coffee Processing and Grading Machines
 11 Trucks
 9 vehicles
 5 Buses (services )
19

20. OCFCU’s Plan (Immediate – Short-term)
Coffee roasting industry establishment
Honey processing industry,
Expansion of processing plant
Coffee complex construction
Expansion of income generating projects
20

21. Thank You!
21