The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE (P175940) Project Information Document (PID) Appraisal Stage | Date Prepared/Updated: 15-Jun-2021 | Report No: PIDA31076 Apr 21, 2021 Page 1 of 6 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE (P175940) BASIC INFORMATION OPS_TABLE_BASIC_DATA A. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Mexico P175940 STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) LATIN AMERICA AND CARIBBEAN 16-Jun-2021 14-Sep-2021 Agriculture and Food Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Nacional Financiera S.N.C., Fideicomisos Instituidos I.B.D. (NAFIN) en Relación con la Agricultura (FIRA) Proposed Development Objective(s) Contribute to expanding access to finance for economic and climate resilience of targeted beneficiaries in selected areas of the country. Components Expanding Access to Finance in Rural Areas Agri-Tech Platform Monitoring, Evaluation and Project Management PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 575.00 Total Financing 575.00 of which IBRD/IDA 300.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing Apr 21, 2021 Page 2 of 6 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE (P175940) International Bank for Reconstruction and Development (IBRD) 300.00 Non-World Bank Group Financing Counterpart Funding 275.00 Borrowing Country's Fin. Intermediary/ies 110.00 Sub-borrower(s) 65.00 Local Beneficiaries 100.00 Environmental and Social Risk Classification Moderate Decision The review did authorize the team to appraise and negotiate Other Decision (as needed) B. Introduction and Context Country Context 1. The country has been experiencing supply and demand shocks to the economy, generating negative impacts on firms, employment, and households. In this context, the implementation of policies to improve the business environment and enable new job creation are critical. 2. Limited access to finance is a critical bottleneck for growth and poverty-reduction in the country. This shortcoming is even more pronounced in the poorer states of the country (in the south and central areas), and the rural finance gap remains large. The traditional constraints to accessing commercial credit, especially by Micro, Small, and Medium Enterprises (MSMEs), appear to have deepened in the COVID-19 context. The agriculture sector is severely impacted by this situation. Measures to support access to credit for productive purposes, especially in rural areas, during and post pandemic crisis, is critical not only for survival of many enterprises but also a broad-based socio-economic recovery. Sectoral and Institutional Context 1. Integrating adequate financial products and services into agri-food systems can also help improve the socio- economic conditions of small/medium food producers. Mexico’s formal financial sector is small, its rural credit system is underdeveloped, and access to credit by medium and small-scale Rural Production Units (RAPUs) is limited.1 Around 78.5 percent of the RAPUs in the country have limited access to credit and are forced to rely on non-traditional and informal financial services. Interest rates for RAPUs tend to be higher than rates paid by larger businesses (in 2018, interest to small businesses was 13 percent). 1 National Survey of Financial Inclusion. CNBV, 2017. Apr 21, 2021 Page 3 of 6 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE (P175940) 2. Removal of key constraints to financial services would contribute to increased private investment and agri- business development. There are significant constraints that have prevented a more substantive participation of commercial sources of financing, which, if removed, would contribute to increased private investment. The main obstacles are: (i) problems of asymmetry in the information (mainly between FIs and producers); (ii) lack of reliable data on profitability, environmental conditions, vulnerability to adverse weather events, land quality, etc.; (iii) unsecure/uncertain land tenure and reduced collateral, together with limitations for using other capital assets as collateral; (iv) lack of accounting data and of verification of historical incomes; (v) low levels of financial literacy and credit background; (vi) general perception in the financial sector that agriculture is too risky and returns too uncertain; (vii) small farm size and low level of organization; (viii) remoteness and small size of plots leading to higher supervision costs; and (ix) financial intermediaries normally lending for the short-term (due to the structure of their resources) and significant reluctance to lend for medium- and long-term investments. 3. In this context, Trust Funds for Rural Development (FIRA, by its acronym in Spanish) is a key public second-tier development bank, with the mission to promote the consolidation of an inclusive, sustainable, and productive agri- food and rural sector. FIRA offers credit and guarantees, training, technical assistance, and technology-transfer support to the agriculture, livestock, fishing, forestry, and agribusiness sectors in Mexico. C. Proposed Development Objective(s) Development Objective(s) (From PAD) Contribute to expanding access to finance and improve the economic and climate resilience of targeted beneficiaries in selected areas of the country. Key Results PDO Theme PDO Indicator Expanding access to finance Volume of sub loans disbursed under the Project Improve economic resilience Number of rural producer units (RPUs) receiving advance payments for their agricultural production, disaggregated by gender. Number of rural producer units (RPUs) receiving information through the new Agri- Tech platform, disaggregated by gender. Improving climate resilience Volume of subloans incorporating climate-smart agriculture practices. D. Project Description 4. The proposed Project aims to promote rural financial inclusion and the promotion of economic and climate-resilient agri-food systems by supporting FIRA, the implementing entity, to: expand access to finance for productive purposes, and improve the quality and availability of information and financial instruments through . development of a new digital Agri-Tech Platform. the . Legal Operational Policies Triggered? Projects on International Waterways OP 7.50 No Apr 21, 2021 Page 4 of 6 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE (P175940) Projects in Disputed Areas OP 7.60 No Summary of Assessment of Environmental and Social Risks and Impacts . E. Implementation Institutional and Implementation Arrangements 5. The Development Bank Nacional Financiera (NAFIN) will be the borrower and the National Trust Funds for Agricultural Development (FIRA) is the Implementing Agency. . CONTACT POINT World Bank Tomas Ricardo Rosada Villamar Senior Agriculture Economist Ashwini Rekha Sebastian Agriculture Economist Daniel Ortiz del Salto Financial Sector Specialist Borrower/Client/Recipient Nacional Financiera S.N.C., I.B.D. (NAFIN) Ivan Cornejo Villalva Director of International Financial Organizations ivcornejo@nafin.gob.mx Implementing Agencies Fideicomisos Instituidos en Relación con la Agricultura (FIRA) Alan Elizondo Dirrector General aelizondo@fira.gob.mx Apr 21, 2021 Page 5 of 6 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE (P175940) FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects APPROVAL Tomas Ricardo Rosada Villamar Task Team Leader(s): Ashwini Rekha Sebastian Daniel Ortiz del Salto Approved By Practice Manager/Manager: Country Director: Jutta Ursula Kern 16-Jun-2021 Apr 21, 2021 Page 6 of 6