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Warehouse Receipts Financing in Senegal

Project Development Objective (PDO)

The overall objective of the project is to help the government of Senegal establish the legal and regulatory framework and industry standards required for the introduction and scale up of warehouse receipts financing with the ultimate goal of increasing access to finance for value chain actors in the agricultural sector.

Background

The agricultural sector faces a number of challenges when trying to obtain financing, including substantial production seasonality, weather and policy risks, quality and storage issues, and the inability to offer collateral. Indeed, farmers do not possess clear land titles, and lending against future harvests is complicated from a risk management perspective. In more general terms, the banking system is unfamiliar with sector risks, and financing is constrained by the limited and encumbered fixed assets that could be used as collateral. These problems are not limited to farmers. Further along the value chain, processors and traders, who depend on farmers’ outputs, need working capital to procure the products that will be processed or commercialized. 
Using a warehouse receipts system to unlock the collateral value of inventories that farmers and traders manage would clear the first hurdle to relieving constraints on access to credit. To scale up warehouse receipts financing in Senegal, the country needs a full-fledged warehouse receipts system backed by a proper legal and regulatory framework.

Activities

In collaboration with the Finance and Markets Global Practice, the Trade and Competitiveness Global Practice intends to help the government of Senegal establish a warehouse receipts system, including the legal and regulatory framework conducive for financial institutions to offer credit to smallholders and small and medium enterprises operating in the agricultural sector. This approach will involve a combination of activities. The funding sought from the FIRST Initiative would be used to support the introduction of a legal and regulatory framework and the development of industry guidelines. 
The activity funded by the FIRST Initiative will be an important precondition for the other activities to be successfully implemented and will consist of the following: 
1.  Supporting the development of a legal framework that will define (a) the types and legal status of
     warehouse receipts, (b) the rights and obligations of warehouse operators, and (c) the legal
     foundation of the regulatory body of the warehouse receipts system
2.  Supporting the development of industry-wide operational guidelines for a model of supervised
     (private) warehouse operations (These guidelines will focus on warehouse quality, inspections,
     grading, and commodities standards [critical elements to ensure that value chain actors, 
     financial institutions, and other stakeholders will be able to trust the quality of the goods
     used as collateral through the use of warehouse receipts].)

Expected Outcomes

The proposed technical assistance project is expected to lead to the following outcomes:
Financial sector development
Increased access to financing for agriculture value chain actors because of the following:
1.  Introducing financial institutions to warehouse receipts financing 
2.  Having licensed warehouses adopt industry standards and participate in warehouse receipts
     financing
Enabling environment
1.  Enacting warehouse receipts system law and regulations, thus enabling the development of
     innovative financial products backed by commodities 
2.  Having industry-wide operational guidelines and quality standards available for use by
     authorities, supervisors, and warehouse operators