Private Agriculture Sector Support (PASS) - PASS subsidy Loan and Guarantee administrative costs Privat jordbrukssektorstöd (PASS) PASS was established in 2000 to stimulate investment and growth in commercial agriculture and related sectors by providing business development and financial services to small and medium agribusinesses, to stimulate investments and promote growth of commercial agri-businesses in Tanzania, for enhanced inclusive economic growth and poverty reduction.

As such, the target group is mainly small agribusinesses who are unable to get a commercial bank as they lack collateral, information and knowledge on how to develop business plans or how to apply for a bank loan. PASS also collaborates with medium seized businesses who's activities have positive effects on the main target group such as smallholder farmers or sub-contractors.

PASS charges the banks a fee of 3-4 % depending on the guarantee provided, a cost which is not affecting the client. The reasons being sustainability and avoidance of market distortions. Instead, PASS can assist the clients in comparing banks and the collaboration also at times reduces the interests rates as banks see a lowered risk.

Sweden views PASS as a highly relevant partner in its role as an intermediary who understands both the banks and the agribusinesses, assists in making unbankable clients bankable, lowers the risk for both banks and clients, and contributes to unleashing the potential of Tanzanian agribusinesses and economic development. Also, PASS contributes to banks' increased knowledge about the agriculture sector and thereby, addresses market failures and information asymmetries.

Sweden will, extend a guarantee of 20 MUSD to complement PASS’s current guarantee scheme to support bank’s lending to clients in the agriculture sector. Sweden’s guarantee is not cash funded, but a paper guarantee backed by the government of Sweden (rated AAA by Fitch, S&P and Moody’s) therefore normally considered a zero-risk in the balance sheet of banks. The guarantee is a portfolio guarantee, Sweden will therefore not be involved in each single transaction but cover 60% of the guarantees provided by PASS who in turn covers up to 60% (80% for women owned businesses) of the lending bank’s risk. Risk sharing with PASS and the banks is important to assure a good quality portfolio.

The main guiding principles that are required to be addressed during partnership are: Environment and climate change, gender equality, and poverty reduction. As such, PASS is required to undertake a simplified environmental assessment and Sweden will support PASS in formulating improved definitions on target groups and 3-4 results with indicators that allow monitoring of progress related to poverty reduction i.e. jobs and incomes, as part of the new strategy development. A gender analysis is also needed, but could be undertaken as part of the new strategy development. Private Agricultural Sector Support Trust - PASS arbetar med affärsutveckling och tillhandahåller finansiella tjänster åt små lantbrukare samt små- och medelstora entreprenörer inom jordbrukssektorn i Tanzania. PASS grundades av Danmarks tillsammans med Tanzanias regering för att stimulera investeringar och öka tillväxten i jordbrukssektorn som försörjer en majoritet av Tanzanias befolkning, framförallt de som lever i fattigdom, och för att på så sätt stödja fattigdomsminskning och ekonomisk utveckling. Idag karaktäriseras sektorn av låg tillväxt, låga inkomster, låg produktivitet och bristfällig infrastruktur. En av de främsta orsakerna till detta är begränsad tillgång till finansiella tjänster generellt och för jordbrukssektion specifikt.

PASSs fokus är således att stödja äffärsutveckling och bidra med finansiella tjänster till framförallt små lantbrukare, företagare och kooperativ. De agerar som en länk mellan låntagare och långivare (banker) och förbättrar låntagares lånevillkor och stödjer affärsplansutveckling. De erbjuder bland annat att stå som garant i de fall låntagaren saknar nödvändig säkerhet för kommersiella banklån, vilket de flesta av PASS klienter gör givet målgruppen. Till liten del stödjer de även medelstora företag om deras verksamhet har positiv påverkan på mikro och små företag såsom underleverantörer.

Enligt banker i Tanzania har samarbetet med PASS bidragit till en ökat aptit för utlåning till små entreprenörer inom jordbrukssektorn, en grupp som tidigare ansetts ha för hög riskprofil. Samarbetet har även resulterat i en minskad risk för banker, en ökad medvetenhet om finansiella tjänster hos lantbrukare och entreprenörer, samt förbättrat bankernas kunskap om utlåning till jordbrukssektorn.

Sida kommer att utfärda en svensk statsgaranti om 20 miljoner USD för att komplettera PASS nuvarande cash-garanti som stödjer bankernas utlåning till jordbrukssektorn. En svensk statsgaranti är en pappersgaranti med den svenska staten (AAA av Fitch, S&P och Moody’s) som garant och garantin bedöms vanligtvis som riskfri i bankernas balansräkning.

I samarbetet med bankerna kommer PASS alltid att vara den frontande organisationen, och Sverige står bakom. Intentionen är att alla klienter kommer att garanteras av en kombination av PASS cash-garanti och en svensk pappersgaranti. Där alla betalningskrav från bankerna kommer till PASS, som i sin tur kräver Sverige på 60 % den garanterade summan.

Då PASS verksamhet ämnar bidra till inkluderande ekonomisk utveckling anses den föreslagna insatsen vara relevant för det övergripande målet i Resultatstrategin för Sveriges internationella bistånd i Tanzania 2013 – 2019 och mer specifikt resultat 2.3 ”Ökade möjligheter för kvinnor och unga att starta och driva produktiva företag”. Insatsen bidrar även till att uppfylla resultat 1.2 ”Utvecklade marknader i jordbruksproduktionen med ambitionen att fler fattiga människor, framförallt kvinnor, har fått arbetet och ökade inkomster. The Private Agricultural Sector Support Trust (PASS) is a facility that aims to stimulate investments and growth in commercial agriculture, agro-processing and related sectors through access to finance in markets, which are currently characterized by low growth, high levels of informality, low productivity, and weak infrastructure. It was founded in the year 2000 by Governments of the Kingdom of Denmark and the of United Republic of Tanzania as a pilot project under the ministry of agriculture. In 2007 it was transformed independent trust, registered as a Non-Profit making and Non-Governmental Organization (NGO) under the Trustees Incorporation Act 2002, and is taxed as charitable organization. The PASS key objectives include:
•Increasing the involvement of small and medium scale private sector entities in agribusiness,
•Providing technical services and financial linkages to small and medium scale agribusiness entities,
•Encouraging formation of producers organizations for market and financial linkages through agribusiness development services.

The role of PASS is to be an intermediary, which understands both the banks and the agribusinesses, and provides business development support (BDS) and financial services through a guarantee fund. PASS supports agribusinesses in the development of appropriate business plans and financial statements for loan applications, provides support during the loan and follows up when of risk of default. As such, it also assists the bank in making unbankable clients bankable and lowers the risk for the bank as well as the client. As a positive external effect, PASS also contributes to banks' increased knowledge about the agriculture sector and hence, by default, contributes to addressing market failures and information asymmetries. The main services provided by PASS to its clients are:
1.Business Development Services (BDS): feasibility studies, development of business plans, capacity building in specific technical areas, organization of farmers into groups (used as focal points for contract farming, input supply credit, produce-price negotiations and provision of advisory services), and marketing and market linkages. The majority (53%) of the business plans refer to farming, followed at a distance by processing (15%) and trading (14%). For sustainability reasons, PASS charges fees to clients for the BDS services provided and loan applications.
2.Financial Services (FS): appraisal of loan write ups in line with banks' terms and conditions and linkage thereof, and partial credit guarantees given to banks to top up inadequate collateral. The average loan amount is TZS 10,000,000 (USD 4 464.29) and the average tenor of these loans is 3 years.

PASS internal knowledge is used to provide business development services to help farmers and agribusinesses to obtain finance while the guarantee scheme is used to mitigate the lack of collateral required by the banks, which enables agribusinesses to obtain formal commercial loans. In addition, PASS' network is large as it is working with 14 banks and covers the whole country which means that they also reach clients in remote areas where the banks are not represented. The main banks in agricultural finance are CRDB and NMB, both in terms of assets as well as the number of branches. The aim is to increase the number of partner banks, in order to have a larger outreach.

PASS uses three types of guarantees:
1.Traditional guarantee: The traditional guarantee covers loans to individuals, borrowers, associations/ groups and companies. Under the traditional guarantee, the PASS client will fill in the application form and a business plan will be drafted. PASS will hold a fixed deposit with partner banks during the first two years of the collaboration, and after this period the deposit will be replaced by an indemnity fund. The partner bank will pay PASS a risk sharing fee of 1% of the outstanding guaranteed loan principal per quarter. Under normal circumstances the value of the loan that can be guaranteed amounts from TZS 7 million (USD 3000) to TZS 600 million (USD 265 000). Currently, the maximum guarantee percentage under the traditional guarantee amounts to 60% (80% in case of loans to women).

2.Portfolio guarantee: Under this guarantee, the bank decides to guarantee loans to their borrowers based on predetermined guarantee criteria and a guarantee product policy contractually agreed with PASS. Under the portfolio guarantee, the bank decides to guarantee loans to their borrowers based on predetermined guarantee criteria and a guarantee product policy contractually agreed with PASS. Every loan booked by the bank under the portfolio guarantee will however be reviewed by PASS and a guarantee certificate will be offered by PASS to the bank. Effectively, the portfolio guarantee does not differ that much from the traditional guarantee. The main difference is that in the case of the portfolio guarantee, the bank will take the initiative, make their own assessment, and PASS only has a review role, whereas in the case of the traditional guarantee PASS will be in the lead and assists with the business plan and the due diligence process. In terms of modalities and characteristics, the loans under the portfolio guarantees adhere to the same criteria as the traditional guarantee loans.

3.Linkage banking guarantee: The linkage banking guarantee guarantees loans from highly liquid institutions to rural financial institutions / small banks to be used only for loanable funds supporting those institutions agribusiness portfolios. The linkage banking guarantee guarantees loans from highly liquid (tier 1) institutions to prequalified rural financial institutions (tier 2) to be used for loanable funds supporting the agribusiness portfolios of these FIs. The funding from the tier-1 FIs can be guaranteed (50%) and the individual loans from the tier-2 FIs to agribusinesses can also be guaranteed (50%). PASS is actively brokering the relationship between tier 2 financial institutions (such as community banks) with CRDB, as the clients of these financial institutions are clearly in need of lower demands for collateral for guaranteed credit. Of course, financial institutions would prefer higher guarantee percentages (50%), which to date could not be considered by PASS. PASS generally offers 30%.

According to banks in Tanzania, the cooperation with PASS has increased the banks ability to provide loans to agri-businesses which were previously seen as too risky, reduced risk due to improved business plans, increased the knowledge among the agro-entrepreneurs in their financial possibilities, and increased knowledge in banks about agricultural financing.

The idea is that if PASS can assist agri-businesses in getting a loan or a larger loan than they would otherwise get, this has a positive impact on assets and earnings which can be used to obtain new loans in the future whereby, after a number of years, a guarantee will not be required. Also, by assisting agribusinesses in registration and applying for formal bank loans, PASS also contributes to formalization of small enterprises in the agricultural sector. PASS does not seek to make non-commercial projects more bankable, nor do they make bad financial institutions better. Loans guaranteed are for projects that are otherwise viable, except that they are not considered bankable.