Warehouse receipt systems (WRS) are increasingly being seen as an essential institutional component in programmes aimed at modernising and improving the efficiency of agricultural marketing systems. WRS is also viewed as an asset in improving access to finance. The system aids farmers in mobilising agricultural credit by creating secure collateral that financial institutions find credible to secure and unlock credit.
Still wondering what is WRS? Well, it is a loan extended by a bank, a micro-finance institution or a supplier that is secured by collateral created using a crop stored in a warehouse operated by a third party or collectively by a representative group of farmers.
The utility of WRS led participants at the Fin4Ag Conference: revolutionising finance for agri-value chains to consider how warehouse receipt finance can be scaled up for maximum impact.
Session 32: Creating critical mass in warehouse receipt finance, which was chaired by Kofi Adomakoh, Director – Project and Export Development Finance, African Export Import Bank, Egypt, looked at what should be done to make warehouse receipt finance accessible to a larger number of value chain players. Appropriately, such a conversation also considered how to shift focus to public warehousing, ways of spreading out collateral management and ways to incentivise banks to do more warehouse receipt finance.
The question of critical mass is of particular importance in these conversations as that is the key to enabling change. Therefore, Dr. Gideon E. Onumah, Agricultural Economist/Rural Finance Specialist, University of Greenwich, United Kingdom, exploration of ways of creating critical mass/scaling up warehouse receipt finance was especially timely and useful.
He noted that inspection companies are pulling out from warehouse receipt financing rather than expanding. This, he said, limits scope of stock monitoring. These challenges are constrained by demand side issues that limits oversight capacity of clients and financiers. And these issues bring to the fore matters of negotiability, as non-negotiable warehouse receipt systems will limit utility and the promotion of trade. These occurences will in turn negatively affect the prospects of effectively using trading platforms to ease liquidation risks.
So, Dr. Onumah fittingly called for better oversight systems by financiers, as well as having independent financiers. According to him, this will help in ensuring easier physical access to smallholders and better storage of household food services, as well as reduce the cost of services and facilities.
“Some challenges faced are oversight issues as it is difficult at times to know who is in charge. There is also scale diseconomies and non-transferable warehouse receipt systems limit and weaken quality assurance systems, which [ultimately] limits trade potential,” said Dr. Onumah.
He notes that expanding public warehousing will ensure there is wider access and locally traded commodities. It also fosters structured trade as it will ease liquidation problems for financiers, which will benefit farmers and traders.
“Combining structured trading and financing systems enhances price risk management. It is also important to strengthen aggregation and collective marketing capacity of farmer organisations,” added Dr. Onumah.
Bohay Nicomed, Senior Manager Agribusiness & Syndications, CRDB Bank Plc, Tanzania, agreed with Onumah during his exchange with participants about his bank’s experience commodity based lending since year 2000.
Nicomed shared that “most village warehouses are small with capacities that do not make economic sense to run warehouse receipt system. These are therefore used as collection centres”.
He noted that innovation in payment solutions – like mobile phones, debit cards and card less payments – under warehouse receipt systems will help in ensuring prompt payments. However, warehousing systems will require an enabling environment, through legislation, establishment of a regulatory authority and having licensing of operators, to reach critical mass.
Photo: Neil Palmer/CIAT
Blogpost by Bob Aston, Social Reporter for the Fin4Ag Conference.