implementing agricultural lending under the tmsef peter bereschka agroinvestbank liaison manager rrs...

Implementing Agricultural Lending

under the TMSEF

Peter Bereschka

Agroinvestbank Liaison ManagerRRS Regional Manager

Presentation to the Rural Finance WorkshopDushanbe, November 29, 2006

29/11/2006 Implementing Agricultural Lending within the TMSEF

33

22 Target Group

Assessment of Agricultural Business

Rationale for Agricultural Lending

44 Credit Conditions

55 Organization of Repayment

11

55 Project Planning


Rationale for Agri-Lending Approach

New TMSEF Agricultural Lending Approach overcomes deficiencies

TMSEF Microbusiness ApproachTMSEF Microbusiness Approach

Relatively stable and regular cash flows enable monthly repayment

Short maturities, no grace period

Analysis of short period of business activity performed in the past as forecast of future repayment capacity

Needs of Agricultural BusinessNeeds of Agricultural Business

High seasonal fluctuations make flexible repayment plan necessary

No immediate effect of investment makes long maturities and grace period necessary

Fluctuating business activity makes analysis of activity performed in the past and forecast of future activities necessary


Target Group

Focus on clients whose income depends to a significant part on:- Crop production

- Production of fruits and vegetables

- Animal husbandry

- Beekeeping

- Providing services and input for agriculture (e.g. harvesting services, fertilizers, machinery)

- Trade and processing of agricultural goods

- Rural non-agricultural activities

Minimal working experience of business: 12 months

Cotton production is excluded from target group


Assessment of client’s Business Skills

(min. 12 months experience in certain activity)

Assessment of client’s Technical Competence

(few seasons of activity in certain field – can be acquired by working in family business, kolkhoz, as dependable worker, through education, etc.)

Business Analysis I


Calculation of cash flow:- Analysis of daily sales from all regular and irregular cash-

generating activities- Analysis of monthly cash flows of business for last

season as basis for forecast of cash flows fur future season (up to 12 months)

following a conservative approach:- Yield on assets purchased for credit are not included into

the future cash flow- Current and expected development of prices of

agricultural products is taken into consideration- Assumption of assets productivity according to the

average productivity achieved in the market

Business Analysis II

Results basis for tailor-made repayment plan


Loan Purpose

Working Capital - purchasing seeds, fertilizers and other goods required for client’s business activity

Harvest Loans - short-term loans primarily for financing renting of machinery as well as additional labor resources

Fixed Assets - new equipment, renovation of farm facilities, purchase of vehicles and tractors used for business purposes, purchase of long term land renting rights, etc.


Maturity

First loan Second loan Third loan

Without 70% hard collateral 12 months 18 months 24 months

With 70% hard collateral 18 months 24 months 24 months

Maturities over 12 months should be granted only of the loan purpose is increase of fixed assets


Up to 3 months if credit up to 12 months

Up to 6 months if credit over 12 months

Grace period can be granted for any instalment within the maturity (for instance – 7th, 8th and 12th instalment).

Grace Period


Standard scheme of equal monthly instalments

Quarterly scheme, where interest is paid monthly and principal will be paid quarterly

Tailor-made repayment plans adjusted on cash flow with monthly payments of interest and individually defined repayments of principal (foreseen for a later stage of the project)

Remark: Monthly repayment of interest obligatory as one of the most important monitoring tools!

Repayment Schedule


Collateral

Hard Collateral Soft Collateral

Gold Domestic goods of value

Real Estate Business Equipment

Term Deposits Inventory (including livestock)

Harvesters and Tractors Future harvest

(Right of long-term rent of land)

(Vehicles)

At least two types of collateral are required for each loan (mixed collateral)

Guarantee letters issued by institutions or physical persons are accepted


Interest Rate and Commission

Interest rate identical to rate of standard loans because:

Product is not cheaper – more travel expenses, analysis more complicated and time-consuming

Risk of default higher due to high seasonality and vulnerability to external shocks

Significant difference between to standard and agricultural loans increases risk of corruption, manipulations, and adverse selection

Commission applied for disbursement in order to:

Cover additional expenses and compensate the higher risk of the bank

Remunerate loan officers and branch managers for additional workload


Loan amount of up to USD 10,000 in the starting phase

Disbursement in up to three tranches possible

Formalization of credit lines based on registered collateral facilitates taking of repeat loans

Parallel loans within the framework of a a credit line possible

Particularities


Repayments can be done from any of the bank’s branches or entitled outlets

Cooperation with other banks via money transfer

Scheduling of repayments on the same day for a local group of customers- Employment of money collectors for remote areas- Self-Organization of the repayment group

Organization of Repayment


Project Planning

ProjektPlanning &

Kick-off

PilotPhase I

PilotPhase II

Roll-Out in more

TMSEF Branches

2 months

Adjustment of TMSEF Agricultural Lending Procedures and Conditions

Set portfolio projections

Selection of 6 LOs from existing TMSEF lending units selected for the pilot phase

Training of Loan Officers for Agricultural Lending

Start of Pilot Phase in two branches of one partner bank,i.e. Kulyab, Gissar, Kurgan-Tyube

Start of Pilot Phase in two branches of two partner banks,i.e. Kulyab, Kurgan-Tyube

Review of pilot phase (targets, portfolio quality, experience, etc.)

Implementation of recommendations by project management

Expansion of product to more branches and partbner banks

2 monthsDecember 2006 Ongoing

TMSEF Agricultural Lending is based on existing TMSEF lending organization and procedures


THANK YOU FOR YOUR ATTENTION!!!

implementing agricultural lending under the tmsef peter bereschka agroinvestbank liaison manager rrs...

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