Crop receipts: A new financing instrument for Africa
This study (PDF) by FAO, GAFSP and IFC aims to enhance knowledge about Crop Receipts (CRs) and provide guidance to stakeholders engaged in agricultural finance in Africa on how CRs might be adapted for and introduced in Africa. A CR is a bond issued by a farmer or farmer organization to deliver a certain amount of farm produce (crop or livestock) or the cash equivalent thereof at a future date. Against this promise, the buyer or financier advances a certain amount of cash or inputs to be settled at maturity of the bond. The bond can be issued to a processor, an offtaker, an input supplier, a bank, or a financial investor that provides pre-harvest finance against it. The value proposition of CRs rests on three key features; 1) Additional Collateral: CRs create an additional type of collateral by allowing farmers to pledge their future agricultural production, thereby addressing a key ‘access to finance’ challenge; 2) Strong Legal Standing: CRs have a stronger legal basis compared to loans or prepaid forward contracts; 3) Liquidity: CRs are endorsable and tradable, which increases liquidity for the initial buyer or financier. For these features to translate into increased pre-harvest finance, CRs need to be accepted by market actors, which in turn requires certain enabling conditions to be in place. Concerning the enabling legal conditions, the legal framework should be flexible enough to allow the creation of CR-inspired products and structures through existing financing and security instruments. Different commercial entry points for CRs have been identified. They could be further explored through pilots and be eventually integrated into a larger CR portfolio. The way forward in the short-term should include country-pilots and policy and regulatory support. In the medium-term an African Pre-harvest Finance Facility should be established to support pre-harvest financing structures and products which would include at least one of the key features of CRs.