Agricultural Financing in Haiti: Diagnosis and Recommendations

Agricultural Financing in Haiti Diagnosis and Recommendations © 2019 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This volume is a product of the staff and external authors of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non-commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. 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Photo Credits: World Bank Photo Library and Shutterstock.com FINANCEMENT AGRICOLE EN HAÏTI Table of Contents Abbreviations and Acronyms ................................................................................ V Acknowledgments.................................................................................................. IX Introduction and Executive Summary................................................................... 1 The Agricultural Sector in Haiti ........................................................................... 11 Agriculture: A Decisive Sector in the Haitian Economy ............................................ 11 The Multipurpose Family Farm: The Basis of Agricultural Production in Haiti................................................................................................................................... 12 Agricultural Production: Local Market-oriented, but Insufficient to Meet Demand...................................................................................................................... 15 Export Production: A Small and Declining Share of Agricultural Production......17 Agricultural Value Chains: Reliance on Highly Competitive Networks of Mostly Informal Buyers ............................................................................................... 19 Private Initiatives in the Agricultural Sector..............................................................23 Financial Inclusion in Rural Haiti .........................................................................27 Overview of Financial Inclusion in Haiti........................................................................27 The Rural Population, Financial Inclusion and Indebtedness.................................32 Main Reasons Cited for Lack of Accounts in Financial Institutions.....................33 Financial Offerings for the Agricultural Sector ................................................35 Limited Supply of Financial Services to the Agricultural Sector...........................35 Marginal Involvement of the Banking Sector in Agriculture...................................35 Microfinance and Savings and Credit Cooperatives Sector...................................39 Public Intervention in the Agriculture Sector.....................................................51 Policy and Regulatory Framework Issues ................................................................... 51 Public Intervention Instruments for Agricultural Financing...................................53 Innovative Project Mechanisms .................................................................................... 60 Private Sector and Agricultural Finance......................................................................65 TABLE OF CONTENTS I Recommendations to Promote the Financing of the Agricultural Sector .....69 Evaluate Public Interventions in Agricultural Sector Financing ........................... 69 Complete/Adapt the Legal and Regulatory Framework .........................................70 Enhance the “Financing of Agriculture” Approach .....................................................71 Better Risk Management of Financial Institutions...................................................72 Strengthen Agricultural Sector Demand.....................................................................75 Bibliography ............................................................................................................77 Endnotes................................................................................................................. 79 AGRICULTURAL FINANCING IN HAITI II LIST OF BOXES Box 1: Diversity of Agricultural Activities according to Agro-ecological Environment............................................................................................................13 Box 2: Increasing Poultry Farming......................................................................17 Box 3: The Madan Sara: An Essential Player in Marketing Agricultural Products in Haiti....................................................................................................20 Box 4: The Legal and Regulatory Framework for Microfinance and CECs.................................................................................................................40 Box 5: Mutual Solidarity Fund.............................................................................41 Box 6: Examples of Farm Credit Profitability....................................................47 Box 7: Excerpts from the PSNSSANH................................................................ 52 Box 8: BNC Lajancash.......................................................................................... 55 Box 9: Negative Effect of Caps on Interest Rates ...........................................59 Box 10: Example of FAPAH Coverage................................................................. 62 LIST OF FIGURES Figure 1: Household Agricultural Production Activity.......................................13 Figure 2: Marketing Circuit for Products of Animal Origin ............................. 23 Figure 3: Main Obstacles to the Development of Agricultural Holdings ....... 24 Figure 4: Composition of Haiti’s Population, 2017 ..........................................27 Figure 5: Number of Financial Products used by Adults in Haiti.................... 29 Figure 6: Formal and Informal Savings by Gender, Geographical Area and Income.....................................................................................................31 Figure 7: Money Transfers by Gender and Geographic Area ............................31 Figure 8: Credit and Indebtedness Levels of Haitian Adults...........................33 Figure 9: Main Reasons for Not Holding an Account........................................33 Figure 10: Limitations to the Development of Agrifinance ............................. 53 Figure 11: Perennial Farm Insurance Program .................................................. 75 LIST OF MAPS Map 1: Production Areas of Major Crops.............................................................12 Map 2: Density of Financial Institutions............................................................36 TABLE OF CONTENTS III LIST OF TABLES Table 1: Overview of Agricultural Areas and Average Production per Farm and Crop Type.........................................................................................14 Table 2: Areas Planted and Raw Product Crop Producers ...............................16 Table 3: Access to Accounts in Haiti and Comparator Countries .................. 28 Table 4: Access to Financial Products and Services by Geographical Area and Income Level (%)....................................................................................30 Table 5: Accessibility of Service Points.............................................................. 34 Table 6: Indications of Financial Sector Commitments to Agriculture in Haiti..................................................................................................................... 37 Table 7: Evolution of Bank Credit to the Agricultural Sector..........................38 Table 8: Synthetic Data about the Microfinance Sector and CECs in Haiti, 2017......................................................................................................... 42 Table 9: Evolution of Data on the Sector since 2007 ....................................... 43 Table 10: Portfolio Quality of MFIs ..................................................................... 44 Table 11: Commitments of the Microfinance Sector to Agriculture ............. 45 Table 12: FDI: Special Programs.......................................................................... 57 Table 13: BRH: Results of Incentives..................................................................60 AGRICULTURAL FINANCING IN HAITI IV Abbreviations and Acronyms AFD French Development Agency AIC Alternative Insurance Company ANACAPH National Association of Haitian Credit Unions ANEM National Association of Mango Exporters (Association Nationale des Exportateurs de Mangues) ANIMH National Association of Microfinance Institutions in Haiti ASREC Crop Insurance (Assurance Récolte) ATM Automated Teller Machine BCA Crédit Agricole Bureau (Bureau de Crédit Agricole) BIC Credit Information Office BNC National Bank of Credit (Banque Nationale de Crédit) BRH Bank of the Republic of Haiti, Haiti’s Central Bank (Banque de la République d’Haïti) BUH Bank of the Haitian Union CARICOM Caribbean Community CEC Savings and Credit Cooperative (Caisse d’Épargne et de Crédit) CET Common External Tariffs CFI Investment Facilitation Center CNC National Council of Cooperatives CTG Technical Management Advisor (Conseiller Technique en Gestion) DDA Departmental Directorates of Agriculture DGI Directorate General of Taxes ABBREVIATIONS AND ACRONYMS V DID Desjardins International Development (Développement International Desjardins) DIGCP General Directorate of Credit Unions (Caisses Populaires) DR Dominican Republic FAPAH Haitian Agricultural Loan Insurance Fund (Fonds d’assurance-prêt agricole Haïtien) FDI Industrial Development Fund (Fonds de développement Industriel) FECCANO Federation of Cocoa Cooperatives of the North FI/IF Financial Institution (Institution Financière) FRICS Rural Solidarity Investment and Credit Fund FSV Cofinancing Fund for Agricultural Extension Services (Fonds de Cofinancement des Services de Vulgarisation Agricole) GDP Gross Domestic Product HTG Haitian Gourde ICCO International Cocoa Organization IDA International Development Association IDB Inter-American Development Bank IFAD International Fund for Agricultural Development IFC International Finance Corporation KNFP National Council of People’s Financing (Konsey Nasyonal Finansman Popile) KOFIP Collective of Popular Financing LAC Latin America and the Caribbean LLC/SA Limited Liability Company (Société Anonyme) MARNDR Ministry of Agriculture (Ministère de l’Agriculture) MCN National Microcredit (Microcrédit National) Mds/B Billions (Milliards) MEF Ministry of Economy and Finance MFI Microfinance Institution AGRICULTURAL FINANCING IN HAITI VI MUSO Mutual Solidarity Groups (Mutuelles de solidarité) NFIS National Financial Inclusion Strategy NGO Non-governmental Organization OPA Professional Agricultural Organizations PAR Portfolio at Risk (Portefeuille à Risque) PE Small Business (Petite Entreprise) PGF Portfolio Guarantee Fund PNSSANH National Program and Food and Nutrition Security Strategy of Haiti (Programme National et Stratégie de sécurité Alimentaire et Nutritionnelle d’Haïti) PSDH Strategic Development Plan of Haiti PSNSSANH Food and Nutrition Security Policy and Strategy in Haiti RESEPAG Strengthening Public Agricultural Services Project (Projet de Renforcement des Services Publics Agricoles) RGA General Census of Agriculture (Recensement général de l’agriculture) ROA Return on Assets (Rendement des actifs) ROE Return on Equity (Rendement des fonds propres) SAE Business Support Service SFD Digital Financial Services SME Small and Medium Enterprise SNIF National Strategy for Financial Inclusion (Stratégie Nationale d’Inclusion Financière) SYFAAH Financing and Agricultural Insurance System (Système de Financement et d’Assurances Agricoles) TEG Effective Interest Rate (Taux d’intérêt Effectif ) TPE Very Small Enterprise UNEP United Nations Environment Programme USAID United States Agency for International Development USSD Unstructured Supplementary Service Data VSB Very Small Business ABBREVIATIONS AND ACRONYMS VII VIII Acknowledgments The present report “Agricultural Financing in Haiti–Diagnosis and Recommen dations” builds on the results of a mission that was carried out in the context of the program for “Increasing Access to Financial Services in Haiti”, supported by the Financial Sector Reform and Strengthening (FIRST) Initiative. This report was prepared by Nathalie Assouline (World Bank Consultant) and Tenin Fatimata Dicko (Financial Sector Specialist, World Bank), who carried out a diagnostic mission to Haiti from August 8 to 18, 2018 and who drafted this doc ument. Their work was coordinated by Juan Buchenau (Senior Financial Sector Specialist) from the World Bank Group’s (WBG) Finance, Competitiveness and Innovation Global Practice who was the responsible task team leader. The team would like to express its deep appreciation to the Haitian authorities, in particular the Central Bank of Haiti (Banque de la République d’Haïti) (BRH) and, especially, to Governor Jean Baden Dubois and Board Member Fritz Duroseau, for their cooperation and collaboration during the prepara tion and implementation of the diagnostic, as well as for the feedback they provided regarding the results. In addition, the team would like to thank the other Haitian authorities who supported this effort, and the financial entities, smallholder farmers, MSMEs and “Madan Sarah”, who provided insights into the supply and demand of financial services in Haiti’s rural areas. We would also like to thank Diego Arias Carballo (Lead Agriculture Econo mist), Maria Eileen Pagura, and Caroline Cerruti (both Senior Financial Sector Specialists) and Rachel Sberro (Financial Sector Specialist), all from the World Bank, for their valuable comments on the report. A special thank you goes to Lauren Messina for translating from French into English, Barbara Balaj for editing, and Aichin Jones and Circle Graphics for providing design, layout, and production services. ACKNOWLEDGMENTS IX X Introduction and Executive Summary The Bank of the Republic of Haiti (BRH) has requested the World Bank’s intervention in analyzing the context of agricultural financing and making recommendations to improve the access of agricultural producers and enterprises to appropriate financial services. This diagnosis is part of the World Bank’s technical assistance to the Haitian authorities regarding financial inclusion and financial sector development. Two other reports produced by the World Bank complement this paper, and include: a report about the demand for financial services in Haiti (Haiti Financial Capability and Inclusion Survey, 2018) which is being published, and a diagnostic report concerning the savings and credit cooperatives (Financial Cooperatives in Haiti—A Diagnostic Review of the Sector and its Regulatory and Supervisory Framework, 2017). The Haitian agricultural sector plays an important social and economic role in the country. It employs nearly 50 percent of the population and con tributes to one-quarter of the gross domestic product (GDP). Production is mainly rain fed, and over the last ten years the growth rate has been around 2 percent. Several factors explain this poor performance, particularly the low use of inputs, large parcel fragmentation, low mechanization, high exposure to production risks, and market risks. As a result, only 45–50 percent of the country’s food requirements are covered. Haiti is highly dependent on food imports, and imports 17 to 20 times more agricultural products than it exports. As for exports, they are dominated by mango, coffee, cocoa and vetiver. However, these exports lack competitiveness on international markets. Farmers, numbering just over 1 million Haitians, face low incomes of between $ 100 and $ 200 per hectare (ha), limiting their ability to make productive investments. In addition, their access to formal financial services, particularly to credit, remains very limited and expensive. In fact, only 16.7 percent of rural populations have an account in a financial institution compared to 37.6 percent in urban areas, and only 3 percent have a loan. Yet, indebtedness is significant in rural areas, with nearly 64 percent of the rural population in debt. In addition, 37 percent of indebted rural people are estimated to have an equivalent debt of 2 to 12 months of income, and 23 percent have a debt equivalent to more than 12 months of income. In this context, it is essentially informal lending that makes it possible to finance the various needs of these populations. INTRODUCTION AND EXECUTIVE SUMMARY 1 Several factors contribute to limiting farmers’ access to formal financial services in general and credit in particular. These factors include: the level of organization of most sectors, which remains low with a high proportion of informal actors; lack of adequate collateral (low mechanization of produc tion and fragmentation of land); weak agricultural and rural infrastructure including irrigation infra structure, roads and lack of local storage solutions; and the low level of financial education. Accord ing to the Financial Capability Survey (World Bank 2018), 78 percent of people with low levels of financial education live in rural areas. The supply of financial services in Haiti comes from a multitude of public and private actors, financial and non-financial, formal and informal; however, only a small number of them serve the agricultural sector. The agricultural sector receives a small proportion of formal credit (0.78 percent of outstanding loans recorded on the Credit Information Office (BIC) database as of September 30, 2018), and the financial services offered are not very diversified. Banking statistics produced by the BRH show a commitment to the agricultural sector of Haitian Gourdes (HTG) 636.4 million (US$ 7.5 million equivalent), involving mainly three banks (Sogebank, Unibank and the Bank of the Haitian Union, BUH). The strategy of the two main banks involved in agri cultural credit is to intervene in this area via their microfinance subsidiaries (Sogebank with Sogesol, and Unibank with Microcredit National, MCN) through market segmentation. As for the microfi nance sector, that is, the financial institutions sec tor serving low-income households and micro and small enterprises, it is comprised of institutions such as Limited Liability Companies (LLCs) and mutual funds, and savings and credit coopera tives (CEC). In 2017, these institutions spent about 14 percent of their portfolio financing the agri cultural sector. The institutions most involved in agricultural finance are microfinance liability com panies (SA) and microfinance subsidiaries of banks. Some institutions (Sogesol, MCN) have developed in-house expertise and a methodology adapted to agricultural financing, to which they devote part of their portfolio (between 19 and 22 percent). With a smaller scope, agricultural financing ini tiatives are led by networks of cooperatives and Mutual Solidarity Groups (MUSO). Farmers rely on informal financing from “Madan Sara” who are mostly informal women traders, some of whom pre-finance producers to ensure their supply of the crops, as well as large traders who lend (cash advances) to farmers, producers and to the Madan Sara at rates of 10 to 20 percent on a crop, to be returned most often in kind. The supply of loans and financial services to agri cultural producers by formal financial institu tions in Haiti is severely constrained by a number of factors. These factors include: (i) an aversion by banks to assume the significant risks incurred (production, market), that are not mitigated by appropriate measures and arrangements (insurance/ guarantees); (ii) a lack of in-house expertise to investigate this type of demand, and assess the risks given the largely informal nature of these activities; (iii) the costs and complexity of this type of financ ing; and (iv) the small number of farms of a certain size. In addition, microfinance institutions (MFIs) face specific constraints in developing a financing offer adapted to the agricultural sector, including: (i) access to the resource at an affordable cost and for adequate periods of time; (ii) the low profitability of this type of credit despite the interest rates which are considered high; (iii) a lack of technical capacity and expertise in agricultural finance; (iv) the insufficiency of a proximity network (non-bank agents/agents/ digital finance); and (v) regulatory constraints pre venting SA microfinance institutions from collecting deposits and issuing means of payment. To overcome this shortfall in private sector financ ing, public instruments have been put in place to support the financing of the agricultural sector, but their effectiveness could be improved. Public intervention in agricultural and rural financing in AGRICULTURAL FINANCING IN HAITI 2 Haiti has existed for some time. Indeed, it has been the subject of various initiatives that took the form of: (a) direct financing instruments (Le Bureau de crédit Agricole [BCA], la Banque ANtionale de crédit [BNC] and le Fonds de développement Indus triel [FDI]) and instruments of FDI; and (b) BRH refinancing facilities at concessional rates, as well as regulatory incentives. • Le Bureau de crédit Agricole (BCA) is one of the oldest established instruments; however, only one third of its portfolio is devoted to the agricultural sector. BCA management reports that the institu tion faces serious human resource weaknesses with aging staff and a lack of technical expertise in agri cultural finance. The concessional loans offered has benefited civil servants rather than farmers and has a 30 percent delay rate. The new BCA manage ment is considering a two-part stimulus strategy. The first part is based on technical management advisors (CTGs) specializing in farm business financing and targeting well-structured farm busi nesses seeking a relatively high amount of loan. The second part works through a positioning on the small credit market, specifically through the cre ation and support of 160 Mutual Solidarity Groups, which would represent nearly 5,125 family farms. This strategy aims to mitigate the weakness of internal technical capabilities by seeking chan nels for the distribution of credit. The question of the relevance of committing public funds to such a strategy arises because, on the one hand, there are public and private financial institutions in Haiti capable of performing this type of credit. On the other hand, though, the multiplication of interme diaries generates additional needs for strengthening expertise and controlling the use of funding that is not guaranteed. • The National Bank of Credit (BNC), a public bank, has not been very involved in the financing of the agricultural sector, despite its strengths. Among others, its strengths include BNC’s ability to access public resources, its important network of agencies (40) and its recent commitment to digital finance (Lajancash mobile banking service, which has more than 305 agents). The Industrial Development Fund (FDI), a public instrument under the umbrella of the BRH, maintains advantages for agricultural financing in the country—subject to a clarification of its mandate and a strengthening of its capacities. Indeed, the direct fundraising activity by the FDI on behalf of ministries and/or departmental programs appears to be underperforming. This activity should be evaluated to examine its relevance, as well as its potential counterproductive effects (clientelism, distortion of competition with financial institutions [FIs], etc;). The share of the agricultural sector in the FDI portfolio remains limited, but it is of better quality than the overall portfolio. Reservations must also be expressed about the positioning of the BRH in the FDI, with the BRH playing both the role of supervisor and regulator of the institution, as a single financier and also directly involved in the credit decision (administrator to the credit commit tee). Recommendations for strengthening and clari fying governance were formulated as part of the transfer of FAPAH to the FDI that is currently being implemented. On the other hand, at the operational level, its limited resources and the diversity of its terms and conditions of intervention between those of direct financier (regular funds), the Governmen tal financier (special programs) and guarantee fund could harm its effectiveness and efficiency. Because of its mission to support the productive sector, FDI could play a greater role in developing financing for the agricultural sector in Haiti, subject to clarifica tion of its mandate and the involvement of BRH. Projects are underway with the World Bank and the EIB to provide resources (including for agricultural financing) and to strengthen the capacity of the FDI and clarify its governance over the coming years. In March 2019, the FDI takeover of the Haitian Agricultural Loan Insurance Fund (FAPAAH) initiated under the Financing and INTRODUCTION AND EXECUTIVE SUMMARY 3 Agricultural Insurance System (SYFAAH) Project is an additional opportunity to commit the insti tution to agricultural financing, in particular, by encouraging its refocusing around a refinancing mission and portfolio guarantee to encourage finan cial institutions to sustainably finance the agricul tural sector. The FDI is supported with three years of technical assistance from the Frankfurt Institute to strengthen its governance. The BRH also supports the institution in relation to improved governance. The FDI is also subject to internal audit as part of the audit program of the BRH’s Internal Audit Unit. In addition, the BRH has allocated specialized human resources, including for budget control. In addition, the BRH is committed to a regular supervision of the Fund in the same way as the other institutions it regulates. The BRH is involved in the development of agri cultural finance as part of its monetary policy aimed at ensuring long-term macroeconomic stability. The desired results include: a reduction in foreign exchange outflows related to food imports; an increase in agricultural and agribusiness exports; and a reduction in the country’s vulnerability to external shocks, including price shocks. It has put in place incentives that include the exemption from reserve requirements for bank resources for agri cultural credit and two financing facilities—one for export channels and the other, very recently, for agricultural finance. The latter, whose terms are defined in Circular 113, covers all actors in the agri cultural value chain. An assessment of the impact of these measures on agricultural financing would be useful in assessing the relevance and the need to maintain, adapt or even develop them. The impact is defined in terms of types of agricultural activities financed and the affected segments, as well as in terms of access for all types of financial institutions. At this stage, microfinance SAs (not yet super vised) seem to be a category of financial institution not yet taken into account. However, according to the data, they are among the most involved in the financing of agricultural production. In addition to specific incentives, BRH’s overarching role is to develop appropriate financial sector regulation and supervision of all FI categories in order to pro mote healthy competition between FIs (fairness to the regulation) as well as to allow for the secure development (prudential and regulatory constraints and effective supervision) of financial services and products by all FIs. Several development partners have also funded innovative programs for the development of agricultural finance, but their long-term sus tainability and deployment remains a challenge. The program that most marks the Haitian landscape in terms of agricultural financing is the “System of Financing and Agricultural Insurance” (SYFAAH) Project financed by the Canadian Cooperation1 and implemented by Desjardins International, with contributions from the Swiss and the French govern ments.2 SYFAAH has developed a comprehensive approach to strengthening expertise and reducing risk in developing agricultural finance, albeit on a small scale and with limited replicability. One of the project’s instruments, the Guarantee Fund (Agricul tural Loan Insurance Fund, FAPAAH), is an impor tant asset whose sustainability should be ensured by its transfer to the FDI. However, the current pricing structure does not cover the operational costs of the fund. As for the “improvement of the management of agricultural activity” component through the Technical Management Consultants (CTG), it ends with the conclusion of SYFAAH. Due to the lack of a host structure that is able to cover the operating costs of the GTCs, this part of the project ended in December 2018. The public agricultural advi sory service is unable to integrate them due to a lack of funding. Structures such as BCA, BNC and FDI were able to integrate some of the GTCs. The crop insurance pilot (ASREC), was implemented within the project. It used an average yield index, but was limited in scope and faced an environment that was not conducive to large-scale deployment. The initiative was conceived as an experiment to demonstrate the feasibility of such coverage in the AGRICULTURAL FINANCING IN HAITI 4 country. Thus, the commitment of the insurance companies has been weak. The premium paid by the rice farmers also does not rely on a sustainable economic model because it corresponds to pure risk only, without including the administrative costs that are insured by the project and the reinsurance costs (not foreseen in the device given its small size). Migrating the SYFAAH crop insurance program from the project mode to a commercial mode for the sustainability of the program by Haitian actors also contributes to making this program difficult. In addition, several minimum, commercial and facilitating conditions identified by the project initiator for commercial pilot migration have not been met. The development and sustainability of an agri cultural insurance program in Haiti faces many challenges, including: (i) the lack of a well-defined legal and regulatory framework; (ii) the unavail ability of a series of agro-meteorological data over a period of at least 10–15 years; (iii) the lack of appro priate distribution channels to reach producers; (iv) the low level of financial education of the pro ducers; and (v) the consequent public financial support, often translated by commercial premium subsidies, as well as lack of the collection and man agement of performance data. The World Bank Group supports the Haitian agricultural sector through numerous projects. In particular, these include the Resilient Productive Landscapes Project, which promotes sustainable land management, and the Strengthening Public Agricultural Services Project (RESEPAG II), which has established a co-financing mechanism for sub projects. It is called the Co-financing Fund for Agri cultural Extension Services (FSV) and includes a voucher system to acquire the agricultural goods and services needed for the adoption of technical pack ages from approved suppliers. It is suggested that FIs be involved in establishing these co-financing mechanisms in order to facilitate the liaison of pro ducers to banks and MFIs / CEC. These FIs will not only be able to manage the disbursement of these subsidies, but will also assist producers in the devel opment of business plans and the mobilization of the counterparts through the implementation of savings programs and the granting of credit. In addition, the Climate Investment and Growth Project supports the use of new technologies, including blockchain for the traceability of payments within the value chain; payments via mobile money within the chain; and the digitalization of the securities register. This project should also contribute to improving access to financial services for project beneficiaries. On the basis of this diagnosis, recommendations aim to respond to the main constraints identified in order to promote sustainable financing of the agricultural sector by Haitian financial institutions (Table on pages 6–8). These recommendations focus on the supply of agricultural finance, while also recog nizing the essential role of general agricultural support policies. It is proposed to rethink the public interven tion system Figure on page 9) so that it can mobilized and be complementarily to the private sector through : • an appropriate regulation and supervision, • the promotion of a solvent demand through sup port to agricultural production techniques and farm management. • a review of the role of public institutions so that they can contribute to reducing risks, to facilitat ing the refinancing of all types of institutions, as well as to provide support for the development of digital finance. INTRODUCTION AND EXECUTIVE SUMMARY 5 Summary of Recommendations Evaluate public financing interventions for the agricultural sector in order to redesign the public interventions system for a significant impact: It is about improving coordination, clarifying the policy framework and overhauling instruments and public finance incentives for agricultural financing. Descriptions of Actions Priority Deadline Responsible Establish a technical unit to coordinate / monitor the various measures and instruments used to support agricultural finance. The unit will be comprised of representatives from the Ministry of Finance, the Ministry of Agriculture, the Caravane, the BRH and the professional associations of banks, the CEC and MFIs. H ST BRH Conduct an in-depth evaluation of the different mechanisms and rethink the complementary roles that public institutions can play in promoting private sector agricultural finance: • The BNC can play a role in the refinancing of MFIs / CECs and the direct financing of certain productive segments (agribusiness) and priority sectors. • The BCA can support and strengthen producer organizations to strengthen the demand side aspects in association with the Ministry’s agricultural officers. • The FDI can support the implementation of the partial portfolio guarantee according to the good practices, as well as the refinancing of the MFIs/CEC. • The BRH, in its role as supervisor of FIs, can support the evolution of regulations for better adaptation. It can also support the implementation of incentives that would be monitored and evaluated to ensure they do not generate market distortions between public and private sectors and between different types of FIs. H ST/MT BRH Government Conduct a study on the determinants of the interest rate according to targeted customer segments. Define the appropriate measures to be implemented to reduce the cost of credit for the clients of the MFIs and CECs without jeopardizing their durability. M MT BRH Complete the legal and regulatory framework of the financial sector: Adopt the draft laws on microfinance (after revision), insurance, electronic money, the decree of application for the register of personal security, and proceed to the revision of the law on CECs to improve their professionalization and secure their activities. Update bills that have been submitted for adoption for more than two years to reflect recent developments. H ST BRH AGRICULTURAL FINANCING IN HAITI 6 Descriptions of Actions Priority Deadline Responsible Revise the regulatory framework on CECs to enhance security and encourage initiatives in the provision of financial services to rural and remote populations, including compliance of unauthorized CECs and/or activities. Introduce revisions in the areas of minimum capital, governance, capital, transparency and guidance for CFI members. Give the BRH the exclusive role of registration, authorization and liquidation of CECs, as well as the ability to impose financial penalties, revise prudential regulations in order to put more emphasis on the quality of risk management and regulate exchange management; and improve accounting and auditing rules. Establish a certification process for external auditors and maintain a list of certified auditors)a. H ST/MT BRH Establish/reinforce the risk-based supervision system for MFIs and CECs, adapted to all categories (including subsidiaries of banking groups and microfinance SA. M MT BRH Enrich the “agricultural financing” approach with the “financial inclusion of rural populations”. A rural finance approach that is broader than agricultural credit would reach a wider range of populations. As such, it aims to diversify the supply of financial services (savings, credit, payments, electronic money, money transfers, and so on) to contribute to better financial inclusion of rural populations. Support the development of e-money services and the use of non-bank agents through digitization of state payments to rural populations, as well as payments within value chains of agricultural products (especially exports). M ST/MT BRH Ministry of Finance Public Treasury Strengthen the technical and financial capacities of financial institutions to enable them to take advantage of the development of electronic money by integrating into digital finance and developing their network of agents. M MT Projects Technical Partners FIs Provide technical assistance to financial institutions to adapt and develop a diversified supply of financial products for agricultural and rural finance. H ST Projects Technical Partners FIs Revise the regulations to allow for the adoption of a wider range of financial services, in particular the collection of deposits and the provision of payment methods (especially digital) for non-bank affiliated MFIs. H ST BRH INTRODUCTION AND EXECUTIVE SUMMARY 7 Descriptions of Actions Priority Deadline Responsible Improve the availability and use of risk management tools for financial institutions. Evaluate and adapt the planned partial guarantee scheme within the FDI, ensuring compliance with good practices. H ST BRH FDI Establish the prerequisites for the development of a sustainable national agricultural insurance program including: a public-private partnership with incentives for both demand (producers) and supply (insurance companies). H MT BRH Government Insurance companies Strengthen demand from the agricultural sector through support for agricultural production techniques, farm management and financial education. Refocus the interventions of the Ministry of Agriculture on technical support for producers and assistance to farmers’ organizations, agricultural groups and cooperatives. H ST/MT Ministry of Agriculture Rethink the BCA system, given its limited resources and expertise. Focus its intervention on the Council to improve the solvency of the projects, as well as the support needed to obtain better access to financing for the organizations of producers. H ST Ministry of Agriculture Strengthen the capacities of agricultural cooperatives (for example, governance, operational management, financial management, improvement of agricultural practices, preparation and dissemination of data sheets, and so on) through technical assistance projects. H ST/MT Ministry of Agriculture Establish financial education modules that contribute to the increased adoption of formal financial products and services, including those pertaining to digital finance. H ST BRH Support the professionalization of Madan Sara through the establishment of a collective/association. M MT Ministry of Commerce Source: WB mission Note: BCA = Crédit Agricole Bureau; BNC = National Bank of Credit; BRH = Bank of the Republic of Haiti; CEC = Savings and Credit Cooperatives; CFI = Investment Facilitation Center; FI = financial institution; FDI = Industrial Development Fund; MFI = microfinance institution; H = High priority; M = Medium priority; MT = Mid-term; ST = Short-term. a For more detailed recommendations see “Financial Cooperatives in Haiti - A Diagnostic Review of the Sector and its Regulatory and Supervisory Framework”, World Bank, 2019a. AGRICULTURAL FINANCING IN HAITI 8 Rethinking Public Intervention in Agricultural and Rural Finance Today: Public "duplicate" interventions that compete with the private financing offer Direct financing BCA BNC FDI Guarantees Refinancing BRH Regulation and supervision Vision: Complementary public initiatives that mobilize private financing Promote a solvent demand MARND: agricultural accompaniment BCA: Business Management Support Ensure proper regulation and supervision BRH: Regulations and supervision of FIs Source: WB field survey. Mobilize the offer of private financing FDI: risk management and refinancing BNC: refinancing and support for digital finance INTRODUCTION AND EXECUTIVE SUMMARY 9 10 The Agricultural Sector in Haiti Agriculture: A Decisive Sector in the Haitian Economy Agriculture occupies an important place in the Haitian economy, contribut ing about 20 percent of the country’s GDP, occupying more than 50 per cent of the active population, and constituting the main source of income for rural populations. The country has a variety of ecosystems and microclimates, enabling the cultivation of a variety of crops throughout the year, as well as pro duction over three agricultural seasons per year. (Map 1). The main food crops include rice, maize, sorghum, beans, peas, sweet potatoes, yam, cassava and plan tains. The cash crops include mainly mango, cocoa and vetiver, with attempts at coffee production. The agricultural sector is vulnerable to climate shocks, with the attendant prospect of declining yields for all crops. Haitian agriculture is mostly rain-fed, and it is vulnerable to hurricanes, tropical storms, floods and droughts. According to the International Fund for Agricultural Development (IFAD) (2012), since the 18th century, 140 hazards have affected Haiti. Of these hazards, 84 percent are hydro-meteorological phenomena and droughts (CIRAD 2016). A major disas ter affects Haiti every 5 to 7 years, and an internationally recognized disaster every 2 years. Added to this is the deterioration of the environment (water soils, forests). The area cultivated has increased to the point of exceeding by 20 to 30 percent (MARNDR (2010) those areas suitable for agriculture3. According to the Ministry of Agriculture (MARNDR) (2011), about 85 percent of the country’s watersheds are degraded or have been transformed very rapidly, causing fre quent flooding in the country. Soil erosion is estimated at about 12,000 hectares (ha) per year MARNDR (2011). The United Nations Development Programme (UNDP-HT 2015) and Tufts University (Bueno and others 2008) estimate that the cost of climate change vis-à-vis the agricultural sector in in Haiti could be equal to 10 percent of this year’s GDP by the year 20254. They also point to declining yield prospects for all crops, and up to an 87 percent decline by 2100 for bean cultivation. The growth of agricultural production in Haiti is constrained by low productivity. During the last ten years, the average annual growth rate of the agricultural sector has been around 2 percent. According to FAOSTAT (2014), THE AGRICULTURAL SECTOR IN HAITI 11 Map 1: Production Areas of Major Crops Main Uses of Soil Dense agroforestry-yam & breadfruit Dense agroforestry-yam, banana, breadfruit & avocado Agroforestry and intensive yam production Agroforestry & diverse crops Agroforestry-yam and cassava Groundnut, maize & manioc Beans & maize (Mountains) Beans & maize (deforested mountains) Intensive rice Rice & maize Maize (spring & autumn) & Sorghum Maize, beans, sorghum & pigeon peas Maize, sorghum & pigeon peas+Mesophilic forest Intensive banana production (Arcahaie, Cabaret, Plaine du Nord) Banana (Léogâne, Plaine du Nord) Banana & diverses roots and tuber crops Horticulture (mountains) Sorghum (arid zone) Limited agriculture, pigeon peas Urban areas 0 25 50 km Sources : CNIGS 2012 MARNDR RGA 2009 Réalisation : Septembre 2015 Source: CIRAD (2016). the yield per hectare in Haiti is 900 to 1,000 kilo grams (kgs), whereas in the Dominican Republic it is 3,500 to 5,000 kg/ha. Several factors contribute to this performance gap. Among other things, these include: (i) a low recourse to the use of agricul tural equipment (with about 500 tractors in Haiti, unlike neighboring Dominican Republic which has more than 20,000) (Docteur and Claude 2014); (ii) the low use of fertilizers by Haitian producers (35,000 tons of fertilizer, or 15 times less than the neighboring country); (iii) weak agricultural and rural infrastructure, including irrigation infrastruc ture and roads (the irrigated area is about 75,000 ha or about 7 percent of lowland land, and the road network, estimated at 3,400 kms, [80 percent] is in a poor state) (MARNDR 2011); and (iv) the frag mentation of agricultural areas. The Multipurpose Family Farm: The Basis of Agricultural Production in Haiti The diversity of agro-ecological environments in Haiti allows the vast majority of farmers to diversify agricultural activities to minimize risks, particularly those related to climate. In fact, an agricultural household cultivates about five crops and combines their farming activity with mainly livestock (World Bank 2014). (Figure 1 and Box 1). The average agricultural areas exploited are small and the parcels are fragmented (Table 1). According to the last general census of agriculture (2012), Haiti has 1,018,951 farms with an average of less than 1.5 ha (MARNDR 2010) of land (an average of 0.77 squares, spread over an average of AGRICULTURAL FINANCING IN HAITI 12 Figure 1: Household Agricultural Production Activity Staple foods Livestock Cash crops Agroforestry Fishery 0 10 20 30 40 50 60 70 80 90 100 Source: World Bank (2014a). Box 1: Diversity of Agricultural Activities according to Agro-ecological Environment In dry and semi-arid zones: maize-sorghum-pigeon pea combination with variants (unknown peas, peanuts, cassavas and sweet potatoes), and fruit trees (mangos, coconuts, cashews and tamarinds). In humid and semi-humid plains and plateaus: basic combinations of maize-sorghum-sweet potato manioc-congo pea and banana in the wettest plains; cane-to-sugar in some well-drained areas; and fruit species (mango trees, avocados, citrus and breadfruits). In the irrigated plains: cereals, mainly rice and maize, plantains and a wide range of vegetable crops. In humid and very humid mountain areas: maize-bean-sweet potato association with a coffee system in some places (in decline for a few years due to diseases) in association with banana trees. In higher elevation zones: market gardening crops (however, their extension and development are closely linked to the existence of pathways that make these areas more or less accessible). In all environments: livestock is often associated with agricultural production activities. Goats mainly in dry areas; cattle and pigs in wetlands; pigs in humid and very humid mountain areas. Source : Chancy, M., 2017 THE AGRICULTURAL SECTOR IN HAITI 13 Table 1: Overview of Agricultural Areas and Average Production per Farm and Crop Type Productions Number of Farms Involved Surface Cultivated (ha) Average Surface (ha) Number of Seasons Average Annual Production (Metric tons, (MT) Average Production/ Operation (TM) Average Annual Imports (TM) Annual Exports (TM estimated) Rice + 130,000 +75,000 0.58 3 irrigated 136,097 1.05 479,988 10–15,000 Maize 733,698 393,076 0.53 3 pluvial 307,824 0.42 18,000 10,000 Sorghum 316,939 126,774 0,40 108,880 0.34 — — Haricot 406,757 247,064 0.61 3 98,427 0.24 18,575 — Co