Context

Cashew processing in Africa has gone through a turbulent period in recent years. The RCN price developments between 2015-2017 mixed with other challenges in the cashew processing sector saw the closure of various West African processing units.

A primary cause of a local processors' inability to compete with foreign buyers is the lack of access to adequate financing, working capital financing in particular.

The challenge in obtaining working capital financing is three-fold:

1. Local banks face a high cost of borrowing (between 5 and 6%), which is a contributing factor to high lending rates (between 9 and 12%). This aspect could be addressed by development finance institutions
2. Generic credit products and loan terms, not adapted to the cashew processing sector (e.g. amortization schedule not aligned with the cash cycle, funding comes in later than needed)
3. Processors enter a cycle of unprofitability as a result of the first two factors, resulting in an inability to pay back loans on time, and developing bad credit history

Considering this, TechnoServe (TNS) and ACA are partnering with support from the Interprofession de la Filiere Anacarde (IFA) to bring together cashew processors with financial institutions and beyond in Benin for one-on-one discussions, sector knowledge sharing, financial product reviews addressing processor needs and the provision of detailed information on conditions for accessing adequate financing services.

The platform for this is currently envisioned to be a 1-day access to finance (A2F) workshop in Cotonou, Benin on September 24, 2019. In addition to a forum for discussion, stakeholders will have the opportunity to engage directly with banks and financial institutions to network and establish a dialogue.

After the forum, both TNS and ACA can undertake follow ups with the processors and banks, intended to further support the facilitation of access and addressing of existing bottlenecks. This will also include support in business planning, risk assessment and “accompanying” the process.

Targeted Audience

The A2F Benin is targeted at cashew processors operating in Benin, with an invitation also to those operating throughout the West African region, who seek suitable financing schemes for their operations. The financial investment counterparts are made up of three tiers of potential investors for the cashew processing business, these are:

1. International development institutions (Tier
2. Social lenders and equity investors (Tier 2a & b)
3. Traditional local banks (Tier

In a descending order each tier is given more emphasis in alignment with their aptness to invest in SME agribusinesses in West Africa, which tend to rather have the characteristics of an entrepreneurial startup than a seasoned fully operational business.

Goal

The overall goal of this workshop is to narrow the gap of understanding between the demand and supply of financing for West African cashew processors.

This workshop is designed to enhance the knowledge on accessing financial opportunities for investment and ultimately increase the financial support potentially available to cashew processors. We see this being achieved through two objectives:

Objective 1: Provide the required support to financial institutions (FIs)

A primary focus is on the first and second tier of inclined or even experienced financial institutions, i.e. development funds, who want to invest in agriculture, especially cashew. The workshop should support them in learning how to consider cashew processing businesses with the correct schemes. For this they are offered cashew business-relevant economic tools and templates to conduct proper credit risk assessment. The third tier made up of the more traditional banks is included in the forum with the rationale of exposing them to the potential of investing in cashew processing. This is in the spirit of achieving a trickledown effect.

TNS experience in Benin has demonstrated that hosting workshops for local banks with the primary objective of enhancing their knowledge of cashew sector dynamics, has not resulted in increased lending to the industry. Identified reasons for this include lack of a long-term portfolio strategy due to changing leadership, limited capabilities within the credit adjudication process, credit products and repayment terms misaligned with the industry cash cycle, and the high cost of funding faced by banks.

Objective 2: Increase Investment Readiness of Cashew Processors

Another key challenge noted by TNS in Benin is the lack of investment readiness on the side of cashew processors. Most FIs require a common information base to kick start their due diligence processes, which eventually leads to a determination on whether or not a potential processor will receive funding? However, our experience has shown that it can take months to gather the required information for a credit request.

The workshop shall critically discuss the feedback of processors and financial institutions when it comes to accessing/granting finance. The objective is that cashew processors through this workshop have the chance to learn more about the financing supply side perspective. This way they can be sensitized through a dedicated working session to understand what they need to pay attention to and how they need approach financing.

Methodology

To supplement observations made by ACA and TNS, we reach out to selected cashew processors (in Benin) and (development) finance institutions with the goal to better understand the “demand side” for and the “supply side” of A2F. The results of the survey are anticipated to help address key issues that make A2F a challenge for (West) African cashew processors. Furthermore, this survey aims to assess the potential opportunity for financing of various cashew processors in Benin.

The first half of the workshop itself shall provide an overview of the cashew sector highlighting a typical operational cycle of cashew processing. Following this we landscape the current demand and supply situation based on the survey results collected. The aforementioned presentations (sector and operational cycle overview + survey results) shall set the scene leading then to a panel discussion where the information is reflected. The panel ideally opens with two different processors based in Benin sharing their individual experiences with A2F (one processor with international equity financing experience, the other with experience in accessing local means of financing). This then opens the discussion where three different FIs, ideally representing each tier, are encouraged by a moderator to discuss the experiences and their role in supplying A2F. In the second half of the workshop two breakout learning sessions are hosted; one for the FIs and the other for cashew processors. One session is targeted at credit risk officers and the other at managers of processing factories. Each breakout session includes a learning objective as well as a discussion. After these breakout sessions the actors are brought back together to share what insights they have drawn from the breakout session, i.e. how a FI can accommodate to a cashew processor’s needs and vice versa. At the end of the workshop there will be opportunity for actors to mingle and benefit from face-to-face time. In the long run the goal is to, based on this first “get to know each other”, facilitate tangible B2B meetings.

Expected outcome

Over a period of one day,

1. Financial institutions have an improved understanding of cashew processing in Benin and have the support they need to lend or invest in cashew processing, allowing them to in future better advice processors and adjust the products and services they can offer.                                       
2. Cashew processors gain a better understanding of funding requirements for cashew processing business based in Benin.

Tentative Program Outline: