Sri Lanka to launch new warehouse storage and receipts system with World Bank assistance
Sri Lanka will be launching a negotiable warehouse receipts system with World Bank assistance to help farmers gain access to loans from banks and avoid difficulties in the sale of agricultural commodities.
This will be a major step towards the setting up of a commodities exchange on the directions of Finance Minister Ravi Karunanayake, a senior Finance Ministry official revealed
Negotiable warehouse receipts allow transfer of ownership of any agriculture commodity stored in a warehouse without having to deliver the physical commodity.
These receipts are issued in negotiable form, to be used as collateral for bank loans, he disclosed.
Warehouse Receipts financing facilitates the dual purpose of providing a value chain service to farmers through warehousing, and access to credit simultaneously against stored produce.
Construction of warehouse facilities have begun in Anuradhapura, Moneragala and Mannar under World Bank funding to establish a new mechanism to provide financial assistance to dry zone farmers by providing high standard warehousing facilities.
It will help them to obtain a higher income during the off-season than the prices they could get for their products during the harvesting periods, he disclosed.
A massive warehouse with a capacity of 500,000 tons was built in Galenbindunuwewa in the Anuradhapura District providing storage facilities for grains and cereals including paddy, corn, maize, soya bean, green gram, and black gram.
The warehouse which will be managed and maintained by the Regional Development Bank (RDB) was scheduled to be opened by Minister Ravi Karunanayake yesterday.
The World Bank has provided concessionary funding of US$6.5 million for this project. The RDB will maintain the warehouse complex while providing marketing facilities for farmers, the newly appointed chairman of the bank Prasanna Premaratna told Business Times.
The project aims to increase agricultural productivity and livelihoods in rural areas of Sri Lanka by strengthening key aspects impacting agricultural production and training and capacity building of farmers groups and other key stakeholders, he disclosed.
This was a pilot approach to addressing the problem of low productivity growth, appropriate access to financial services, and enforcement of good agricultural practices to ensure good quality produce that can fetch good practices after storage, he pointed out.
The RDB is a micro-finance lender to rural community, and uses its extensive network of 266 branches to manage loans and mobilise deposits, he said, adding that the customer base of the bank is around six million.
The bank has been selected to manage the warehouse in a transparent bidding process after making an expression of interest, he revealed.
Crop prices usually decrease drastically during the harvest season but after three to six months the prices may double or triple.
Farmers without storage are compelled to sell their produce when market prices are low. Traders often exploit this situation.
They have storage facilities and can sell with a good profit margin once market prices improve.
RDB has stepped in to find buyers and sell their produce to them at reasonable prices with the mediation of the bank, Ajith Alahakoon, RDB Deputy General Manager said.
“The warehouse receipt system is an arrangement that solves two problems: the lack of storage facilities in the district and the difficulty of obtaining credit,” he emphasised.