Customer and portfolio development
It is crucial for our organisation to continually improve and diversify our lending portfolio to maintain a healthy risk balance. Equally, we must prioritise the development and support of our existing borrowers within the Society.
As per the 2022 Social Accounts report, numerous organisations faced export delays attributed to the global logistical crisis and the limited availability of sea freight containers. These challenges primarily led to extended contract delivery times, elevated operational expenses, and postponed payments from buyers. We also reported supply chain delays, along with a shortage of fertilisers and other essential agricultural inputs, which led to a surge in prices, often making them unattainable. This was exacerbated by the conflict in Ukraine, as a significant portion of fertiliser is produced in Eastern Europe.
CSAF State of the Sector 2023
Shared Interest is one of the founding members of the Council on Smallholder Agricultural Finance (CSAF). Within CSAF, members gather to exchange insights, establish industry norms, and promote good practices. They also work collaboratively with other stakeholders to address challenges hindering market growth and overall impact. This collaboration and its contributions are detailed in the CSAF State of the Sector 2023 report, which covers the period January to December 2022 (Appendix 6).
This report states that one of the prevalent risks faced by members relates to organisational challenges within small and marginalised producer organisations, often characterised by inadequate governance and subpar financial management. This issue is especially pronounced among emerging enterprises, and it may have contributed to the trend of some CSAF lenders gravitating towards larger loan sizes in the past decade. Shared Interest is committed to lending to the more marginalised smallholder farmers and artisans despite the below-market financial returns, and we are hoping to continue to deepen our impact.
You can read the full Social Accounts document here.
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Net Reduction of Customers
For the second consecutive year, we have seen a reduction in our total number of customers. By the end of September 2023, there were 173 Shared Interest customers, consisting of 153 producer groups (2022: 165), 70 in Latin America, 82 in Africa, and one in Asia, together with 20 buyers (2022: 20) 13 in Europe and seven in North America.
The number of customer accounts that have been closed has exceeded the number of new customers added, resulting in a net reduction in the portfolio of 12 accounts. In total, 15 customer accounts were closed in the last financial year. Reasons for closure include but are not limited to, poor management of our funds resulting in unreasonable delays in repaying our lending, uncertainty about the future use of funds due to poor performance on managing the market volatilities, key changes to decision makers making operations too risky, poor financial performance including high losses almost leading to insolvency and high debt defaults, an unwillingness to provide security even if this is available, and lower interest rates elsewhere.
Only three new customers were added as the Lending Team temporarily focused their attention on the management of existing accounts, annual reviews and debt recovery. There was also staff rotation in the South American region which also had an impact. The low level of new accounts is something we are mindful of, as it is important for us to replenish the portfolio. We continue to work in line with our strategic plan, which emphasises the need to look for innovative ways to support producers in adapting to climate change, reaching new markets, and further diversifying our portfolio.
