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Lower risks and costs for financial institutions in rural areas

Our advisory services are guided by a holistic approach to sustainable rural development. It combines access to finance for all sizes of farms, agribusinesses, rural enterprises, and households with improved technological solutions and cost-efficient delivery channels.

We offer advisory services in rural development to four main target groups:

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In order to maintain a healthy loan portfolio, agricultural lending requires special expertise and tools to better evaluate the activity of farmers and agricultural SMEs. Hence, we aim to support financial institutions in developing innovative technologies, tools, and financial products, which can be used to overcome traditional barriers with the goal of providing financial services in rural areas, and reducing both risks and costs.

Core Services

Banks and other financial institutions (FIs)

In order to maintain a healthy loan portfolio, agricultural lending requires special expertise and tools to better evaluate the activity of farmers and agricultural SMEs. Hence, we aim to support FIs in developing innovative technologies, tools, and financial products, which can be used to overcome traditional barriers with the goal of providing financial services in rural areas, and reducing both risks and costs. We offer the following advisory services to financial institutions:

Market, Production and Climate Risks

In order to manage these risks in a risk management structure, we work with agronomists who provide concrete advice about agriculture. Using climate maps, they identify climate risks that can be mitigated by with loans.

Credit, Operation and Liquidity Risks

Risk in agricultural lending differs from other types of lending because of agriculture’s seasonality and other externalities. We have established tools and technologies that support financial institutions (FIs) in their management of credit, operational and liquidity risk in agricultural lending. Our advice enables FIs to align practices to existing domestic risk regulations. We foster the creation of comprehensive risk management structures with a set of clear policies and pragmatic guidelines to manage agricultural businesses.

Loan Portfolio Management

The management of risk in agricultural lending is based on the quality of clients' data. IAS helps establish procedures to manage and control risks. Our loan portfolio management services start with an assessment of current portfolio reports and use of our Monitoring Information System (MIS). This is followed by evaluation of current reporting of key indicators in agriculture such as crop, region, maturity, etc. This portfolio classification helps the institution to better identify risks and to make the right decisions.

Monitoring Information System (MIS)

A well-structured MIS is an important tool for managing loan portfolios. But in order to function properly, detailed information is required and must be provided by the risk department. We help our clients select the parameters that will be fed into the data base. IAS works together with the IT department, which at a later point will prepare the reports for the credits department and management.

Agricultural Loan Evaluation System (ALES)

One of the major impediments to agricultural lending is the high cost of evaluating borrower creditworthiness. The specific nature and diversity of agriculture requires sophisticated agronomic know-how. However, it is expensive to use “expert” loan officers to collect and evaluate borrowers and anticipate cash flows. As a result, many agricultural micro, small and medium enterprises (MSMEs) and households remain without access to finance. However, the increasing demand for agricultural commodities, as well as rising competition in the urban areas, has led financial institutions (FIs) to look again at this sector. They demand innovative approaches to implement agricultural loan products with risk evaluation systems that calculate cash flows and thus reduce costs.

In response to these challenges, IAS has developed an innovative scoring tool called ALES.

Loan Agricultural & Risk Assessment (LARA)

Often FIs do not have tools to analyse agricultural loans and risk. To cope with this problem we have developed LARA, which helps loan officers and decision-makers to better understand agricultural loans. LARA enables the analysis of market, production, moral hazard, and climate change risks on the basis of an individual cash flow that integrates all of the farmer’s income and expenses.

Institutional Strengthening

Developing of Policies and Procedures for FIs  

The development or adjustment of procedures to implement and manage agricultural loans is crucial. We take into consideration the local specificities that bear on these products, including the FI’s risk appetite, the competitive positioning in the country’s agricultural and rural lending market, and future targets.

We design policies and procedures for FIs involved in rural and agricultural lending so that they can:

  • achieve efficiency;
  • implement appropriate risk management;
  • reduce costs;
  • respond quickly to clients’ demands;
  • adapt products to real needs.
Organizational Structure   

A well-structured agricultural finance unit guarantees the optimization of operations and adequate control of risks. We support FIs in establishing organizational structures dedicated to agriculture by defining responsibilities towards managing potential risks rising from operations and training the staff.

Training, Coaching, Training of Trainers (ToT)    

To build internal capacities, we offer technical assistance in the form of trainings (classroom lectures, seminars or workshops), on-the-job training, and coaching. In order to sustain rural lending over time and foster growth, we establish "multiplier" mechanisms that institutionalise and ensure capacity-building. Building upon its extensive experience and training programmes world-wide, IAS offers an integrated approach: designing and implementing comprehensive capacity building processes that focus not only on the branch level but also on the regional and head office level. 

To enable financial institutions to continue training activities and ensure knowledge transfer beyond the scope of the assignment, we offer a Training of Trainers programme.  It provides internal trainers with skills to teach training development, material development, and adult learning.

HR Support     

Rural and agricultural lending is a world unto itself.  IAS helps financial institutions to review their network structure and staff capacity, and to make necessary changes in organization and in qualification requirements. Moreover, we provide tailored trainings to staff and assist our clients in hiring new staff for agricultural and rural banking services. We employ agronomists as relationship managers who communicate with rural communities, identify their needs, and guide them if necessary. This enables FIs to bundle financial and non-financial products/services and offer packages for agricultural producers. With this HR strategy, we improve the competitive positioning of the institution in the market, as well as helping it to monitor lending risks.

Product Development

Loan Products       

Product design is an essential element in FIs’ optimization of operations.  Therefore, we offer a full range of services, including market and institutional assessment, product design and definition, product adjustment, value chain identification, pilot test, pilot test assessment, and final roll-out.

Agri-Card      

Since the cash flow cycle in agricultural production does not conform to the monthly cycles of credit cards, IAS has developed a special agricultural credit card called the Agri-Card. It allows agricultural producers to purchase agricultural inputs and repay to the bank during harvest time. Besides operational efficiency, clients can define cash limits for items. It is a way of controlling farmers’  expenses and ensuring that they spend only for agricultural production.

Warehouse Receipt Finance       

Financial instruments, such as warehouse receipts, help institutions reduce the risk of agricultural lending. They also enable farms to access loans while waiting for a better price for their products. In order to work, such schemes must be well developed and legally viable. We support financial institutions that wish to develop this product by identifying strategic partners and establishing links for financial schemes based on warehouse receipts.

Project and Investment Finance       

Some FIs focus on the higher end of the rural and agricultural lending market through agricultural investment and project finance. Financing these large investment projects requires agronomic risk analysis and projection skills. For such clients, IAS works with agronomists and agri-lending experts specialize in a broad range of farming and agriculture products. IAS provides insight into farm business strategy, operations, production, processing, marketing, product diversity, technology transfer, planning labor and machinery, use of machinery and equipment, benchmarking with comparative performance data, quality control, budget and cash flow preparations, financial projections, and credit management. Our consultants transfer both the technical and business skills required to service these select agricultural enterprises.

Value Chain Finance 

Value chains are essential structures in the commercialization of agricultural products, especially for small farmers. Strengthening the links of the chain guarantees that small producers can generate income and repay loans, which will be translated into better agriculture portfolios and thus can reduce costs. Our services identify potential agriculture value chains for financing. We can create or adapt financial products for them, depending on their individual characteristics. This includes financing schemes, value chain mapping, establishing links, implementation of agricultural value chain finance mechanisms, rebuilding and restructuring value chains through innovative financial products, team building to increase the cohesion of actors, and fostering coordination among value chain actors.

Marketing and Delivery Channels

Banking Agents

The high cost of financial services can be reduced using alternative delivery channels. These include banking agents, strategically identified shops, pharmacies, and retailers who increase accessibility to clients. Building such channels increases efficiency and cuts cost for the FIs, thus we support them with strategizing, planning and implementing agency banking as a core delivery channel. Our services include:

  • design of detailed business case
  • market assessment to identify potential businesses that will act as agents
  • definition of the range of services and products to be provided
  • developing marketing materials
  • providing training for a successful launching of the services

Mobile Banking 

Mobile banking is a high-outreach delivery channel that allows rural and urban populations easy access to financial products and services. This delivery channel is cost efficient for FIs and easy for end clients to use. We provide services that help FIs define and implement mobile banking strategies. Our services cover: organizational alignment and capacity building; technology/system requirements identification; risk assessment and internal control definition; product development; marketing and customer education; regulatory compliance; and the introduction of mobile channels.

Marketing for Agricultural Loans

Agricultural products need marketing strategies that take into consideration the characteristics, idiosyncrasies, and environments of rural clients. We help our clients develop a marketing strategy and create appropriate materials. Furthermore, transactions costs for both FIs and clients in rural areas are high. Therefore, as part of a marketing strategy we support institutions to find and establish delivery mechanisms that reduce risk. We also investigate the applicability, required investment, potential risks, and benefits together with the management of the client FI.

Farmers and agribusinesses

Often small and medium-sized farmers lack knowledge or access to technical solutions to commercialize their produce and reach higher yields. It is thus sometimes important to introduce a component in lending schemes to support them technically, either directly or through strategic alliances with service providers. On a larger scale, this will help foster the development of an efficient and market-oriented agriculture industry. We provide a number of services to help restructure value chains and promote sustainable farming.

Farm Management

An optimal farm management structure means a better use of resources and practices in daily agricultural activities. Farm management enhancement will increase agricultural yields and production. We support farmers and agri-business in financial management, project design and planning for new investments, process optimization, the improvement of quality, and introduction of new technology.

Agricultural Best Practices and Advanced Farming

The introduction of best practices and advanced farming methods will increase yields and the quality of agricultural products, while at the same time making them sustainable. For this reason, we teach farmers and agricultural SMEs about crop rotation, use of inputs, correct planting, crop monitoring, harvesting, livestock management, feeding, and the use of medicines and machinery.

Access to Markets

Enabling farmers and SMEs in agriculture to access markets with competitive prices is fundamental to a strong agricultural sector and the income of rural households. We advise farmers and agriculture-related SMEs on the identification of value chain schemes, contract farming, and warehouse schemes. This helps them to complete the full cycle: from production to sale.

Environmental Protection

The sustainable development of farms and SMEs in agriculture helps minimize environmental impact, which is a priority objective in the age of climate change. We work together with agriculture stakeholders on responsible agriculture practices, conservation, energy efficiency and renewable energy generation, and the adoption of climate change adaption measures.

Municipal, public and other multilateral actors

IAS also sees the benefits of working at a macro level in the agricultural sector, for example to develop or improve programmes intended for farmers and financial institutions. Therefore, we offer services to ministries, second-tier banks, and other bilateral and multilateral organizations (AFD, EBRD, KfW, etc.) to support a more competitive agro-sector by offering:

Market Research and Feasibility Studies

We carry out research and data analysis to identify market opportunities for financing agriculture projects, as well as projects in other sectors in rural areas. Our feasibility studies help structure and implement credit lines, as well as to set-up additional financial products and services.

Due Diligence

Funds and donors need information about the FI with which they work in order to understand and optimize their investments. Understanding and carrying out Due Diligences of FIs is part of our core business. After collecting and analysing quantitative and qualitative information, we elaborate reports with recommendations for our clients.

Impact Assessment

We conduct impact assessment studies in order to measure the direct and indirect impact of the program and the achievement of the indicators. Our impact assessments detail not only achievements, but also challenges, which we address with recommendations and lessons learned.

Policy Dialogue and Advice

Agricultural finance is once again an important issue for governments and donors. In order to advise stakeholders properly and design the right policies for them, it is fundamental to understand both financial and agricultural sectors, as well as to have experience on the ground with civil society. We advise our clients and help them to design and implement policies that strengthen the sector.

Development of New Financing and Subsidy Models

Small farmers often require support in the form of subsidies. But a good business strategy for them is much more important. Subsidy schemes in which farmers actively participate can substantially improve production. Thus investments can contribute to the development of the agricultural sector. The IAS develops such models once it understands the structures, needs, and potential of the sector.

Guarantee Schemes

Guarantee schemes have had both positive and negative results. Therefore, it is crucial to develop good concepts, structures, and procedures to implement such schemes. Guarantee schemes, which involve several stakeholders, support the investments of farmers, reduce risk and ensure sustainability for FIs. In our services, IAS takes into consideration all of these aspects and aims to optimize impact.

Fund Management

Some donors see funds with specialized credit lines as a mechanism with which to reach farmers. Some of them are aided by technical assistance, which guarantees the development of tools and technology to serve the sector. We help our clients design and implement such structures.

Conferences and Workshops

We have organized many conferences and workshops on rural and agricultural finance at international and national levels. Such events provide a unique platform for knowledge and experience exchange by bringing together all of the main actors involved in agriculture finance, including key decision makers and government practitioners, the private sector, and leading FIs, as well as regulatory and supervisory bodies. These events are essential to drawing the attention of the regional financial sector to the importance of agricultural finance for sustainable growth, as well as towards new trends in agricultural and rural finance.

Study Tours

Introduction of appropriate incentive mechanisms among FIs staff is crucial for appropriation of the programme by loan officers and achievement satisfactory loan disbursements. Besides financial incentives that could be developed together with the banks’ HR departments and business segments, non-financial incentives have proved to be important. For that purpose, we organize study tours for loan officers/relationship managers to see in person best practices in agricultural and rural banking. Participants also have the opportunity to visit high-tech agricultural facilities in their region.

Flagship Projects

Africa, Caribbean and Pacific Group of States (ACP)

Rural Impulse Fund II

RIF II is a follow-up fund of Rural Impulse Fund S.A., SICAV-SIF (RIF I), a 30M EUR fund which was launched in August 2007. RIF I was the first commercial microfinance fund to deal with the emergence of financially sustainable Microfinance Institutions (MFIs) in rural areas. The pace and quality of investments made by RIF I provided proof to the fact that the demand for rural microfinance is largely unmet by traditional microfinance lenders. Based on this experience, RIF II has been set up in 2010 as a larger fund with a target size of 120M EUR. The fund is a hybrid fund, making both equity and debt investments. It is closed-ended with a lifetime of ten years. RIF II has been developed by Incofin Investment Management (“Incofin IM”), which also acted as initiator and fund advisor to RIF I.

In 2011, IAS was contracted by the European Investment Bank (EIB) under the Cotonou agreement to provide tailor-made Technical Assistance (TA) operations to RIF II portfolio MFIs in the ACP region. The TA was divided into several interventions in different MFIs and included improvements in operational, strategic, financial, managerial, and organizational areas, as well as product design and development of outreach methodologies for rural areas. This means that the TA was not only aiming at institutional strengthening for RIF II portfolio MFIs but was also assisting them in introducing best financial and social practices, which in turn translated in improved overall performance and development of the respective institution. In order to ensure that the investments under RIF II are used in the most effective and efficient manner, each TA intervention was designed according to the identified needs of the individual RIF II MFI.

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Bolivia

Identification of a Financial Structure as Mechansim to Decrease Deforestation and to Increase Sustainable Forest Management

Within the framework of the bilateral cooperation the governments of Bolivia and Germany have signed an agreement to take actions towards forest conservation as well as to reduce deforestation and forest degradation by setting up a mechanism to manage the funds directed to this objective in an efficient and transparent way. In this context Frankfurt School was commissioned to carry out a study to identify and propose a financial structure that will contribute to reduce deforestation and to reach an integral forest management in Bolivia. It is foreseen that and according to the position of the Bolivian government, the proposal will go in the direction of an alternative of REDD through compensation.

The study seeks to identify a financial structure as a mechanism to reduce deforestation and to reach an integral forest management in Bolivia through the following activities:

  • Supply and demand study
  • Analysis of the legal and institutional framework of the market
  • Analysis and management of financial sources
  • Analysis and management of similar/alternative financial sources in Latin America
  • Proposal for the management of the financial sources in Bolivia
  • Proposal for a concept of the identified mechnanisms
     

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Tajikistan

EBRD: TAFF - Tajik Agricultural Finance Facility - Phase II

The TAFF (Tajik Agricultural Finance Framework) programme consists of the TAFF credit line of up to USD 35 million and an extensive technical assistance programme that aims at achieving sustainable economic growth in Tajikistan. The second phase of the EBRD programme is financed by the European Union.


Finance for farmers and agribusinesses is provided through the cooperation with eight partner financial institutions. A comprehensive methodology for short term (seasonal finance for working capital) and medium term agricultural credits (mainly for machinery) has been developed and is now implemented successfully. This approach combines an agro-credit scoring component with the financial analysis of a client.


Besides the lending scheme, TAFF experts are working on the development of a more efficient and market-oriented agriculture and agro industry. The primary objective is to help farmers improve their production and viability, but the program also has a strong focus on structuring the Tajik “small holder” agricultural sector within the value chain context. The TAG (Technical Assistance Groups) system creates a vital link between farmers and other value chain players (machinery suppliers, input suppliers, financial institutions, etc).


Obtaining enhanced market information through sector feasibility studies and analysis of the dynamics of local and foreign markets gives TAFF valuable knowledge and capacity to advocate for supportive reforms. A clear understanding of key constraints and potential of production markets enables TAFF to act as facilitators in creating consensus between different institutions and to attract potential foreign investment into the Tajik agricultural sector.

Training and coaching is a high priority, both in terms of institution building at PI level and of creating sustainability in finance provision to Tajikistan’s rural economy. With a specific Training of Trainers programme a critical number of staff will be trained to secure the viability of the initiative.

For more information contact

For more information contact