rural finance: innovative products and service delivery · rural finance: innovative products and...
Post on 27-May-2018
215 Views
Preview:
TRANSCRIPT
Rural Finance: Innovative Products and Service Delivery
Day 5: Block 1
Reaching Remote Areas: Case Study of XacBank in Mongolia
Rural Finance Practices: Products and Service Delivery
Day 5: Block 2
Reaching Remote Areas Through Savings-led Methodologies
Examples: Reaching Remote and Very Poor through Savings-based
Approaches
• Savings based approach in next slides
– CARE’s MMD Accumulated Savings and Credit Approach
• Other types of savings-based approaches
– SACCOS
– Self-Help Groups (SHGs) in India linked to banks
– SHGs linked to Credit Unions
• HIV
– CARE’s SIMBA program for HIV/AIDS families
CARE International’s Village Savings & Loans (VS&L)
Programme in Africa
Microfinance for the Rural Poor that Works
Poor are Risk AverseThe Theory Behind the Program
• The poor are risk averse• Credit increases risk as the poor assume liabilities• Savings decrease risk: the poor work with their own
assets• Savings are a more desirable service for the poor than
debt finance. Evidence for this is:
– Demand as measured by participation numbers– Some studies on satisfaction
Thus, savings first, credit second and insurance third. (Often poor takes credit as a surrogate for insurance.)
Poor are Risk Averse:What Do They Want?
Characteristics of Services
• Accessible and secure services based in the community
• Transparency and simplicity of transactions
• Low cost services
• High yields on savings
• Ownership and control over profits
Traditional Financial ServicesROSCAs (Rotating Savings and Credit Assoc.)
• ROSCAs provide credit with
– Low transaction cost
– Efficient service delivery
– Transparency
– Safety for savings
• ROSCAs cannot provide:
– Credit matched to investment needs
– Business or emergency loans when needed
– A real return on savings invested
Traditional Financial Services ASCAs (Accumulated Savings & Credit Assoc.)
• ASCAs permit:
– Variable savings rates (although usually fixed)
– Credit when it is needed
– Return on savings, usually in excess of inflation
– Insurance
• Some limitations of ASCAs are:
– Greater complexity
– Elevated risk of theft/robbery
Evolution from Traditional to Formal System
• Flexible > less flexible
• Informal structures and training > formal
• From verbal and visual systems >
Substitution of formal records
Methodology
• Group Formation
• Training
• Graduation
• Operations
Start-up
• Agents hold village meetings to explain the project and basic principles and obtain assent of the local leaders
• Agents explain the need for participants to form themselves into groups. Agent requests them to approach the agent personally once a group is formed, with a Chair, Secretary and Treasurer already selected by the members
Group Formation
• Groups are formed of as few as 5 members (Zimbabwe) and as many as 30 (Niger).
• If more than 30 members, they are encouraged to sub-divide groups.
• Once a group is formed, the Agent agrees to take them on and agrees on a time and place for the training to take place.
Phase 1: The Intensive Phase• 3 Months
• Meetings are usually held weekly or monthly : agent attends all meetings
– Roles of the group and the general assembly
– Role of the members of the management committee
– Group objectives
– Internal code of conduct
– Conflict management
– Cash box credit and savings processes
– Role of technical offices, NGOs and other actors
Phase 2: Development Phase
• 4 Months
• Weekly Meetings: agent attends fortnightly
– Agent takes back seat as the group takes responsibility for meetings. Agent acts as advisor when needed
– Other messages introduced related to health, education etc
– Group evaluated prior to graduation
Phase 3: Maturity & Graduation
• 2 Months
• Weekly meetings
• Agent and Supervisor visit only at end of phase to evaluate readiness for graduation
• Group graduates and shares out portfolio amongst members
Program Comparisons: Generic Variations
• Niger: Basic model. Mostly recall records. Moderate efficiency. Uses BDS providers to spread.
• Zanzibar: Shareholding model. Needs complex records. Relatively low Agent efficiency.
• Zimbabwe: ‘Turbo’ model. Has only monthly meetings for both savings and credit. Clusters groups for meetings. Simple but thorough records. High Agent efficiency
• Many groups moving towards longer-term loans
• Many groups moving towards larger contribution levels
Growth
Annual Growth in the Number of Members
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
1 2 3 4 5 6 7 8 9
Years
Me
mb
ers
Financial Impact:High-Low Scenarios
1.64149.3491.31%Return on average value of savings
1.594,8523,056Average net benefit per member
1.6475%46%Ratio of savings to revenue
0.976,4996,694Savings per member
1.5811,2777,129Average portfolio value per member
2.07372,157179,354Portfolio value at time of ‘liberation’
1.313325Number of members per group
RatioKonniZinderConsolidated Data – 2 Regions in Niger
Use of Loans
Uses of Credit: Zinder
0
10
20
30
40
50
60
70
Activitees
We
igh
ted
No
mb
re d
es
Re
sp
on
se
s
Oil processing Livestock fatteningPetty Trade Stocking grainGrow ing beans and peanuts
Use of Shared-Out Funds
Consolidated inform ation. Uses of Shared Out Funds: Zinder
0
50
100
150
200
250
Activitee
No
mb
re d
es
Re
sp
on
se
s
Food Childrens' Clothes Agricultural Production New Activities
Livestock Clothes Debt repayment Household utensils
Husband's business Business Holidays Marriage
Medical Expenses Transport to seek w ork
Social and Household Impact
• Substantially improved ability to weather shocks to livelihoods
• Increased stability of household enterprises
• Improved social status/social capital
Basic Conclusions
• The VS&L approach works in a wide variety of settings
• It can reach high outreach and scale in poor rural areas
• It is enthusiastically supported by its members, principally because of its responsiveness and flexibility
• It is easily replicable because it is uncomplicated and transparent
• It does not require the establishment of an MFI to be sustainable
• It does not need a specialist organization to implement
• It can be inserted into a non-financial services programme as a separate component
Lessons Learned (1 of 2)
• Long-term programme costs are between $18 and $30 a client, compared to $300-400 for a standard credit-granting MFI
• The longer and more intensive the training the better the quality of the portfolio and the long-term survival
• There is a need for best practice performance standards for each program
• There is potential for more flexible adaptation than is practiced at present, particularly in terms of loan term and variable contributions
Lessons Learned (2 of 2)
• The methodology is adapted to the needs of the poor
• Programs are easily run by non-specialist local staff
• Returns on savings are highly competitive with the formal and quasi-formal sectors
• Sustainability is very quickly achieved and is inherent in the methodology
• Program growth is usually very fast
• Most programs need better record-keeping and tracking systems
Rural Finance: Linking with other Institutions for Service
Delivery
Day 5: Block 3
Successful Rural Linkage Models
Rural Finance Linkages
Private Banks
State Banks
Postal Banks
Insurance Cos.
Non-bank financial institutions
Investment funds
MFIs
NGOs
Credit Unions
Village Banks
Agro-processors
Input Suppliers
Marketing Companies
Leasing Companies
Warehouse Operators
Supermarket Chains
Clients
Farmer
Associations
Banks and Ag Processing Firms
• Land Bank of South Africa and Cotton Processing Firms - providing credit to big & smaller farmers
• Commercial Banks and Ag Processing Firms in Kenya, Zambia, Mozambique – providing credit to farmers
• Role of mills in facilitating finance to small and
medium scale farmers.
Banks and Supermarkets
• Farmers access to loans due to purchasing arrangements with supermarkets – HortiFruiti in Costa Rica
• Banks use supermarkets as delivery channels for range of services, including deposit mobilization - Nedbank and PicknPay Chains in S. Africa
Banks and Pension Fund Delivery
• Social pensions paid out in rural areas through commercial bank mobile units – S. Africa
Banks and Inputs Suppliers
• Teba Bank (S. Africa) using point of sales terminals to provide banking services through rural trader shops and MFIs
• Drumnet-Pride Africa linking farmers to financial service (primarily lines of credit through the use of smart cards) with input suppliers coupled with access to market information
Bank – MFI Linkage Models
• MFI linkage to banks which collect deposits that MFI mobilizes
• Post Office Bank in S. Africa acts as payment receiver for a range of MFIs and credit unions
• Partnerships
– Bank holds loans, while MFI monitors and collects payments
Wholesale Finance Models to Rural Finance Institutions
• Investment funds - debt and equity instruments for MFIs
– NCDLF Fund provided third tier financing to Nicaraguan MFI and coops, etc.
– Oikocredit is the largest credit source in world for MFIs
– MicroVest, LA-CIF, Blue Orchard, etc.
Wholesale Finance Models
• Portfolio buyouts
– One time purchase of MFI portfolio
• Securitization
– Rating of longer term loan portfolio so investors will buy
• “On tap Securitization”
– Continuous buyout of MFI portfolio
** Systems based on incentives and risk sharing arrangements – default limits and guarantees
Rural Finance: Diverse Products & Service Delivery
Day 5: Block 4
Product Adaptation and Innovation
Diverse Rural Finance Services
Covered in next slides:
1. Credit before planting
– Trade credit
– Out grower advances
2. Insurance
– Index-based insurance
– Case study in Mongolia
3. Warehouse receipts
4. Leasing
Other types:
• Working capital loans
• Lines of credit
• Emergency loans
• Term finance loans
• Point of sale arrangements
Credit before Planting: Trader Credit and Out grower Advances
Trade Credit:
Short term or seasonal loans between farmers and sellers of inputs and products
Out grower advances:
Cash advances or inputs provided
by buyers to farmers, through to formal purchase agreements
Insurance
• Agriculture – indexed weather based instruments
• Health
• Life
• Example of linkage with other institution: Life insurance firms using post office banks as payment facility for rural clients – S. Africa and Kenya
Index-Based Insurance
• Traditional Insurance – compensates for losses from independent events
Examples: fires, car wrecks
• Index-Based Insurance – covers correlated risk – from an event that causes widespread damage or losses
Examples: drought, flooding
Index-Based Insurance
Issues in protecting against natural disaster risk with traditional insurance:
• Correlated risks are difficult to price and insure
• Extreme event risks are rare; create ambiguity for both buyer and seller of insurance products
• High transaction costs because of asymmetries of information, high monitoring costs
• Need to transfer highly correlated natural hazard risk out of the local community
Index-Based Insurance –Advantages over Traditional
Insurance
• Low adverse selection
• Low moral hazard
• Low administrative costs
• Objective determination of payments
• Standardized and transparent structure
• Availability and negotiability
• Manages correlated risk
• Reinsurance function
Index-Based Insurance
• Indicator of loss – defined by the event.
Examples: Measurement may be in days, temperature, wind speed, Richter scale readings
• Trigger or strike, and limit – set the range over which indemnity payments are made
Example: index contract against excess rainfall –payments made once strike level is reached in a defined time period (day, month, season), and increase as rainfall increases. Maximum payment is made if rainfall reaches the limit.
Index-Based Insurance -Preconditions
• Homogenous impact within a (small) defined geographic area
• Infrequent, severe events (e.g., 1 in 10 year)
• Correlation of measurable event and measurable loss (basis risk)
• Reliable historical time series data (30 years, min 15)
• Secure, objective, reliable source of data for measurements
• Legal framework for contract enforcement
• Regulatory and supervisory framework for financial and insurance sectors
• Acceptance of concept by potential stakeholders
• Reinsurance away from smaller insurance providers
• Mongolia Livestock Insurance Case study
Warehouse Receipts
Definition:
Warehouse Receipt:
• Document listing goods or commodities kept in safekeeping in a warehouse;
• The warehouse receipt can be used to transfer ownership of the commodity, instead of physical
delivery
Warehouse Receipts
Participants:
• Producers and traders who deposit commodities in warehouses
• Warehouse operators who provide secure storage and issue warehouse receipts
• Lenders who accept receipts as collateral
• Inspectors who certify that warehouse standards are met
• Insurers who insure contents against loss
Leasing
Definition:
• A method of financing the acquisition/use of fixed assets, predicated on the concept that the value of the asset is in its use in the
business rather than through ownership.
• Leases are typically used to finance equipment, but can also be used for buildings and improvements and are commonly used to finance vehicles.
Leasing
Financing Lease – alternative to a bank term loan
Operating Lease – more comparable to rental
Most leases are financing leases. Lease financing
is an alternative to borrowing, not to renting.
Leasing – Types of Entities
• Private Leasing Companies
• State-owned Leasing Companies
• Commercial banks and subsidiaries
• Microfinance Institutions
• Equipment Manufacturers
Leasing – Special RAF Issues
• Recovery costs greater – down payment may be increased to compensate
• Monitoring
• Equipment maintenance
• Availability of insurance
• Used equipment leasing
• Repossession costlier
• Enabling environment
Producer Business Models
New Delivery
Channels
Innovative Linkages and Delivery Channels
Other Business Service Models
Bank - MFI
Wholesale Models
top related