AB BANK ZAMBIA

AGRO FINANCE
RISKS, MITIGATIONS AND DEPARTMENTAL DEVELOPMENT
Credit Risks
• Definition:
• Risk is the uncertainty of a return or the possibility of a loss
• Credit risk is the potential that a borrower may not repay the loan or
that the lender may lose the principle of the loan and the interest
associated with it.
Main Risk Factors in Agro Finance in
Zambia
1. Unpredictable government intervention and weakness in the legal
framework
2. Limited understanding of agricultural markets and limited expertise
in agricultural financing among lending institutions
3. Poor risk management practices and limited financial analysis and
management practices within the agricultural sector
Main Risk Categories
The main categories of risk are:
1. Profile related risks
2. Family risks
3. Sporadic Risks
PROFILE RELATED RISKS
Three Main profiles:

1. Crop Farmer
2. Vegetable Farmer
3. Livestock Farmer
Crop Farmer
MAIN RISKS MITIGATION
• Main income is at time of grain • Coincide the instalments and
marketing maturity with the grain
marketing season
• Carefully assess the offseason
activities to properly determine
offseason income
• Drought spells • Take a conservative approach
Crop Farmer Cont.…
• Market Risks
• FRA offers a higher price for • Proper probing
maize but often delays to pay
the farmers
• Private buyers pay cash offer
very low price, sometimes even • Careful probing
purchase by barter
Vegetable Farmer
RISKS MITIGATIONS
1. Irrigation
• Borehole (water table drops • Deepen the borehole to follow the
below borehole) water table in dry seasons
• Dig wells (external mitigation)
• Stream (dries from Sep to Nov)
• Rent land on sections of the stream
that don’t dry
• Other activities(micro activities)
• Maturity not covering the dry
period
Vegetable Farmer Cont.…
RISKS MITIGATIONS
• Reduce on vegetables to grow • Take conservative approach or
seasonal maize avoid maturity coinciding with
maize growing season
• Kaloba • Take a conservative approach or
do a proper assessment of the
farm dynamics
Livestock Farmer
RISKS MITIGATIONS
• Diseases • Proper management practices
• Economic shocks e.g. inflation • Short maturity
which pushes up the prices of
inputs such as feed
FAMILY RISKS
• Joint ownership of assets,
especially land by family
members
• Keeping of assets at other family
members’ home
• Polygamous families
• Attach an influential family
member as a moral guarantor or
let them be aware of the loan
• Attach that family member as
moral guarantor
• Attach at least another wife as
moral guarantor but have the
first wife as the co-signatory to
the loan
SPORADIC RISKS
• Sporadic diseases and pests e.g. • Keep abreast with current affairs
army worms, swine flu, bird flu, in order to anticipate certain risk
foot and mouth disease, Tuta and avoid being caught
Absoluta unawares
• Sporadic economic shocks such as
the devaluation of the Kwacha
against major international
currencies
• Government policy shifts e.g.
subsidies, import and export
quality