microfinance financial product product...

MICROFINANCE PRODUCT

CATALOGUEA selection of financial products from a sample

of Microfinance Institutions

FINANCIAL PRODUCT DEVELOPMENT

HANDBOOKA “do-it-yourself” handbook

for rural and pro-poor Microfinance Institutions in their development of client-

focused products.

SPECIAL FOCUS ON AGRICULTURAL FINANCE- APRIL 2010

© AMFIU, July 2010

For comments or enquiries please contact:

AMFIUPlot 679, Wamala Road (off Entebbe Road) NajjanankumbiP.O. Box 26056, Kampala, UgandaEmail: [email protected]: +256 414 259176Web: www.amfiu.org.ug

ContentsForeword .............................................................................................................................................................. ii

Catalogue .............................................................................................................................................................. ii

Handbook ............................................................................................................................................................. ii

Agricultural Finance Product Catalogue ................................................................................. 1Introduction .......................................................................................................................................................... 2

Tea Growers’ Loan ............................................................................................................................................... 4

Banana and Pineapple Growing Loan .................................................................................................................. 5

Simsim Production Loan ...................................................................................................................................... 7

Fishing Loan ......................................................................................................................................................... 8

Upland Rice Growing Loan ................................................................................................................................. 9

Agricultural Input Loan ....................................................................................................................................... 10

Traction and Tractor Loan .................................................................................................................................... 12

General Agricultural Production Loans ................................................................................................................ 13

Solar Loans ........................................................................................................................................................... 20

Rain Water Harvest Loan ..................................................................................................................................... 23

Kyera Okore Loan (“wake up early and work”) .................................................................................................. 24

Tunda Juba Loan (“sell quickly”) ........................................................................................................................ 25

Easy Communication Loan .................................................................................................................................. 26

Youth Savings Account ........................................................................................................................................ 27

General Findings on Agricultural Loan Products ................................................................................................. 28

Support for Agricultural Finance .......................................................................................................................... 30

Microfinance Product Development Handbook ...................................................................... 34Introduction .......................................................................................................................................................... 35

EXECUTIVE SUMMARY: ................................................................................................................................. 36

STEP 1: Plan the Work ......................................................................................................................................... 37

STEP 2: Review the Policies and Procedures (P&P) Manuals ............................................................................ 39

STEP 3: Hold the First Meeting with Board and Management ........................................................................... 42

STEP 4: Review the Existing Products ................................................................................................................ 43

STEP 5: Conduct a Market Survey ...................................................................................................................... 48

STEP 6: Do a SWOT Analysis ............................................................................................................................ 51

STEP 7: Produce the Review Report ................................................................................................................... 52

STEP 8: Develop Product Prototypes .................................................................................................................. 53

STEP 9: Present to Board & Management ........................................................................................................... 54

STEP 10 (For SACCOS Only): Get AGM Approval ........................................................................................... 55

STEP 11: Test & Roll Out .................................................................................................................................... 55

STEP 12: Incorporate Changes into Product Manual(s) ...................................................................................... 55

i

AMFIU noted an increasing demand for special financial products that go beyond the regular micro and small entrepreneurial loans. Particularly, that meaningful outreach to rural areas necessitates development and offering responsive agricultural and innovative financial products. This also emerged as the top issue in AMFIU’s recent membership surveys. To meet this demand, AMFIU did not only come up with one, but actually two answers to this topic – both of them looking at the same issue but from a different angle: A catalogue and a handbook. With this dual approach we hope to stimulate the development of new financial products in order to increase the outreach of MFIs and enhance access to and usage of financial services especially in rural and remote areas, to finally improve sustainable livelihoods of the rural population.

The catalogue is meant to be an “appetiser”: a non-comprehensive but systematic and colourful collection of various agricultural and innovative loan products and their features offered by selected MFIs in Uganda. Besides sharing of information with all stakeholders, we hope that the catalogue will promote the products to key customers and increase market penetration, as well as encourage institutions to learn from one another and venture to create new products of their own or adapt and refine products they already have. Although the participating institutions were purposefully sampled for maximum industry representativeness, the sample of 20 out of hundreds of MFIs is certainly not comprehensive. We hope to see this catalogue becoming a regular publication with an ever increasing number of financial products in various categories to inspire institutions’ management and boards.

Following the “appetiser” is a “cookbook”: a do-it-yourself guide for institutions to refine and create new microfinance products for their clients in a systematic and yet straight forward way. We have observed far too often that prototypes of products were blindly adapted by institutions. In order to address this malpractice we are providing this simple and yet effective product development handbook. While piloting this handbook with some of our members, we already could observe some stunning results. Not only did we witness the birth of two new financial products within only a few months time, but also got a report from a pilot SACCO that while doing the surveys requested as one of the steps in the product development process, many new people got interested and joined the SACCO, even before the new product was available! On another occasion, an MFI after completing the product development process used the same process to revise all its existing products and demand rocketed like never before.

We would like to thank all our members who dedicated their time to share their product details with us. We also thank SEEP and CORDAID for the funding of this study and DED (German Development Service) for financing the publication of it. Special thanks to our Technical Advisor Benedikt Brenke, seconded to AMFIU by DED, whose support to initiate, shape and finalise this publication was very valuable.

David T. Baguma, Executive Director

Foreword

ii

CatalogueH

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1

Agricultural Finance Product Catalogue

A selection of financial products from a sample of Microfinance Institutions

Definition of an agricultural loan product

An agricultural loan product is a loan that is given for the generation of income and supporting of expenses related to an agricultural enterprise. The agricultural enterprises include value chain actors in crops, forestry, fisheries, apiary, animal and poultry. Considering the peculiarity of agriculture, agricultural loan products need to have special features including those highlighted below:

Loan term: • Should match the maturity of the specific agriculture enterprise being funded.Grace period:• The institution should allow for an appropriate period between loan disbursement and repayment of the first instalment.Repayment:• Should match cash streams of the specific agriculture enterprise.Flexibility:• In loan period, grace period and repayment frequency to accommodate various agriculture enterprises.

Categories of loan products

Findings of this study reveal that agricultural financing (where products have distinctive features like flexibility in the grace period, loan period and repayment patterns) is mainly for agro-production. Agro-processing and agro-marketing undertakings within the agricultural value chain are mostly financed by products with features similar to those of commercial loans. Therefore, this product catalogue presents mainly agricultural production loan products. In addition, it includes a small collection of “innovative loan products” that go beyond mere agricultural finance – financial products which are particularly creative, relevant, new, or peculiar. Hence, the catalogue categories are as follows:

Specific enterprise agricultural loans:1. Specific enterprise agricultural loans are somewhat tailored to a single or related group of agricultural products. The features are made to suit the specific enterprise and cash flow realities of the farmers who produce it.Agricultural input loans:2. This is a short term loan extended to farmers to buy inputs like fertilizers to enhance production. The loan finances consumable inputs and not durable assets used in agricultural production. Agricultural asset loans (traction and tractor loans):3. This loan product finances the purchase of tractors or ploughs, yokes and / or bulls for ploughing. This is aimed at improving labour productivity, the scale of production and on-farm transport. General agriculture production loans:4. These loans are extended to farmers to finance primary agricultural production activities and to improve productivity. Irrespective of the agricultural activity financed, the loan terms and conditions are similar (no distinctive features in terms of loan period, interest rates, grace period and repayment patterns). Activities financed include a very wide range of activities, such as crop growing, fencing of farm land, dam construction, cattle rearing and agricultural inputs. Other innovative financial products: 5. For the purpose of this catalogue, an innovative product is one that is:

Relatively new in its current form and features, • Has peculiar features, • Practical, in that it has been tested and proven to be workable, • Successful, in that it has been successfully implemented in one or more institutions, • Popular in that it has attracted considerable demand. •

2

Introduction

3

Overall analysis and conclusions on the product portfolio catalogued

By name, there is a lot of agricultural finance in Uganda. However, when strictly applying the definition given above, those “general agricultural production loans” may not qualify as true agricultural loan products, since they barely differ from any other common business or commercial loan offered by the MFI. And yet it is this very general type of product that holds the largest share of the surveyed MFIs’ agricultural loan portfolio.

When inspecting the product development processes followed by the various MFIs to come up with agricultural loans, it can be concluded that the majority of MFIs have not followed a clear process beyond members airing out views, or cheap funding being availed by Government or development partners. In many cases, there is no proper market survey before product development. The result is often a well intended but poorly designed product attracting minimal interest from members / clients. Beyond the mere economic failure, this tends to disappoint staff, and leads to the general opinion that product development is expensive, difficult and liable to failure – particularly agricultural finance. Hence, nearly all existing agricultural loan products – save for those which were properly developed (by e.g. MED-Net, Kyamuhunga, Kitagata and others) – need reviewing to make them more appealing and responsive. Desirable product features and adequate terms / conditions are some of the key constraints to the provision of suitable agricultural loan products by MFIs.

The lack or inadequacy of vital technical support to the agricultural borrowers not only limits but also endangers the success of the farmer’s activities. In this context, technical support relates to non-financial support in areas such as improvement of productivity, veterinary services, market access, produce preservation, produce bulking and price bargaining. Similarly, the scarcity of working agricultural knowledge and skills within the MFIs proves to be a major barrier to adequately appraise and process agricultural loan proposals.

Suitable funding for agricultural finance turns out to be of very limited availability. Very few wholesale lenders are willing to provide funds to the agricultural sector and even those who do, lend short term, yet some agricultural enterprises require medium term financing, creating a mismatch.

Interestingly, regarding the “innovative financial products” (e.g. solar loans, rain water loans, phone loans, etc.) there are hardly any risks and challenges associated with them simply because they are tailor made to address the needs of the clients / members.

High-level recommendations

Strict adherence to a non-sophisticated and non-academic but simple and yet effective product development 1. process including a review of the MFIs internal procedures, its product portfolio and a market survey can yield financial products that turn out to become an institution’s major cash cow. Depending on the MFI’s in-house level of expertise, additional coaching and guidance should be provided to facilitate the process. MFIs offering agricultural loan products need, as a necessity, to collaborate with and leverage the efforts of non-2. finance agricultural enhancement programs like NAADS to complement their financial expertise with specific agricultural know-how. Adequate programmes and linkages to that effect should be set up. Wholesale lenders and development partners should adjust the loan features of their agricultural wholesale loans 3. to make them more appropriate for agricultural financing.

Tea Growers’ Loan

Microfinance Product Catalogue4

General product description:

This is an agricultural loan extended to farmers involved in tea growing. It was designed to match the cash flows of tea growers. It has long loan and grace periods, and also takes into consideration the fact that once the tea bushes mature, the grower’s income becomes fairly regular. Tea is a perennial crop that is harvested all the year round.

Offered by:

Kyamuhunga Peoples SACCO

Target market:

Tea growers

Loan purpose:

Tea growing, including land preparation, planting, pre-harvest plant care and labour for picking ready tea leaves.

Eligibility criteria:

Must be a member, buy adequate shares (each share entitles one for a loan of up to 10 times its value) and have a good credit history.

Loan period:

Up to 2 years.

Grace period:

6 months.

Repayment:

Monthly after the grace period.

Loan pricing:

This includes interest of 2.5% per month on reducing balance, commitment fees of 2% of the loan amount, application fees of USh., 5,000, insurance fees of 2% of the value of the loan and late payment fees of 2.5% on the days exceeded. The charge on the days exceeded takes into consideration when the tea growers are paid by their union or association.

Collateral / insur.:

Land certified by the LC Chairman. Although this cannot qualify as a mortgage in the strict legal sense, it is good and effective psychological deterrent to wilful default. Insurance premium of 2% of the loan amount is collected on behalf of AIG (now Chartis), which then pays the SACCO 1% as insurance commission.

Deposits/savings:

Savings deposits are not a requirement for the client to access a loan.

Loan amounts:

Minimum 100,000 USh.Most common 4,000,000 USh.Maximum 30,000,000 USh.

Process:

Register as a member• Fill application form. The form must be signed by the LC1 • Chairman, guarantor and the spouseAppraisal visit by Loans Officer• Manager checks the applications with loan officers• Loans Committee approves• Training of clients in the loan terms and conditions.• Disbursement - this process depends on the colour of the • member’s card with respect to delinquency: green and white cards holders don’t wait for the loans committee and so they get their loans disbursed within 1 to 3 days; blue and red cards plus new entrants go through the loans committee, and thus take longer.

Physical evidence:

Loan application forms, repayment schedules, recommendation letters, loan ledgers, loan agreements and security forms.

Product dev. proc.:

The SACCO articulated the needs of the farmers and • developed products internally to suit themThis was enhanced by training from MSC on appraisal; • the SACCO developed the tea growers’ loan product. Additionally, the SACCO received training on agricultural lending by Rural SPEED and one of the SACCO staff was attached to CERUDEB Mbale for 1 month. This helped the SACCO redesign the product. Continual refinements are done with client feedback•

Portfolio and outreach:

Data not available.


This is an agricultural loan extended to farmers involved in pineapple and banana growing. It was designed to match the cash flows of farmers engaged in the two crops. It has long loan term and grace periods.

Institutions that offer:

Kyamuhunga Peoples SACCO.

Target market: Pineapple and Banana growers.

Loan purpose: Pineapple and banana farming and rehabilitation.

Eligibility criteria: Must be a member, buy adequate shares depending on the loan amount requested (each share entitles one for a loan of up to 10 times its value) and good credit history

Loan period:

Up to 2 years

Grace period:

Up to 6 months negotiated according the farmers cash flows

Repayment policy / pattern:

Monthly instalments after the grace period

Loan pricing:

This includes interest of 2.5% per month on reducing balance, commitment fees of 2% of the loan amount, application fees of USh. 5,000 and late payment penalty of 2.5% of the missed instalment per day exceeded.

Collateral and insurance requirements:

Land certified by the Local Council Chairman. Insurance premium of 2% on the loan amount, collected on behalf of AIG (now Chartis), which pays the SACCO half of this (1% of the loan amount) as insurance commission.

Deposits/savings requirements:

Savings deposits are not a requirement for the client to access a loan.

Loan amounts:

Minimum 100,000 USh.Most common 4,000,000 USh.Maximum 30,000,000 USh.

Processes:

Steps involved in accessing a loan include:Register as a member• Fill application form. The form must be signed by the LC1 • Chairman, guarantor and the spouseAppraisal visit by Loans Officer• Manager checks the applications with loan officers• Loans Committee approves• Training of clients• As in the Tea Grower’s loan above•

Physical evidence includes loan application forms, repayment schedules, loan ledgers, loan agreement form.

Product development process:

Same as for tea growers’ loan


Data not available.

Banana and Pineapple Growing Loan

Microfinance Product Catalogue 5

Bull Fattening Loan


General product description: An agricultural loan that is aimed at financing farmers involved in rearing bulls for sale. These animals are bought young, fattened and then sold off at a profit.

Institutions that offer bull fattening loan:ISSIA SACCO and Muhame Financial Services Cooperative Society.

Target market:Cattle farmers

Loan purpose: Rearing bulls with an aim of selling them at a profit.

Eligibility criteriaISSIA SACCO:

Must register as a member• Must have at least 10 shares at USh. 10, 000 each.• Should have land with water• If hiring land, must have the agreement• Must have experience in rearing animals•

Muhame Financial Services:

Register as a member• Have a minimum of 5 shares.• Shares should be adequate enough to cover the requested • amount (1 share for every USh.: 50,000 of loan)Have land verifiable by Local Council 1 Chairman•

Loan period: 1 year

Grace periodISSIA SACCO: 3 monthsMuhame Financial Services: 4 months

Repayment policy / pattern: Repayments are monthly. Interest only is paid during the grace period.

Loan pricing

ISSIA SACCO: Muhame Financial Services Cooperative Society:

Interest 2.5% per month (flat basis)

2.5% per month (reducing balance basis)

Commit-ment

1.5% of the loan amount 1% of the loan amount

Application form (USh.) 2,000 6,300

Late payment

2.5% on arrears amount

4% of the amount in arrears

Insurance1% of loan amount (remitted to NIC)

1% of loan amount (kept by the institution. No involvement with an insurance company)

Repayment schedule fee (USh.)

1,000 n/a

Collateral requirements

ISSIA SACCO:Land certified by the LC1 Chairman• Animals•

Muhame Financial Services:Land certified by the LC1 Chairman•


Savings are not part of the requirements for one to access a loan but an active saver is given priority.

Loan amounts (USh.):

Minimum Most com-mon Maximum

ISSIA SACCO 2,000,000 3,000,000 10,000,000

Muhame Finan-cial Services: 200,000 3,000,000 10,000,000

Processes:

The member/client goes through the following process to access the loan:Fill in an application form• Get a security letter from the Local Council 1 Chairman• Appraisal visit by the Loans Officer• Approval by the Management or Loans Committee• Signing of loan agreement• Disbursement through the savings account•

Physical evidence:

Includes loan application forms, repayment schedules, loan ledgers, security letters and loan agreement form.

Product development process

ISSIA SACCO:Identified the need• Carried out a survey• Developed a prototype• Got a consultant funded by SUFFICE•

Muhame Financial Services:Visit to Rukoma SACCO to study their agricultural loan• Credit committee came up with activities to fund under • agriculture and the grace periods


ISSIA SACCO (Dec. 2009): 13 loans disbursed, portfolio outstanding: USh. 33 MillionMuhame Financial Services: Data not available.


This loan product is aimed specifically at boosting the growing of sesame (simsim). In northern and eastern Uganda, simsim grows well. Simsim has a ready market (locally, nationally and internationally), and fetches high prices (about USh.3, 000 per kg).

Institutions offering the product:

Oribcing SACCO

Target market:

Farmers, mostly youth and women

Loan purpose:

Production of simsim


Open an account• Pay membership fees of USh. 22,000• Above 18 years• Must have a farming enterprise that includes simsim • growing

Loan period:

4.5 to 6 months

Grace period:

2 months paying interest only


Monthly after a 2 month grace period

Loan pricing:

Interest charged: 2% per month (Flat rate); • administration fees: 1% of loan amount; • application fees (USh.): 3,000; • commitment fees 2% of loan amount; • late payment fees: 0.5% of the outstanding balance per • day.

Insurance requirements:

1.25% of loan amount

Collateral requirements:

25% deposit requirements, chattels, land, buildings, bicycles

Deposit requirements:

25% of loan amount


Minimum: 54,000Most common: 520,000Maximum: 3,000,000

Processes:

The member goes through the following process to access • the loan:Pay for and fill in the application form• Appraisal by the loan officer• Recommendation by credit officer, manager• Approval • Loan agreement• Disbursement of cash•

Physical evidence:

Includes loan application forms, repayment schedules, loan statement (on request), a signed loan agreement and a collateral description form.

Product Development process:

Did not follow a process, just started giving out loan• Loan features were determined by the board•


Dec. 2008: 15 loans disbursed; portfolio outstanding (USh.): 10 MillionDec. 2009: 0 loans disbursed; portfolio outstanding (USh.): 0 Million

Simsim Production Loan



This loan is aimed at promoting fishing as a profitable enterprise in an area that has a lake. Fish has a ready local market both in its raw and processed form.

Offered by:

Panyimur SACCO

Target market:

Fishermen and fish mongers

Loan purpose:

Buying fishing equipment for business expansion or hire. Working capital for fish mongers.


Membership of the SACCO• Guarantors holding account with the SACCO• Accounts active for at least 6 months• Have some equipment (boats and nets)• Experience in fishing business of at least 1 year• Above 18 years•

Loan period:

3 to 10 months

Grace period:

1 month


Monthly

Loan pricing:

Interest charged 3% per month (Flat rate)Processing fees 3% of loan amountApplication fees (USh.)

3,000

Agreement fees (USh.)

5,000

Late payment fees 2% of the outstanding balance per month

Collateral / insurance:

The fishing equipment•

Chattels• Land• Livestock• No insurance requirements• Deposit requirements: 10% of loan amount•


Minimum 300,000Most common: 300,000Maximum 5,000,000

Processes (application to disbursement)

The member goes through the following process to access • the loanFill in application form• Appraisal• Approval • Loan agreement• Disbursement by cash•

Physical evidence

Loan application forms• Signed repayment schedules• Signed loan agreements• Loan ledgers• Passbook• Collateral description forms, documented in loan file•


The SACCO received technical support from West Nile • Private Sector Development Promotion Centre in form of trainingMarket survey was done• Product was developed• Product was pilot tested• Product was launched•


Dec. 2008: 467 loans disbursed; portfolio outstanding: USh. 163 MillionDec. 2009: 692 loans disbursed; portfolio outstanding: USh. 198 Million

Fishing Loan


Upland Rice Growing Loan


This loan is aimed at promoting rice growing in areas suitable for this crop. Rice has a ready national market.

Offered by:

Pakwach Nam SACCO

Target market:

Rice growers in Dei and Pakwero areas

Loan purpose:

Rice growing and rice hulling


Must be a member with 20% of loan amount in shares• Save for 3 months • Have available land• Above 18 years•

Loan period:

5 months

Grace period:

2 months

Repayment:

Monthly

Loan pricing:

Interest charged 2.5% per month

Interest calculation method Flat rate

Other Fees

Processing fees 3% of loan amount

Application fees 5,000/=

Late payment fees 3% of the outstanding balance per month

Collateral/insurance:

Moveable assets• Land• Buildings•

Insurance at 1% of loan amount•


Minimum: 50,000Most common: 300 ,000Maximum: 400 ,000

Processes:

The member goes through the following process to access the loan

Fill in application form• Appraisal ( includes training for groups of 1 month)• Approval • Sign loan agreements• Disbursement using cash and member’s accounts•

Physical evidence:

Loan application forms• Signed repayment schedules• Signed loan agreements• Passbook• Collateral description forms, documented in loan file•


Needs Assessment was done• Wrote a proposal to SUFFICE• Hired consultants for technical assistance in product • developmentField work to collect data on product features• Pilot testing • Launch• Roll out•


Dec. 2008: 12 loans disbursed; portfolio outstanding: 33 MillionDec. 2009: 5 loans disbursed; portfolio outstanding: 16 Million


General product description

This is a short term loan extended to farmers to buy inputs like fertilizers to enhance production. The loan finances consumable inputs and not durable assets used in agricultural production.


Kyamuhunga Peoples SACCO, Muhame Financial Services Cooperative Society and MAMIDECOT.

Target market:

Farmers involved in crop farming

Loan purpose:

Farm productivity improvement



Must be a member, • Buy adequate shares depending on the loan amount (1 • share entitles the borrower to a loan that 10 times its value)good credit history•

Muhame Financial Services Cooperative Society

Register as a member• Have a minimum of 5 shares. • Shares should be adequate enough to cover the • requested amount (1 share for USh. 50,000.of loan)Have land verifiable by Local Council 1 Chairman•

MAMIDECOTMust be a member with an account• Must have enough shares compared to the loan amount • requestedThe value of shares held should equate to at least 5% of • the amount applied for.Must be a practicing farmer and not a starter•

Loan period:

Kyamuhunga Peoples SACCO 6 monthsMuhame Financial Services Cooperative Society 6 months

MAMIDECOT 1 month

Grace period:

No grace period

Repayment:

MonthlyLoan pricing:


MAMIDE-COT

Muhame Finan-cial Services Co-operative Society

Interest

2.5% per month (on reducing bal-ance)

2% per month (flat basis)

2.5% per month (on reducing bal-ance)

Commit-ment 2% 2% 1%

Appli-cation (USh.)

5,000 5,000 6,300

Late pay-ment

2.5% on days exceeded

Not appli-cable 4%

Insur-ance 0.5% 1% 1%

Insurance requirements:


0.5% insurance premium is charged and remitted to Chartis

MAMIDECOT 1% with National Insurance Corporation (NIC)


1% kept by the institution. No involvement with an insurance company



Land certified by the Local Council 1 Chairman

MAMIDECOT

Anything of value more than twice the loan amount approved; land household items or combination of both.


Land certified by the LC1 Chairman

Agricultural Input Loan


Deposits/savings:

Savings are not part of the requirements for one to access a loan but are part of the eligibility criteria. An active saver is given priority.


Minimum Most com-mon Maximum

Kyamuhunga Peo-ples SACCO 100,000 4,000,000 30,000,000

MAMIDECOT 100,000 1,500,000 15,000,000


200,000 3,000,000 10,000,000

Processes:

Fill in an application form• Get a security letter from the Local Council 1 Chairman• Appraisal visit by the Loans Officer• Approval by the Management or Loans Committee• Sign the loan agreement• Disbursement through the savings account•

Physical evidence:

includes loan application forms, repayment schedules, loan ledgers, security letters, loan agreement form and collateral description forms.


Kyamuhunga Peoples SACCO Same as for tea growers’ loan•


Same as for bull fattening loan•

MAMIDECOT

A mini-market survey was done• Management introduced the idea • to the boardThey then developed the product • using the manager’s experience acquired when working with Centenary bank


data not available.


General Product Description:

This loan product finances the purchase of tractors or ploughs, yokes and/ or oxen for ploughing. This is aimed at improving labor productivity, the scale of production and on-farm transport.

Offered by:

Agaru SACCO

Target market:

Farmers

Loan purpose:

Opening land to boost agricultural production


Possess grazing land and land to cultivate• Man power to keep and use it• Do business with the SACCO for at least 3 months• Capacity to pay• Land ownership• Clearance from local authorities on land ownership• Above 18 years of age• Paid up membership• Consent from family•

Loan period:

Tractor loan 36 monthsAnimal traction loan 24 months

Grace period:

Tractor loan 6 months Animal traction loan 10 months

Repayment:

Varies according to income streams (monthly, 2 monthly, quarterly, semi-annually, annually)

Loan pricing:

Interest charged 1.8% per month (Flat rate)Loan commitment fees 2% of loan amountAdministration fees (USh.) 10,000

Insurance Requirements:

2% (Loan protection fund with UCSCU)

Collateral Requirements

The tractor or animals financed with the loan• Salary attachment• Any form of legal document showing land ownership• Collateralized savings•

Deposit Requirements:

10% of loan amount

Loan amount (USh.):

Type of Asset Amount (USh.)

Minimum Animal traction (ox) 525,000 Maximum Animal traction (2 oxen) 1,050,000Maximum Tractor 69,700,000

Processes:

Fill in application form• Appraisal (includes training for groups, once or twice • during appraisal)Approval • Loan agreement• Disbursement to the member’s savings account•

Physical evidence

Loan application forms• Repayment schedules, signed by borrower• Loan statements, provided on request• Loan agreements, signed by borrower• Collateral description forms•


Two (2) staff of Agaru had been trained by Rural SPEED • on product development Needs Assessment was done (in communities and • suggestions were solicited at the braches)Had an in-house meeting to determine loan features (MSC • had given a range of interest rates to charge)Products were developed and rolled out•


Dec. 2009: 42 loans disbursed; portfolio outstanding: 166 Million

Traction and Tractor Loan


General Agricultural Production Loans


These loans are extended to farmers to finance primary agricultural production activities and are aimed at helping farmers to enhance productivity. Irrespective of the agricultural activity financed, the loan terms and conditions are similar (no distinctive features in terms of loan period, interest rates, grace period and repayment patterns). Activities financed include crop growing, fencing of farm land, dam construction, cattle rearing and agricultural inputs. When strictly applying the definition given in the Introduction, these “general agricultural production loans” may not qualify as true agricultural loan products, since they barely differ from any other common business or commercial loan offered by the MFI.

Institutions that offer general agricultural loans:

Kigarama Farmers SACCO, Kigarama Peoples SACCO, Rushere SACCO, Kitagata Financial Services Cooperative Society, Kyamuhunga Peoples SACCO, MAMIDECOT, Rural Urban Savings and Credit Association (RUSCA), and Kyangyenyi Modern Rural Cooperative Finance Ltd, Busimbi CDTF Ltd, MED – Net, Agaru SACCO, Nyaravur SACCO, Packwach Nam, Pearl Microfinance, RUCREF and VAD Microfinance Ltd.

Target market:

Farmers

Loan purpose:

Crop and animal farming, including improving farm acreage and productivity thus increasing incomes for the farmers.


Agaru SACCOCapacity to pay• Land ownership• Clearance from local authorities on land ownership• Above 18 years of age• Paid up membership• Consent from family• Must have done business with the SACCO for at least 3 • months

Busimbi CDTF LtdAbove 18 years• LC recommendation• 2 guarantors (with good reputation)• Consent form from spouse• Resident in locality• Annual membership of (USh.) 6,000• Annual subscription of (USh.) 6,000•

Kigarama Farmers SACCOMust be a member • With collateral security • Adequate shares for the loan amount requested (Loan • amount is 10 times the share value)

Kigarama Peoples SACCOHave to be a member with 3 shares or more• Loan amount should be 10 times the share value• Must have been with the institution for 2 months and • saving regularlyHave an active business•

Kitagata Financial Services Cooperative SocietyMust be a member • Loan amount requested should be 5 times the share • valueShould be an active saver•

Kyamuhunga Peoples SACCOMust be a member, • Buy adequate shares depending on the loan amount • requested (Loan amount is 10 times the share value) and Good credit history•

Kyangyenyi Modern Rural Cooperative Finance LtdMust be a member with adequate shares (Loan amount • is 10 times the share value)


MAMIDECOTMust be a member • The minimum should be 5% in shares of the loan • amount applied for.Must be a practicing farmer and not a starter•

Med-NetBetween 5 to 25 members in a group• Above 18 years• Secondary source of income• Family consent • Resident in locality• Registered with local authority • Local leader recommendation• Have active savings account with any financial • institutionMust have a farming enterprise•

Muhame Financial Services Cooperative SocietyRegister as a member• Have a minimum of 5 shares. • Have land verifiable by Local Council 1 Chairman•

Nyaravur SACCOShould be a member• Account active for at least one month• Above 18 years• Family consent • Resident in locality• Local leader recommendation•

Packach Nam SACCO

Must be a member with 20% of the requested loan • amount in sharesSave for 3 months • Above 18 years•

Panyimur SACCOAlready existing field with some work done on it i.e. • tillingGuarantors with account with SACCO• Accounts active for at least 6 months• Above 18 years• Paid up shares •

Pearl Microfinance Ltd6 months experience in farming• Adults (18 years and above)• Bank account with any commercial bank•

RUCREFBetween 5-25 members groups• Above 18 years• Have another income generating activity• Co-guarantee for loans below USh. 500,000, otherwise • collateral security Resident in locality• Should have experience of at least one year in a farming • enterprise

Rural Urban Savings and Credit Association (RUSCA)Must be a member • Must have side income• Saving with the institution• The loan is tagged to shares (share value must equate to • at least 20% the loan requested)

Rushere SACCOMember • Loan amount requested should be 5 times the share • valueCollateral whose value is 200% or more above of the • loan amount

VAD Microfinance Ltd

Have to be in a groupAbove 18 yearsMust have a farming enterprise

Loan period (in months):

Agaru SACCO 3 – 24

Busimbi CDTF Ltd 9

Kigarama Farmers SACCO 12

Kigarama Peoples SACCO 12

Kitagata Financial Services Cooperative Society 12

Kyamuhunga Peoples SACCO Up to 24

Kyangyenyi Modern Rural Cooperative Finance Ltd 14

MAMIDECOT 1- 12

Med-Net 4 – 12

Muhame Financial Services Cooperative Society 6 – 12

Nyaravur SACCO 6 – 9

Packach Nam SACCO 12

Panyimur SACCO 3 – 10

Pearl Microfinance Ltd 4 – 12

RUCREF 6


Rural Urban Savings and Credit Association (RUSCA) 3 -18

Rushere SACCO 12

VAD Microfinance Ltd 6 – 12

Grace period:

Ranges between 0 and 6 months

Agaru SACCO Negotiable

Busimbi CDTF Ltd 3

Kigarama Farmers SACCO 0

Kigarama Peoples SACCO Up to 4

Kitagata Financial Services Cooperative Society 0

Kyamuhunga Peoples SACCO Up to 6

Kyangyenyi Modern Rural Cooperative Finance Ltd 2

MAMIDECOT Not more than 3

Med-Net 2

Muhame Financial Services Cooperative Society 4- 6

Nyaravur SACCO 3 to 4

Packach Nam SACCO 3

Panyimur SACCO 2

Pearl Microfinance Ltd None

RUCREF 1

Rural Urban Savings and Credit Association (RUSCA) 3 -6

Rushere SACCO 1-3

VAD Microfinance Ltd None


Repayments are made monthly. Where an institution offers a grace period to its borrowers, only interest is paid during the grace period except for Kyangyenyi Modern Rural Cooperative Finance Ltd, MAMIDECOT and RUCREF where there is no grace period.

Loan pricing and insurance requirements:

The pricing of the loans varies with the institution. The maximum interest charged is 3.2% per month and the lowest charged is 2%. This is calculated on either reducing balance or flat basis. Other fees include commitment, application, late payment, service, insurance, loan agreements and transport fees.

Name of institution Type fees Rate

Kyamuhunga Peo-ples SACCO

Interest 2.5% per month ( on reducing balance)

Commitment 2%

Application (USh.) 5,000

Latepayment 2.5% on days exceeded

Insurance0.5 - 2% depending on loan period (with Chartis)

MAMIDECOT

Interest 2% per month (flat basis)

Commitment 2%


Late payment Not applicable

Insurance 1% (with National Insur-ance Cooperation)

Muhame Financial Services Coopera-tive Society

Interest 2.5% per month (on reducing balance)

Commitment 1%


Late payment 4%

Insurance 1% (kept by the insti-tution)

Rural Urban Sav-ings and Credit As-sociation (RUSCA)

Interest 3% (declining balance)

Commitment 1.5%


Late payment Nil

Insurance 1%

Kigarama Farmers SACCO

Interest 3% (flat)

Commitment 2%


Late payment 10%

Insurance Nil

Kigarama Peoples SACCO

Interest 3% (reducing balance)

Commitment 1%


Late payment 10%

Insurance 1%

Service fees 1,000



Kyangyenyi Mod-ern Rural Coopera-tive Finance Ltd

Interest 3% (reducing)

Commitment 1%


Late payment 10%

Insurance 1%

Loan agreement 2,000

Rushere SACCO

Interest 3%

Commitment Nil


Late payment5% for the 1st month, 7% on cumulative amount after a month

Insurance 1%

Kitagata Financial Services Coopera-tive Society

Interest 2.5% (reducing bal-ance)

Commitment 2%


Late payment 5%

Insurance 0

Transport for site visits

1-5km-5,000; 5-10km- 10,000

Agaru SACCO

Interest 2% p.m (flat rate)

Loan commitment fees 2% of loan amount

Administration fees (USh.) 10,000

Insurance (Loan protection fund)

2% (money remitted to UCSCU)

Pearl Microfinance Ltd

Interest 2.5% per month (flat rate)

Application fees (USh.) 5,000

Loan administration fees 2% of loan amount

Late payment fees 0.5% per day

Insurance 1.5%

Nyaravur SACCO

Interest 3% per month (Flat rate)

Loan processing fee3% of loan amount


Late payment 1% per month

Loan monitoring fee 1% of loan amount

Insurance None


Packwach Nam SACCO

Interest 2% per month (Flat rate)



Late payment fees 3% per month

Insurance 1% (local fund)

RUCREF

Interest 3.2% per month (Flat rate)

Loan commission 2 % of loan amount


Late payment 5 % per month

Insurance 1% (with Chartis)

Busimbi CDTF Ltd

Interest 18% of loan amount, paid monthly


Insurance None

Med-Net

Interest 3% per month (declin-ing balance)

Administration 1% of loan amount


Late payment penalty n/a

Insurance 1.25% of loan amount



Commitment Nil


Late payment n/a

Insurance 1% (with Chartis)

Panyimur SACCO




Agreement fees 5,000

Late payment fees 2% per month

Insurance None


Collateral Requirements

Agaru SACCO

SalaryAny form of legal document showing land ownershipSavingsLivestockHousehold chattelsCo-guarantee for groups

Busimbi CDTF Ltd Land (agreements or titles)Motor cyclesVehicles


Fixed Assets like land agreements certified by LCIBuildings

Kigarama Peoples SACCOLand certified by LCI Chairpersons

Kitagata Financial Services Cooperative Society

Land titlesLand verified by the LC1Cows


Land certified by the Local Council 1 Chairman

Kyangyenyi Modern Rural Cooperative Finance Ltd

Land verified by LC1 Chairman

MAMIDECOT

Anything of value more than twice the loan amount approved; land household items or combination of both.

Med-Net Moveable assetsLeased or registered landLivestock

Muhame FSCS Land certified by the LC1 Chairman

Nyaravur SACCOBuildingsLandLivestock and poultry

Packach Nam SACCOMoveable assetsLandBuildings

Panyimur SACCO LandLivestock

Pearl Microfinance LtdHousehold chattelsMachinery Land

RUCREF

LandCo-guarantee for groupsLivestockMotor cycles

RUSCA Land or animals verified by LCI Chairman

Rushere SACCO FarmlandCowslog books

VAD Microfinance Ltd Co-guarantee

Deposits/savings requirements

Agaru SACCO None

Busimbi CDTF LtdIndividuals – NoneGroups - 20% of loan amount

Kigarama Farmers SACCO None but an active savings account is a requirement

Kigarama Peoples SACCO None but an active savings account is a requirement


None but an active savings account is a requirement

Kyamuhunga Peoples SACCO None but an active savings account is a requirement

Kyangyenyi Modern Rural Cooperative Finance Ltd 10% of loan amount

MAMIDECOT None but an active savings account is a requirement

Med-Net 15% of loan amount



Nyaravur SACCO 10% of loan amount

Packach Nam SACCO 10% of loan amount

Panyimur SACCO 10% of loan amount

Pearl Microfinance Ltd None

RUCREF None

Rural Urban Savings and Credit Association (RUSCA)


Rushere SACCO None but an active savings account is a requirement

VAD Microfinance Ltd 10% of loan amount


Minimum Most common Maximum

Agaru SACCO 100,000 250,000 - 500,000 10,000,000

Busimbi CDTF Ltd 300,000 500,000 5,000,000

Kigarama Farmers SACCO 100,000 1.000,000 3,000,000

Kigarama Peoples SACCO 100,000 5.000,000 10,000,000

Kitagata Financial Services Coopera-tive Society

500,000 1.500,000 10,000,000

Kyamuhunga Peo-ples SACCO 100,000 4.000,000 30,000,000


Minimum Most common Maximum

Kyangyenyi Mod-ern Rural Cooper-ative Finance Ltd

100,000 8.000,000 15,000,000

MAMIDECOT 100,000 1.500,000 15,000,000

Med-Net 100,000 700,000 10,000,000

Muhame Financial Services Coopera-tive Society

200,000 3.000,000 10,000,000

Nyaravur SACCO 50,000 500,000 5,000,000

Packach Nam SACCO 50,000 300,000 1,000,000

Panyimur SACCO 300,000 500,000 5,000,000

Pearl Microfinance Ltd 300,000 2.000,000 15,000,000

RUCREF 100,000 300,000 - 700,000 1,500,000


500,000 2.000,000 5,000,000

Rushere SACCO 100,000 4.000,000 10,000,000

VAD Microfinance Ltd 400,000 500,000 1,000,000

Processes

For member institutions, the member/client goes through the following process to access an agricultural loan

Fill in an application form• Get a security letter from the Local Council 1 Chairman• Appraisal visit by the Loans Officer• Approval by the Management or Loans Committee• Signing of the loan agreement• Disbursement is through the member’s savings account • except for RUSCA where disbursement is by direct cash. Nyaravur, Packwach Nam and Panyimur SACCOs use a combination of cash and transfers to members’ savings accounts.

For non member institutions including RUCREF, VAD, MEDNet and Pearl Microfinance, disbursement is done using cash, cheques and Electronic Funds Transfers or a combination of cash and cheques.

Physical evidence includes loan application forms, repayment schedules, loan ledgers, security letters, loan agreement form and collateral description forms.


Agaru SACCO As in tractor loan.

Busimbi CDTF Ltd

Potential clients involved in • agriculture were not benefiting from commercial loan because terms were not appropriate (especially lack of grace)Research was done• Product prototype was developed • (board decided that the interest rate should be lower than that of commercial loans because Ag-Loans are not as profitable)Pilot testing• Product roll out•


No process followed

Kigarama Peoples SACCO

No process followed


Market survey• Analysis of existing products for • compatibility, responsiveness, popularity, portfolio performance and overall suitabilityDiagnostic of the loan portfolio and • delivery systemMeetings with management & board • to agree on strengths to consolidate and weaknesses to addressDevelopment of the product • prototype, testing/ piloting plan, monitoring/ evaluation plan, launch and roll-out planPiloting• Evaluation • Rollout• All the work up to development of a • rollout plan was done with technical assistance from consultants (FRIENDS Consult Ltd)


As in tea growers’ loan.


No process followed

MAMIDECOT As in agricultural input loan.

Med-Net Market survey• Product concept design• Pilot testing • Evaluation of the pilot• Roll out• Technical support from Microsave•



As in 2.1.3 above

Nyaravur SACCO

Borrowed money from MSC Ltd • because of Government drive to support agricultureUsed their general knowledge in • lending to determine loan featuresGave out loans to a sample of five • farmer groups, 18 individuals (10 male & 8 females)Monitored performance and • registered complaintsAddressed complaints• Rolled out product•

Packach Nam SACCO

Just launched product because funds were available.

Panyimur SACCO

Started giving out money because they got money from MSC Ltd.

Pearl Microfinance Ltd

Market Research• Product concept design• Pilot testing ( ongoing by the time of • this study)

RUCREF Needs assessment was done Started giving out money because it was availed from VEDCO, the mother institution


No process followed

Rushere SACCO No process followed


Got money for loan capital from Voluntary Action for Development (VAD)Gathered information from farmers to define product featuresDeveloped productStill pilot testing product

Portfolio and Outreach

Institution Number of loans disbursed

Portfolio Outstanding(Million USh.)

Dec 2008 Sept 2009Dec 2008 Sept 2009

Agaru SACCO no data 58 no data 128

Busimbi CDTF Ltd no data 210 no data 6.70

Kigarama Farm-ers SACCO 848 675 no data no data

Kigarama Peo-ples SACCO no data no data no data no data

Kitagata Fi-nancial Serv-ices Cooperative Society

no data 494 no data 5.30

Kyamuhunga Peoples SACCO1,001 937 954.8 1,649.8


no data no data no data no data

MAMIDECOT 89 121 79.4 171.9

MED-Net 1,644 1,998 1,109 1,223

Muhame Fi-nancial Serv-ices Cooperative Society

no data no data no data no data

Nyaravur SACCO 24 65 12.35 3.68

Packach Nam SACCO 13 7 21.31 9.45

Panyimur SACCO 564 724 177 248

Pearl Microfi-nance Ltd 256 542 222.98 295.68

RUCREF 568 1,584 323.00 563.3

Rural Urban Savings and Credit Associa-tion (RUSCA)

863 784 1,038.1 1,065.03

Rushere SACCO no data 300 no data no data

VAD Microfi-nance Ltd no data 128 no data 33.00


Solar Loans

General product description

To help its members enjoy longer hours of business and improve the quality of lighting in their homes, some SACCOs and MFIs started this loan product. The product is considered innovative because of the rural setting and the fact that members suffer a lot due to lack power or clean lighting alternatives. It has however been accessed mainly by the rich because the equipment is expensive.

Institutions that offer this product:

Packwach Nam SACCO, Rural Urban Savings and Credit Association (RUSCA) ( RUSCA), Rushere SACCO

Target market:

Households and businesses

Loan purpose:

Business and home solar power equipment for lighting, running refrigerators, phone charging


Must be an adult member and buy adequate shares. The specific requirements are highlighted in table below.

Pakwach-Nam SACCOMust be a member the SACCO with at least one fifth • (20%) of required loan amount in share value Active savings account for at least 3 months •

Rural Urban Savings and Credit Association (RUSCA) Active saver with income generating activity. • If already a borrower from the SACCO, good performance • with past loans.

Rushere SACCOMember with at least 5 shares (each shares costs USh. • 10,000)

Loan period:

Up to 24 months

Pakwach-Nam SACCO 12 months


12 to 24 months

Rushere SACCO 3 to 8 months

Grace period:

Only provided by Pakwach Nam SACCO at 2 months, during which only interest is paid


Monthly

Loan pricing:

Varies with the institution as indicated in able below.

Pakwach-Nam SACCO

Rubare Modern Rural SACCO Development Association Ltd (RUSCA)

Rushere SACCO

Interest2% per month ( on flat rate)

1.5%% per month (declining balance)

3% per month (flat rate)

Loan processing

3% of loan amount Nil Nil

Application (USh.) 5,000 1,000

5,000 plus 2,000 for passport photos

Late payment3% per month on outstanding balance

Nil

5% on defaulted amount for the first month, 7% on the cumulative amount after 1 month

Insurance1% (kept at the SACCO as local fund)

Nil Nil


Solar equipment, livestock, logbooks, buildings and land. Insurance as a safety/ collateral measure is 1% for Rushere and Packwach Nam SACCOs. RUSCA has no insurance arrangements.

Microfinance Product Catalogue20 Microfinance Product Catalogue 21



Savings deposits are not a requirement for the clients of RUSCA. The requirements for the other 2 SACCOs include;

Pakwach-Nam SACCO 10% of required loan amount


None

Rushere SACCO None but borrower is required to be an active saver

Loan amounts (Ush.):

Institution Minimum Most common Maximum

Pakwach-Nam SACCO 350,000 700,000 4,500,000


200,000 1,500,000 3,160,000

Rushere SACCO 700,000 1,500,000 4,000,000

Process:

Pakwach-Nam SACCO

Member fills in application form, detailing requirements • e.g. home lighting, or business, number of bulbs requiredGet quotation from supplier • Appraisal by loans officer • Approval • Loan agreement• Disbursement to supplier• Delivery of equipment, installation and training on how to • maintain the equipment (Guarantee of one year given)


Client fills application form (specifications e.g. number of • bulbs and costs is available at the institution)Manager appraises and approves loan• Loan agreement signed• Disbursement to supplier• Client and RUSCA contact solar panel provider too inform • them about client requirementsDelivery of solar panel•

Rushere SACCO

Client fills application form (specifications e.g. number • of bulbs and costs is provided by the service provider available at the institution)Appraisal by loans officer • Approval • Loan agreement signed• Disbursement to supplier (Sun Power Technical Services • Ltd)Delivery of equipment • Client fills form to acknowledge receipt of equipment•

Physical evidence

includes loan application forms, repayment schedules, recommendation letters, loan ledgers, loan agreements and security forms.


Institution Product development process

Pakwach-Nam SACCO

Got money from Microfinance Support •Center (MSC) Ltd & MSC gave them the product featuresProduct was pilot tested by •


Product idea was generated from •members’ feedback. No formal process (Just met with staff •to decide product features).

Rushere SACCONo formal process followed. (Just •started giving out loan)

Portfolio and outreach

Number of loans disbursed

Portfolio OutstandingUSh. Million

Dec 2008 Sept 2009 Dec 2008 Sept 2009

Pakwach-Nam SACCO 9 5 12.60 4.00


19 8 18.45 16.41

Rushere SACCO no data 3 no data no data


Challenges and risks associated with solar loans

Although the solar loan has helped in rural electrification, and has been found to be cheaper than generators, the institutions providing this loan product face the following risks and challenges.

Security risk for example theft of the solar panels• Counter party risk, resulting from the other organization • with whom the MFI has joined forces to supply the equipment failing in some way, for example late delivery and response to equipment break down, delivery of poor quality equipmentOther challenges include high maintenance costs, • mishandling equipment by clients and lack of technical capacity by the institutions to maintain the equipment.

Lessons Learnt with Solar loans

With loan products that require a third party like solar • loans, equipment vendors need to have service providers/ technicians who will be available when neededThere is need to train the customers on how to use and • maintain the equipment like solar panels, rain water harvest facilities or other equipment before they borrow; otherwise the equipment is mishandled, leading to breaking down and raising costs for the borrowers. Product innovation needs to be informed by objective • market survey

Used for financing emergencies like sick livestock, unexpected hospital bills and other such likes to protect the investment of the institution and that of the borrower, and also protect their clients from money lenders. The product is an innovation to retain good clients who are in temporarily need of more cash, and who would thus have gone to get another loan from a competitor.

Offered by:

Rural Credit Finance Company Limited (RUCREF)

Target market:

Loan to customers with active loans and an excellent credit history (loan becomes part of active loan)

Loan purpose:

Used for meeting short term emergencies especially sick livestock, and school fees


Excellent credit history with the institution

Loan period: 1 month

Grace period: None

Repayment policy / pattern

– Within 1 month

Loan pricing:

Interest charged 4% per month Other Fees Nil

Application fees (USh.) 10,000/=

Loan commission 2% of loan amountLate payment fees 5% per month after 30 days

Insurance Requirements:

None


Covered by collateral of other active loan

Deposit Requirements:

None

Loan amount (USh.):

Minimum 100,000Average 300,000Maximum 700,000

Processes

The member goes through the following process to access the loan, which is accessed within one day

Pay for and fill in a very short application form (half a • page)Recommendation by LC 1 chairman (who is asked to sign • from the office to speed up the process)Approval • Loan agreement• Disbursement by cash•

Physical evidence includes loan application form and a signed loan agreement.


Idea was generated from client complaints about sick • cattle that forced them to borrow from money lendersDistributed questionnaires in Ngoma to capture more • information on product featuresPilot tested product in Ngoma district• Institution is in the process of reviewing the product•

Portfolio and outreach

2009: 23 loans disbursed, portfolio outstanding: USh. 7 Million

Successes:

The emergency loan had zero default so far and helps to reduce incidences of multiple borrowing (especially from money lenders) in addition to protecting the loan investment.



General description:

This is a loan that finances the construction of water tanks which act as water reservoirs for home use. It is considered innovative because it responds to the water needs of the hilly terrain of the areas in which it is offered, and its popularity. Many local people did not have access to safe water and yet rainfall is fairly plenteous)

Offered by:

RUSCA

Target market:

House holds

Loan purpose:

Rain water harvesting


Must be a member• Good previous loan performance• Have an income generating activity• Active saver•

Loan period:

12 – 24 months

Grace period:

No grace period

Loan pricing:

Pricing aspect Rate

Interest 1.5% per month (declining balance)

Commitment Nil


Late payment Nil

Insurance Nil


Collateral includes 20% upfront payment, and shares held. No insurance premium is charged.

Repayment:

Monthly


Minimum 1,800,000

Most common 2,900,000

Maximum 3,500,000Processes

Fill application form• Appraisal/ visit by the manager • Approval (by manager)• Signing of loan agreement• Actual tank construction is then done by RUCREF•

Physical evidence:

This includes loan application forms, repayment schedules, loan ledgers/statements and loan agreements.


No savings deposit requirements


As in solar loans.


2008: 12 loans disbursed; outstanding portfolio: USh. 44 Million2009: 6 loans disbursed; outstanding portfolio: USh. 23 Million

Successes:

The water harvest loan provides members with clean water, improved standards of living and increased productivity. The loan product has zero default rate.


Rain Water Harvest Loan

Kyera Okore Loan (“wake up early and work”)


This loan finances people involved in the sale of fresh agriculture products. It is considered innovative because it facilitates the sale of fresh agricultural products and can be given as an additional loan because of its short term nature. Opening a vent for the market through this product ensures agricultural producers a ready market and thus boosts backward linkages in the value chains of fresh agricultural produce.

Institutions that offer the product:


Target market:

People involved in buying and selling fresh agricultural products

Loan purpose:

Trading in fresh agricultural products


Must be a member• Good previous loan performance•

Loan period:

1 month

Grace period:

No grace period

Loan pricing:


Commitment 2%


Late payment 2.5% per day exceeded

Insurance 0.5% of the loan amount


No collateral requirements, It is based on a client credit history. 0.5% insurance premium is charged and collected on behalf of Chartis.


Monthly

Loan amount (USh.)

Minimum 100,000

Most common 500,000

Maximum 5,000,000

Processes

Registered as member• Fill an application form• Obtain LC1 and spouses/next of kin’s signature• Manager meets with loan officers, appraises• Loans committee approves• Training of clients in the loan terms and conditions and • usage of the loansSinging of loan agreement• Disbursement through the savings account•

Physical evidence:




Successes:

The Kyeera Okore loan has zero default rate and has helped the agricultural producers with easy to access working capital during peak seasons which has enabled them to handle larger volumes.


As in solar loans.


data not available.


Tunda Juba Loan (“sell quickly”)


This loan finances people involved in the sale of fresh/ unprocessed agriculture products. It is considered innovative because of its short term nature; backward linkage value to agricultural producers and forward linkage value to processors/ consumers, and no collateral requirements. It is very popular.

Offered by:

Muhame Financial Services Cooperative Ltd

Target market:

People involved in buying and selling fresh / non processed agricultural products

Loan purpose:

Trading in fresh agricultural products


Must be a member• Good previous loan performance• I share entitles the borrower to a loan amount that is 5 • times its value

Loan period:

1 day - 1 month

Grace period:

No grace period

Loan pricing:


Commitment 1%


Late payment 4% on defaulted amount

Insurance 1% of the loan amount kept by the institution


No collateral requirements, It is based on a client credit history. 1% insurance premium is charged and kept by the institution


Monthly

Loan amount (USh.):

Minimum 90,000

Most common 90,000

Maximum 100,000

Processes

To access a rain water harvest loan, the borrower goes through the following steps:

Proof of membership• Fill an application form• Obtain LC1 and spouses/next of kin’s signature• Appraisal by loan officers• Loans committee approves• Loan agreement signed• Disbursement through the savings account•

Physical evidence:



No formal process followed. (Just started giving out loan)


data not available (loan product not tracked separately by the information system)



Successes:

The Tunda Nzuba loan has helped the agricultural producers with easy to access working capital during peak seasons which has enabled them to handle larger volumes. The loan product has zero default rate.


Easy Communication Loan


Under this, a mobile phone is given to the client in kind. The institution buys phones of various categories and gives them out to clients as loans. This is considered to be an innovative loan given the location of the village. It is not easy for residents to access shops where mobile phones are sold. Members/ clients who would not afford a lump sum to pay for a phone get the phone and pay for it in instalment, with interest. This helps them in their businesses and social interactions.



Target market:

All members

Loan purpose:

Communication


Must be a member • The phone value requested should be 10 times the share • value

Loan period:

4-6 months

Grace period:

No grace period

Loan pricing :

Interest 3% per month (declining balance)

Commitment 1%


Loan agreement (USh.) 2,000

Late payment 10% on defaulted amount

Insurance 1% of the loan amount by Excel insurance


No collateral requirements. It only depends on character and good credit history of the client and the insurance premium..


Monthly


10% of the amount requested

Loan amount (USh.):

Minimum 100,000

Most common 150,000

Maximum 200,000

Processes:

Fill in an application form• LC I validations• Appraisal visit by the Loan Officer• Approval by Loans committee• Loan agreement• Disbursement through a savings members savings•

Physical evidence:



No formal process followed (just started giving out loan).


2008: 400 loans disbursed; portfolio outstanding: USh. 320 Million2009: 522 loans disbursed; portfolio outstanding: USh. 425 Million

Successes:

The Easy communication loan has zero default rate and has enhanced access to telephones and information dissemination.


Youth Savings Account


This is a social savings product aimed at helping secondary school children to build a savings culture. It is considered innovative because of its unique target group, delivery methodology and rationale. It is more of a social education/ sensitisation than being of economic benefit to the institution. In the long run however it creates a pool of informed clients for the financial sector

Offered by:

MAMIDECOT

Opening balance:

Any amount

Minimum balance:

No minimum balance

Interest payable:

No interest payable

Pricing (fees and charges):

No fees charged

Accessibility:

Savings can be accessed once a month

Saver identity:

Register of ledgers at school. Each saver is given an identification number

Processes:

Account opening:

This is done through a school which has an account with MAMIDECOT. Up to 60 students are considered in a specific class. Each student has an identification number, a ledger card and a box where to deposit. A ledger is kept and updated with the bursar. The school keeps a register of ledgers and a copy is given to MAMIDECOT. The boxes given to students have two keys one is kept by the bursar and another by the MAIDECOT Banking Officer.

Depositing:

It is the responsibility of the designated teacher to encourage students to make frequent deposits. To deposit, the pupils fill in a deposit slip and the bursar updates the ledger. The records of deposits made by the bursar are used by the Banking Officer

during his monthly visits to post deposits on the register of ledgers. These are then deposited on MAMIDECOT school collection account.

Withdrawing:

The student presents his/her identification number to the bursar. The bursar verifies that the student has enough funds. The bursar then adds the students name and the amount on an ongoing list. This list is then collected by the Banking Officer during his school monthly visit. Pupil fills in the withdrawal form and gives them to the bursar who in turn withdraws from the collection account. Pupils/ students are permitted one withdraw request per month.

On the working day before the Banking Officers visit, the bursar must deliver the schools collection account pass book and the withdrawal request form, signed by the two school signatories, to MAMIDECOT so that the bank officer can process the withdrawals and deliver the requested funds to the school the following day. The bank officer records each student’s withdrawal on the bank copy of the student ledger card for the bank and school as the withdrawals are made. The bank officer then updates the passbook with the total amount with drawn, after seeking authorization from the Manager


Product idea was generated from the need by the • institution to enhance the savings culture in Masaka, through education and easy accessibility.Product was piloted in 2 secondary schools • Product launch will be subject to availability of partners to • provide funding.



General Findings on Agricultural Loan Products

Challenges and risks with agricultural loan products

While surveying the MFIs for the financial products listed • in this catalogue, a series of structural challenges were found that make agricultural lending more difficult and more risky; they include the following:Lack or inadequacy of vital non-financial support to the • agricultural borrowers – in areas such as improvement of productivity, veterinary services market access, produce preservation, produce bulking and price bargaining.Sparse populations in rural areas making loan monitoring • expensive for the MFIs, yet agricultural loans need close monitoringPoor infrastructure (e.g. bad roads)• Scarcity of working agricultural knowledge and skills at • the MFIs to be able to adequately appraise agricultural loan proposals.Temporary and / or informal land ownership • Perishability of the commodities • Informality of the farmers’ operations, in some cases not • very monetizedLow farm gate prices especially during periods of bumper • harvest. The problem is compounded for perishable products.Difficulty in getting acceptable collateral• With fishing, the fishermen are frequently migrant people • who at times move to far away landing sites where they cannot be easily tracedSome of the food crops intended for selling are consumed • within the household, especially when actual yields are less than what was planned. This can leave less than enough for sale to service the loanLimited funding availability that is suitable for agricultural • finance. Very few wholesale lenders are willing to provide funds to the agricultural sector and even those who do lend short term, yet some agricultural enterprises require medium term financing, creating a mismatch.Poor processing and packaging of agricultural products • leading to low prices in the market Lack of alternatives to counter adverse weather conditions, • for example irrigation schemes.Loan diversion, especially because it has lower interest • ratesLimited extension services, leading to knowledge gaps on • modern agricultural practicesLow levels of education for many rural farmers which • makes it difficult to appreciate modern agricultural practices and the loan features.

Limited ability of agricultural producers to afford loans at • market rates. Most agricultural products have low margins and cannot afford market interest rates. Natural hazards: • - Drought, causing serious or absolute losses - Floods, destroying crops, livestock and farmers’ other belongings - Risk of pests and diseases, which may spread quickly, leading to a loss of part or all of the crop’s produce.Seasonality of agricultural production, making any regular • repayment pattern difficult to follow for those farmers whose major income is from agriculture.Unexplained low yields or crop failures poses additional • risk. If a harvest is insufficient to see people through to the next season, they may consume all the harvest, and use up all their savings. In addition, if in a given season part of or the full harvest is lost, new planting often has to wait until the start of the following season. Satisfying the repayments scheduled for a current seasonal loan may become impossible, if other sources of income cannot be mobilized.Price/market risk: Price uncertainty due to market • fluctuations is particularly significant where market information is lacking or even scanty, and more critical for the farmers who have no post-harvest handling facilities and live in more remote areas.Counterparty risk: The farmer may decide to change his/• her economic behaviour after the loan has been disbursed for example investing the money elsewhere or moving to another part of the country (wilful default).

Successes with agricultural loan products

Those challenges and risks notwithstanding, there are many encouraging success stories in the area of agricultural finance that display how access to and usage of financial means to improve agricultural production is helping people to improve their livelihood.

There are cases of poor people who started with modest •loan amount for cottage level agricultural production and have grown and diversified. An example is women who started as just vegetable growers have now diversified to other successful businesses (Panyimur SACCO).Some fishermen, who were boosted by loans from Panyimur •SACCO, have had their businesses grow until they even purchased valuable assets like cars.Farmers who access the agricultural loans have realized •increasing crop production – boosting their incomes and food security (Agaru SACCO, Oribcing SACCO, Pakwach Nam SACCO).



In one case, the agricultural loan product is the MFI’s cash •cow and biggest portfolio (MED-Net).Some farmers accessing MFI agricultural loans have •become model farmers for the others (MED-Net)Many farmers accessing the agricultural loans report •registering consistent increase in yields from increased loan amounts and improved farming methods (Pearl Microfinance).Parents have taken children to school, built houses •and improved other aspects of the household economy (RUCREF, Kyamuhunga Peoples SACCO).Agricultural financing has led to big improvements in •farming for both crop growing and rearing of animals. His Excellency the President of Uganda on his recent visit to Kyangyenyi named it a model agricultural village in Uganda – for others to learn from (Kyngyenyi Modern Rural Cooperative Finance Limited).Rushere SACCO and Kigarama Peoples SACCO regularly •register prompt and complete repayment if there are no natural calamities like drought.In some cases, good repayments and steady growth of the •portfolio. Several SACCOs registered an improved productivity of •agricultural enterprises and households financed (Kigarama Farmers SACCO, RUSCA, MAMIDECOT).Many SACCOs also registered improved savings volumes, •improved productivity through better inputs and expansion of farms (Kyamuhunga Peoples SACCO, Kitagata Financial Services Cooperative Society).

Lessons learnt with agricultural loan products

Addressing the challenges and risks and inspecting the successes has lead to a number of “lessons learned” or “good practices”:

The experience of the farmer is the core requirement for •good results. Accordingly, prudent lending decisions need to be based on an assessment of the enterprise management and financial capacity of the farmer.

For agricultural lending to succeed, especially loan sizes •should be suited to client needs.

Farming cycles and activity plans are documented and put in •the farmer’s loan file. Monitoring visits are then scheduled according to the activity plans, to ensure timely planting, weeding and reduce incidences to diversion of the loan and income from the sale of produce.

The lender needs to ensure that farmers who borrow purchase •good quality inputs like seeds, pesticides, fertilizers, feeds or fishing nets. Economising on the quality of the inputs will eventually minimise the yield and the potential to repay the loan.

The loan officers in the agricultural lending organization •need a mastery of farming seasons of the specific enterprises for proper structuring of the loans.

Secondary cash flow streams cushion the farmer / borrower •and the lender in an agricultural lending situation. Farmers should ideally have other sources of income to repay loan and therefore during appraisal, the cash flow analysis should consider all incomes and expenses of the household

Extension services for technical production aspects are •

necessary. With animal husbandry, the institution should generate a list of good veterinary doctors to recommend to their clients. With crop farming, normal agricultural extension should be used.

An informed farmer is a better agricultural borrower. •Training members from their villages at times when farmers are free from other obligations enhances the farmer’s competence and increases his potential for success – which is then also a success of the MFI.

In agricultural lending by MFIs, there is value in groups. •Whenever possible, work with farmer groups to get better information about clients, streamlined disbursement and repayment and easier monitoring.

Beneficial collaboration boosts production and helps the •agricultural borrowers to improve their yields and cash flows. Networking and leveraging the institution’s risks through cooperation with other programs like NAADs and district farmers’ associations helps to ensure the success of the loan product.

Crop patterns and phasing can reduce risks resulting from •yield volatility. Phased planting (planting in different plots at different times or seasons) can significantly reduce these risks.

Farmers need good storage to minimize deterioration of •produce and after harvesting; helping them to build common stores can at time pay off.

Land ownership affects effectiveness of agricultural lending. •Borrowers need to have some form of land ownership.

The loan structuring should be flexible in terms of repayment, •since harvesting and sales of produce differ from case to case and depend on the current market prices.

Start with small loans and then let the borrowers graduate •to bigger loans as their experience and your knowledge of them grows.

30

Support for Agricultural Finance

The following section provides information on some avenues / institutions that SACCOs and MFIs can partner with for access to agricultural finance in cash or in kind.

Formal Bank Loans

The formal financial institutions include the commercial banks (tier 1), credit institutions (tier 2) as well as MDIs (tier 3). Among the commercial banks, CERUDEB, DFCU, PostBank and Stanbic are the leading in terms of focus on rural and agricultural lending as well as savings mobilisation. The main focus in agricultural lending is primarily short term loans for commodity processing firms, trading companies and individual farmers with guarantee from the producer Organizations.

Many producers across the country have accessed individual loans from Centenary and Stanbic but mainly through highly organised groups and associations of farmers, which has been sighted as one of the reasons for success. DFCU has also been very active in financing farmers’ activities. It had invested in warehousing receipt system in Kapchorwa and also leasing equipment for agriculture production and processing.

Enterprise Linked Value Chain Financing

Some companies have invested in their supply chains throughout grower schemes. Such an arrangement ensures that control of quality and quantity is high, as input supplier transporter, final buyer and loan financier are often the same company. Such companies include British American Tobbaco (BAT) for tobacco in West Nile, Mukwano Industries for sun flower in Lira, Tilda Company for paddy rice in Eastern Uganda, Kaweri Coffee Plantation for coffee in Mubende, and Dunavant for organic cotton in Acholi sub region.

The objective is to gain both quantity and quality in the production phase of the value chain. This is through the arrangement where companies provide inputs such as seeds, equipment for ploughing, transport of produce, as well as extension services. Some companies provide these at no cost, with the implication that the costs of doing so are recovered when the harvest is delivered, while others make a charge. In the latter case, the inputs and services are usually provided as a loan, to be repaid on sale of the product. Some other companies do not extend credit for inputs and services but focus on a buying contract to ensure farmers have guaranteed market and processors have a secure supply of raw material.

Collateralized Warehouse Receipts

Warehouse receipts provide a method of collateralizing agricultural commodities and lowering the risk to the lender, thereby lowering financial charges to the borrower. The system

is composed of a tripartite collateral management agreement involving the bank, borrower and collateral manager / warehouse operator. Under this arrangement, the loan is secured by warehouse receipts issued by the warehouse operator to the financing bank as collateral. Credibility of the system rests on the reliability of the warehouse operator, who guarantees the quality, weight and the borrower’s performance on the contract including loan repayment.

In order to work well, the warehouse receipt system needs an effective law, and a regulator to certify and inspect the warehouse operators authorized to issue warehouse receipts against stored commodities system, so that ownership established by the receipt is not challenged. This critical requirement was achieved with the enactment of the Warehouse Receipt System Act (2006). The Uganda Commodity Exchange (UCE) is the institution tasked with licensing, regulating and supervising warehouse receipt systems. To date, one warehouse operator, Coronet Consult Limited has been licensed and three warehouses (in Jinja, Kasese and Masindi) operate under the system.

Government Initiatives

National Agricultural Advisory Services

The National Agricultural Advisory Services (NAADS), a key component of the Programme for the Modernisation of Agriculture (PMA), has been designed to focus on increasing farmers’ access to improved knowledge, technologies and information.

NAADS plays a pivotal role of coordinating all the activities of the Integrated Support for Farmer Groups (ISFG), an intervention under the Rural Development Strategy. Under this intervention, farmers benefit from a revolving fund that enables groups to acquire technology inputs and establish farmer managed revolving funds. The technologies and other associated inputs for example improved seed and better breeds are given to one person in the group, who is expected to pay back into the group account within a specified period of time. The funds are then used to purchase inputs for another member of the group until all members benefit. The ISFG scheme has enabled farmers to mobilize resources, keep records and manage the revolving scheme.

Microfinance Support Centre Ltd.

The Microfinance Support Centre Limited (MSC) is one of the principle government agencies set up to promote countrywide access to affordable microfinance services by all economically active across the country. Under the Prosperity for All Programme, Government earmarked MSC to be the wholesaler of loans / credit countrywide to SACCOs and other MFIs. MSC offers affordable credit through loan products that support the



agricultural production value chain and business development services.

Direct MSC Agricultural loans to enterprises must be at least USh. 500 Million – otherwise they pass through MFIs.

Products offered include the Agricultural Development Fund, which targets institutions / enterprises supporting and or engaged in primary agriculture production, agro processing and marketing. Activities funded include:

Productivity enhancement, which is intended to increase • primary production, for example purchase of breeding/parenting stock, farm implements and inputsAgro-processing, intended for value addition to primary • productionCollective marketing, for funding of the marketing process • for example buying of produce from farmers.Farm housing, for construction of structures intended to • improve production along the value chain for example storage buildings, marketing shades, collecting centres and commercial buildingsWarehousing, which supports the warehouse receipt • system and collective marketing in order to stimulate increased primary production.

Development Partners /Donors

World Food Programme

World Food Programme (www.wfp.org) is involved in the expansion of market opportunities for small holder farmer groups through Purchase for Progress (P4P) a five year pilot project that WFP launched in 2009 in partnership with the Bill and Melinda Gates Foundation. The project has two major aspects:

Developing market infrastructure both physical and 1. informationalEnhancing productivity in collaboration with the Ministry 2. of Agriculture and Animal industry and Fisheries.

It is expected that the project (P4P) will be the major catalyst of increased agricultural production and thus the solution to hunger

WFP also provides in collaboration with the Ministry of Agriculture and Animal Industry and Fisheries.

In collaboration with SG2000 and the Uganda Commodities Exchange, WFP sensitizes farmer group leaders in post handling and agriculture financing and has also introduced the warehouse receipt system by giving farmers and farmer groups forward contracts. This in a way boosts agricultural credit.

DANIDA Programmes

In the last eight years, DANIDA has through its Agricultural Sector Programme Support (ASPS) supported growth of commercialized agriculture in Uganda in a significant way. Taking a value chain approach, the programme has offered / financed technical assistance in the areas of productivity improvement, post harvest handling / processing technology, market access and increase in provision / availability of agricultural finance. Among the vivid contribution to agricultural finance has been the development of the Micro leasing Fund and helping

two banks (Centenary and Equity) to develop and roll out agribusiness focused micro leasing products. The programme also set up a guarantee fund, now managed under a Trust, to support agricultural lending.

The new Agribusiness Initiative component (ABI) of DANIDA’s U-Growth Programme now supports the private sector in achieving the objectives of the government of Uganda‘s Competitive and Investment Climate Strategy (CICS). The goal of the initiative is to strengthen the competitiveness of Uganda’s agricultural and agro-processing sectors. The initiative promotes and funds three major sub-components: Value chain development to improve performance of value chains and actors; Expansion of financial services supporting agribusiness to increase availability of financial services through wider and deeper delivery mechanisms; and finally trade-related sanitary and quality management to increase trade opportunities through improved enterprise-level supply side management in the area of sanitary standards and quality management.

GTZ / German Development Cooperation

One of GTZ’s programme components is the support to farmers and agricultural producers to have better access to agricultural and rural finance. Activities include policy and information management (e.g. through AFAP, AFYB, PMA), as well as the support of agricultural term investments: innovative financial product development and promotion; last but not least GTZ promotes on a case by case basis the outreach of financial services; e.g. an Animal Traction Scheme was piloted between Centenary Bank, CN-Cotton/Nile Agro Companies, GTZ/Sida FSD and DANIDA, and has now been extended to other areas and organizations. GTZ is also promoting the setting up of training modules related to agricultural finance.

GTZ has recently published the second issue of one of the prime publications on agricultural finance in Uganda and beyond, the “Agricultural Finance Yearbook 2009”.

The United States Agency for International Development (USAID)

USAID is the United States Government’s primary implementer of foreign assistance programs and has been operating in Uganda since the 1960’s. USAID/Uganda manages programs in five key areas of assistance, including economic growth, where it seeks to increase and diversify commercial agricultural production and enhance Uganda’s competitiveness in local and international markets. The underlying philosophy of USAID’s economic growth strategy is to improve the quality and quantity of marketable products and to solve the problems that hinder the agricultural industry’s growth. USAID focuses on cash crops such as maize, coffee, vanilla and oil seeds, with the ultimate goal of increasing the incomes of rural people.

Some of the beneficiaries include farmers in Lakwana sub-county, Gulu district (http://northernuganda.usvpp.gov/usaid.html), who were funded to acquire agro-processing equipment and construct agricultural warehouses, maize farmers in Kapchorwa, who were also funded to construct a maize warehouse that is supporting a receipts program that will allow farmers in to obtain commercial credit using stored grain as collateral.

USAID supports agricultural finance through support


to programmes implemented by the private sector, non-governmental organizations, indigenous civil society and faith-based organizations and the Government of Uganda. By offering financial and in-kind technical support to Ugandan farmers, these programmes afford farmers in the selected value chains a boost that would have otherwise proved costly.

Past USAID programmes / projects in this area include among others PRESTO, SPEED, Rural SPEED and PRIME-West. Ongoing programmes include the LEAD program and ACDI/VOCA, explained further in the subsections below.

USAID - LEAD Programme

Livelihoods and Enterprises for Agricultural Development (LEAD, www.ardinc.com/projects/) is a five year USAID funded project whose objective is to catalyze and contribute to the transformation of the agricultural economy through activities and interventions that increase rural productivity, incomes and competitiveness by providing support to selected food and cash crops through the value chain approach to agricultural development. LEAD’s technical approach to achieve results includes:

Setting-up Farmer Field School (FFSs), including • identifying candidates for the training of trainers;Targeting assistance to prioritized value chains, beginning • with robust markets working back through all actors to producers;Using Strategic Activities “Grant” Funds to stimulate • development of commercial value chains. This is a demand-driven approach where LEAD supports grant applications solicited from the private sector and also in partnership with public sector entities;Transferring technology via the FFSs to sustainably • increase technology adoption rates; andEstablishing and strengthening commercially-oriented • producer organizations

Some achievements include mobilization of farmers to ensure that at least 250,000 tonnes of rice can be grown, processed, branded and marketed annually, in the eastern and northern regions of the country. This has been in collaboration with Upland Rice Milling Company (URMC). In addition, 350 agricultural extension agents, called Field Facilitators, were hired and now operating in 35 Districts across 3 offices in Kampala, Lira, and Gulu.

ACDI/VOCA

In 2006, USAID awarded ACDI/VOCA a 5-year Title II Multi-Year Assistance Programme in Uganda. The program’s aim is to reduce food insecurity and increase nutrition awareness and best practices for vulnerable populations in Acholi, Lango and Teso subregions. Under ACDI/VOCA’s Grants and Development Unit (GDU), the project will;

Award food security grants to both local NGOs and • community-based organizations (CBOs)Provide technical assistance and training of trainers • (TOT) to local sub-grantees in agronomic methods, post-harvest handling, group savings mobilization and management, ACDI/VOCA’s signature Farming as a Business curriculum, collective marketing and natural

resource management. The grantee trainers then spread the knowledge gained from the TOT sessions to beneficiary farmers.

Trainings introduce beneficiaries to improved farming techniques, financial management guidance and simple business practices to maximize the production and marketing potential of their farms. In addition, the project strengthens community and household capacity to withstand future challenges by providing training support to farmer savings groups.

Working with Africare, ACDI/VOCA improves transportation infrastructure through the rehabilitation of feeder roads to increase access to local and regional markets. The improved roads help farmers distribute their products more efficiently and provide increased access to services.

The Kilimo Trust

The Kilimo Trust (www.thekilimotrust.org) was established in July 2005 with funding from the Gatsby Charitable Foundation. With headquarters in Kampala, the Kilimo Trust finances projects that test how to combine new technologies, market innovations for smallholders, and access to rural finance in ways that will increase smallholder incomes in East Africa. The Trust’s funding goes towards increasing the productivity of staple crops; managing agricultural diseases; connecting agricultural producers to markets; and promoting the use of cloned trees in agricultural landscapes.

Some of the beneficiaries under the Trust include AT Uganda Ltd and the Uganda National Agro-Dealers Association, who were funded to establish a retail network that sells fertilizer in packages affordable to small-scale Ugandan farmers

Kilimo Trust also owns a majority interest in an investment company, African Agricultural Capital, which provides risk capital to SMEs operating in the agriculture value chain in East Africa in ways which benefit smallholder farmers and local economies.

World Vision International/Uganda

World Vision (www.wvafrica.org) started working in Uganda in 1986, and now operates in 37 districts of Uganda, with 46 community-based Area Development Programmes (ADPs) as well as 65 short-term projects which together reach a population of nearly 10 million people.

World Vision is helping communities and families in Uganda to become less impoverished and more self-reliant. One of their key activities is helping farming families increase their crop production through the following:

Training farmer groups in improved farming techniques • like organic farming, row cropping and soil and water conservationProvision of appropriate technologies for example oxen • and ploughs, simple irrigation equipment, improved seed varietiesProvision of improved livestock breeds, seeds and other • inputs Farmer to farmer linkages•


KfW (German Development Bank)

KfW is currently drafting a rural financial sector programme to enlarge and improve the access of the low income population, particularly farmers, as well as MSMEs located in the rural areas of Uganda to sustainable financial services. This programme will consist mainly of two components: A rural financial sector challenge fund aimed at stimulating innovation within the sector and a wholesale component to provide funding to the financial sector for agricultural and MSME finance.

Other Programmes / Initiatives

There many other related donor-funded programmes / initiatives under African Development Bank, IFAD, World Bank and other multilateral / bilateral funding organizations. Although not all the above programmes / initiatives offer finance directly to farmers and other entrepreneurs in the agricultural value chain, they financially support enhanced performance in the sector.


Microfinance Product Development Handbook

A “do-it-yourself” handbook for rural and pro-poor microfinance institutions in their development of client-focused products.

Microfinance Product Development Handbook 35

Introduction

About the handbook

This handbook is a step-by-step guide to persons engaged in developing or refining products for rural microfinance institutions. It is meant to be a reference text for mainly SACCO and MFI board members, management and staff, (but also consultants and development partners) to accomplish the work with efficiently and effectively. The steps are presented in the logical, chronological order in which they should be implemented.

Most methodologies for financial services product development tend to be too long, elaborate and complicated for MFI board members, managers, staff and members/clients to follow. This handbook presents a fairly simple but logical and comprehensive way of developing financial products that are responsive to the target market.

The user of this document needs to exercise discretion when it comes to issues related to ownership and governance because MFIs differ in their legal/ownership form and size. While there is a multitude of institution types involved in rural microfinance, this handbook will refer to them with the general term “Microfinance Institution (MFI)”.

About the users of this handbook

The user of this handbook needs to have better than basic understanding of microfinance, financial service operations and rural financial systems and structures. Product development is, even for a modest rural financial institution, a high level undertaking. The user of this handbook should, therefore, as minimum, posses the following:

Post-secondary education qualification in a business related discipline• Operations/ credit experience in a financial institution• Working knowledge of banking including the front and back office operations, risk management and internal controls.• Some experience with rural financial services • Business / institutional analysis skills.•


EXECUTIVE SUMMARY:

12 Steps leading to the successful creation of client-focussed Microfinance products.

STEP 1: PLAN THE WORK

Inform the board, • management and all close stakeholders of the initiative early, indicating when, why and where you need them;Prepare the activity • checklist.

STEP 2: REVIEW POLICIES/ SYSTEMSFor each product, to determine:

If P&Ps are in place• If they are consistently • usedIf they are suitable• If they are adequate• If they are comprehensive•

STEP 3: HOLD FIRST MEETING with board and / or management, to review:

Current products & their • rationaleMFI product plans• Delivery processes• Policies & their rationale• Challenges •

STEP 4: REVIEW PRODUCTSto ascertain:

Demand by locals • Suitability of features • Product quality • Product profitability•

STEP 5: CONDUCT MARKET SURVEY

To get independent • opinion on product, policy and procedures Determine their suitability • for existing & potential users.

STEP 6: DO A SWOT ANALYSISFrom all the above, prepare a brief but comprehensive SWOT analysis table to bring out all issues affecting the MFI’s business & product health/suitability.

STEP 7: PRODUCE REVIEW REPORT covering all findings, analysis, conclusions and recommendations from the previous steps above.

STEP 8: DEVELOP PRODUCT PROTOTYPE,highlighting:

Key features of each • recommended productPricing • Testing and rollout plans•

STEP 9: HOLD 2ND MEETING (Board & Management) to present the report findings, conclusions and recommendations for product refinement & get comments and agreement, adjust report.

STEP 10 (FOR SACCOs ONLY): GET AGM APPROVALBoard presents the product prototypes and recommended refinements of existing products to the AGM for approval.

STEP 11: TEST & ROLL OUTTest the developed and refined products for at least six months, noting issues that need adjustments and getting board to approve them

STEP 12: INCORPORATE CHANGES INTO CREDIT MANUALUse all the approved new product prototypes, refinements of existing products and adjustments to update the Credit Manual

Microfinance Product Development Handbook36 Microfinance Product Development Handbook 37

STEP 1: Plan the WorkThe logical first step in systematic development of financial products is to plan your work in detail and to draw up a complete checklist of activities to be accomplished. This is often the most neglected, yet a key step for the success of the whole exercise. In planning the work:

Make appointments with the board chair, management, and all the other stakeholders who will be interviewed during the • process, indicating why where and when you need them;Prepare any market survey and other interview guides that you might need; this is necessary so that once in the field, you do • not forget to ask vital questions.Determine and document the information you will need to get from document reviews within your MFI•

As part of the work planning, it is useful to have a checklist of activities, which should include all the activities in the cycle presented in the Executive Summary of this handbook.

The following table offers generic guidance on activity planning for MFI product development.

Sample: Activity Planning Guide

Main Activities Sub Activities Responsible Dates

Review of Policies and Procedures (P&P)

Assemble copies of all available product Policies and Procedures (P&Ps)

Assess suitability of the P&Ps for the current and future operations of your MFI

From the review, decide if the P&Ps are comprehensive enough to cover all key product related issues

Examine if the P&P provisions are consistently adhered to.

First Board/ management meeting

Send message to the Board chair and management, indicating the date and time you would like to meet them

Using the guiding questionnaire under step (3), hold a free but well guided meeting with them.

Write a draft memoir of the findings and opinions from the meeting

Review the products on offer

For each product, use copies of the relevant guidelines and ask questions to enhance your understanding of the features, cost, other terms and conditions

Assess the demand or popularity of the product from numbers of clients accessing it

Determine the product quality, like portfolio at risk, default rate etc

Assess product suitability for the current and future markets

Determine the productivity of each product, either from management accounts or by conducting a cost/price analysis

Assess the qualitative effect of each product on the others


Conduct market survey

Using a pre-determined guide, interview the appropriate number of existing and potential clients to get their opinion about the products (you may use the sample questionnaire provided)

Analyse the findings and draft a market survey report, bringing out the most common views for and against each existing and potential product

Produce the Review Report

Compile all the findings from the above steps

Draft the Review Report and send/ share with board and management at least a week before meeting them to discuss it (you may use the sample format provided)

Develop product prototype(s) and rollout plan

Using the guidelines in step 8, produce the product prototype(s) for the new products that are really necessary and that can realistically be introduced and managed by your MFI.

Using the templates provided, draft the Testing Plan, Rollout Plan and Marketing Plan for each of the proposed new products

Present report, findings and proposals to board and management

Present the report highlighting the most important aspects of the findings and proposed new product features to the board and management

Get board and management comments and address them in the draft

Before the meeting ends, read out the adjusted recommendations, new/ refined product features and the agreed way forward to board and management, and agree with them on all these key aspects

Draft the Testing Plan, Rollout Plan and Marketing Plan for each of the proposed new products

Get AGM approval (for SACCOs only)

The board puts the product innovation and refinement proposals to the AGM and gets approval

Test run the product Using the Testing Plan already developed, (as part of product prototype) start testing the product.

Roll out the product Following a successful test, use the already prepared rollout plan (as is or adjusted in view of experiences during the testing period) to roll the new or refined products out.

Update Credit or Product Manual

After all the above processes, the MFI now has new and/ or refined products with clear features, terms and conditions of offer. Use these to update or develop the relevant product manual


STEP 2: Review the Policies and Procedures (P&P) ManualsFor each product, you need to check to determine whether there is a product policies and procedures (P&P) manual, or if there are provisions regarding it in a larger P&P manual or Operations Manual. After this, review the policy and procedure provisions for each, determining:

If the P&Ps are consistently used• If the P&Ps are suitable in view of customer satisfaction and institutional sustainability • If they are comprehensive enough to cover all key issues•

Highlight issues, if any, which are provided for in the P&P manuals but are not followed in practice and find out from the board and management why these provisions are not followed.

To affect all the above, execute the following activities in their sequence:

Ask, probe and understand the different products offered by the MFI1. Ask, for each product, if there are any written policies and procedures (whether separately for the product, as part of the 2. Credit/ Savings Manual or as part of a larger Operational Manual) Get copies of all available documents which have policies and procedures for each product3. Determine, for each product, whether there are adequate written policies and procedures to guide delivery and operations4. Where the policies and procedures exist, check the relevant operational records and reports to ascertain if the policies are 5. followed in day-today activities Fill the template below for each of the products.6.

Sample: Existence and Use of Policies and Procedures (P&P) for each Product offered by the MFI

Product/Attribute P&P in Place? Followed in practice?

Yes No Yes No

Loan Products, General

Concentration limits

Loan loss provisioning

Loan write-offs

Overall portfolio concentration limits

Loan Product 1

Borrower eligibility criteria

Minimum and maximum loan amounts

Contracting and documentation P&P


Security and recovery provisions

Pricing

Loan Product 2







Pricing

Loan Product 3






Pricing

Loan Product 4






Pricing

Savings Product 1

Account opening requirements

Access to savings

Interest payable on savings

Minimum balance

Intermediation limits (cash cover)

Other policies

Savings Product 2


Access to savings


Minimum balance



Other policies

Savings Product 3


Access to savings


Minimum balance


Other policies

Savings Product 4


Access to savings


Minimum balance


Other policies


STEP 3: Hold the First Meeting with Board and ManagementHold a meeting, pre-arranged, fairly unstructured but informative, with the management and board members/clients of the MFI. At this meeting, ask questions that will help you to enhance your understanding of:

Current savings products, their features and rationale• Current loan products, their features and rationale• Current other products, their features and rationale• Delivery methodologies and processes for each of the products• Policies and procedures• MFI plans for expansion and product diversification• Challenges with operating existing products• Board & management views on member satisfaction with existing products.•

The aim of this meeting should be to understand management/board’s views on the existing products, and to assess their commitment and ability to undertake further product development and/or refinement. In preparation for this meeting, ponder over and use the questions in the table below, in addition to any others that might be necessary.

Sample: Guiding Questionnaire for the Board / Management Meeting

1a) Who determines the features, terms and conditions of the MFI’s savings products? (if there is more than one savings product, repeat this enquiry for each of the products)

1b) What is the reason for the current interest rate (or lack of it) payable on savings?

1c) Repeat (1b) above for all the other savings product features, terms and conditions

1d) What do the members like and what don’t they like about the existing savings products, their delivery methodology and terms?

2a) Who determines the features, terms and conditions of the MFI’s loan products? (if there is more than one loan product, repeat this enquiry for each of the products)

2b) What is the reason for the current interest rate chargeable on the different loan product?

2c) Repeat (2b) above for all the loan product features, terms and conditions.

2d) What do the members like and what don’t they like about the existing loan products, their delivery methodology and terms?

3) What is the MFI’s plan for expansion and product diversification?

4) What challenges does the MFI face with operating existing products (loans, savings, others)?

During the discussions probe the reasons and get as much information as possible on the history, process and the user satisfaction with current products.

Furthermore, enquire on the causes and general board/ management and staff attitude towards inconsistencies in the application of the policies and procedures that were identified in STEP 2 above. The policy & practice inconsistencies identified should be filled in the table below and then record board & management response against each.

Sample: Management / Board responses to inconsistencies in policy application

Policy / Practice inconsistency Response


STEP 4: Review the Existing ProductsThis should be a focused, efficient and robust analysis of the existing products from both the external (users) and internal (documents / operations analysis) view points. The objective is to assess the suitability of each product.

Product reviews are necessary to ascertain:

Demand by members/clients• Suitability of features• Product quality• Product profitability•

4. 1 Savings Products

For the savings products, the issues to concentrate on should revolve around:A summary of the savings situation• The number savings products offered, features and characteristics of each• Requirements for accessibility and continual enjoyment of the product(s)• Procedures for deposit and withdrawal• A summary of the savings products’ situation in terms of the total savings portfolio and how this is shared among the • different products

Sample: Summary of Savings Situation

Total (USh Millions) % of total

Savings Product 1

Savings Product 2

Savings Product 3

Savings Product 4

Total Savings 100%

Sample: Table of Savings Product Features

Savings Prod. 1 Savings Prod. 2 Savings Prod. 3

Product Features

Opening Balance (USh ‘000)

Minimum Balance (USh ‘000)

Deposit Policy:

Steps to opening a savings account

How often is interest on savings credited?

Security of member deposits

Withdrawal Policy/ Access to savings


Savings blocked and used as collateral

Pricing

Interest paid to savers (%)

Service Fees (USh ‘000)

Account Opening Fees (USh)

Deposit Fees (USh )

Withdrawal Fees (USh)

Account Closing Fees (USh)

Hidden transaction costs

Promotion

Marketing/sensitisation

Advertising

Marketing materials

Place and Time

Location

Operating Days and Time

Physical Evidence

Passbook

Account Statement

General Ledger records

Membership Register

Day sheet

Ledger card

Process

Account Opening

Deposit procedure

Withdrawal procedure

Physical evidence/ records maintainedCost/ charges to the savers• Interest paid on savers’ deposits• Accessibility to the account holder•

Promotion of the savings products (means & effectiveness)•


4.2 Loan Products

For the loan products, the issues to concentrate on should revolve around:

A summary of the loan situation• The number loan products offered, and the terms and conditions of each• Interest charged on the different loan products •

Sample: Summary of Loan Situation

Total (USh Millions) % of total

Loan Product 1

Loan Product 2

Loan Product 3

Loan Product 4

Loan Product 5

Total Loan Portfolio 100%

Sample: Table of Savings Product Features

ATTRIBUTES LP 1 LP 2 LP 3 LP 4 LP 5

Product Features

Loan Purpose

Collateral/ Guarantee

Term/ loan period

Grace period

Principal repayment policy

Access requirements

Minimum loan amount (USh)

Maximum loan amount (USh)

Pricing

Interest charged

Service fees: (USh)

Commitment fees:

Form fees:

Fuel for verification visits

Legal fees


Late payment fees

Int’ calculation method

Promotion

Marketing/ sensitisation

Advertising

Marketing materials

Location

Operating Days/ Time

Operating Hours

Physical Evidence

Loan application forms

Repayment Schedules

Loan ledgers/ statements

Loan agreements

Security description forms

Process

Application process

Disbursement process

4.3 Analysis of the productivity and profitability of the existing loan products

To analyse the productivity and profitability of the existing loan products, you can use any of the tables below. The choice between the two tables below should be informed by the level of detail of information available on each product, and the competence of the product development champion or team in costing financial products

Sample: Simple Profitability Analysis (where no profit and loss information exists at product level)

PRODUCTANNUALISED YIELD

INTEREST FEES TOTAL

Loan product 1 % % %





To annualise a figure, simply multiply it with the number of times the period for which it is valid fits into one year, e.g. if the interest 2% per month, you multiply 2% times 12, resulting in 24%; if the interest is 5% for 3 months, you multiply the 5% times 4, resulting in 20%.


Sample: Detailed Profitability Analysis (where product level profit and loss information exists; could be done for a quarter, half year or full year – in any case, state the period)

Product attribute Prod. 1 Prod. 2 Prod. 3 Prod. 4 TOTAL

Interest Income(a)

Fees income (b)

Other Income (c)

Total Income (d) (=a+b+c)

Average cost of funds (e)

Direct cost; appraisal etc (f)

Apportioned overheads (g)

Total Operating Costs (h) (=e+f+g)

Product Profit and Loss Contribution (= d - h)

Requirements for borrowing (eligibility criteria)Procedures for loan application, assessment, contracting and disbursement• Procedures for portfolio management and delinquency control•

Still outstanding/ delinquenta.

Look out for any patterns common to the various categories above that could help in explaining delinquency, and list all the causes of delinquency

Sample Tracking Sheet for Loan Portfolio Analysis

Number % of total sampled

Total number of loans sampled 100%

Completed as scheduled

Completed with delays

Not yet retired

When doing this analysis of loan accounts, examine depth of screening appraisal, completeness of documentation, product type, loan period, grace, loan purpose, loan use, and borrower source of income etc.

Analyse the similarities and differences of the account in each category and across categories to see if there are common characteristics that the MFI should guard against in its current and future loan products. In further discussions with board and management, generate a discussion to probe from them what they see as the major causes of delinquency (if that is a problem).


STEP 5: Conduct a Market SurveyConducting a market research is an activity designed to help the MFI better understand the environment in which it is operating, its customer needs and preferences and preferences, and its position vis-à-vis the competition.

Market research is crucial to the development / refinement of the MFI’s products and services. It helps ensure that products are more competitive and responsive to customer preferences.

To get an objective opinion on the MFI’s products, delivery methodologies, policy and procedures and their suitability to users, carry out interviews with members/clients and non-members/clients of the MFI, roughly in respective proportions of 3:1. The number interviewed should be large enough to represent the entire population of members/clients. Indicatively, the table below sets out guidelines for this.

Guideline: Sampling sizes to be applied for market survey

TOTAL CLIENTS/ MEMBERS/CLIENTS

Sampling Size in % INDICATIVE Amount of Clients TO BE INTERVIEWED

Less than 200 Less than 20% Less than 40

200 to 500 20% to 10% in reducing order 40 to 50

501 to 1,500 10% to 5% in reducing order 50 to 75

1,501 to 3,000 5% to 3% in reducing order 75 to 90

3,001 to 5,000 3% to 2% in reducing order 90 to 100

Over 5,000 Not applicable At least 100

Using your knowledge of the MFI’s geographical area of coverage, choose places to interview people in, so that respondents come from different areas within the catchment- area, and not from just one concentrated area. Also, select respondent so that they fairly represent the different economic activities (mainstay) like trade, agricultural production, agro processing, artisanship etc.

The market survey should answer a few key questions such as:

Members/clients’ views on the MFI products• What they like about the products• What they do not like about the products• Suggestions on required changes/ refinements to existing products• Suggestions on required new products• Views on the effectiveness of the MFI leadership and management•

A ready to use sample market survey is included in the next pages


Sample: Market Research Questionnaire at Institutional Level

Name of respondent………………………………………………………………………

Designation……………………………………………………………………………….

List the products that the MFI is currently offering to the clients?

What do the members like about the current products?

What do the members dislike about the products our MFI offers?

What new products do you think our institution can offer our members which will also attract potential members?

How can we offer these products such that they differ from those currently available?

How will the new products affect our competitive strategy?

What impact do you expect the new products will have on our core competences?

How will the new product affect the profitability, liquidity, and other financial measurements of our institution?

How will the new product affect or complement our institutions mission?


Sample: Market Research Questionnaire at Client / Non-Client Level

Name of respondent/group ………………………………………………..

Already a client/ member of the MFI? YES/NO ……………………..........

Non – clients/members

If no, do you access financial services from another institution? Y/N

If yes, which institution/ organization?

Which products/ services do they offer?

Are you satisfied with their products /services and why?

If you are currently not accessing financial services from any institution, would you want to access them?

If so what are your financing needs – savings or loans?

What would you want their features to be?

Clients/members

If yes, what products/ services does our MFI offer you?

In your opinion, are the current products meeting your needs?

If not, what would you propose to be changed and why?

If yes how are these products meeting your needs?

Are you satisfied with the processes and procedures currently in place?

If not how would you want them improved?

What impact have the products/ services offered by our institution made on your incomes & livelihoods?

Apart from our institution, where else do you access financial services?

How do you compare that institution/ organization with ours in terms of service delivery?


STEP 6: Do a SWOT Analysis From all the above, prepare a brief but comprehensive analysis of the Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis table to bring out all issues affecting your MFI, using the following general guidelines:

Sample template for SWOT Analysis

Strengths: Weaknesses:

Point form list of positive internal aspects that could promote good business and/ or support the introduction of new products; Examples;Profitable existing products.Good customer care Suitable product pricingResource availability

Point form list of negative internal aspects that could work counter to the promotion of good business and/ or the introduction of new products; examples: Poor savings policyAbsence/ inadequacy of product manuals Poor portfolio management Weak back office / support systems

Opportunities: Threats:

Point form list of positive external circumstances that are suitable or supportive of the business and/ or new product development; ExamplesDemand for new products Keen development partnersGrowing entrepreneurial population

Point form list of negative external circumstances that are unsuitable or unsupportive of the business and/ or new product development; ExamplesStiffening Competition General bad MFI reputationPossible market pollution by government

In paragraph form, further elaborate on the SWOT analysis, for instance in areas such as:

Strengths – Internal advantages that the MFI enjoys, like good management, a focused/faithful board, good control systems to support product delivery, good physical security for savings, suitable product policies etc

Weaknesses – Internal disadvantages the MFI suffers with regard to its product variety and delivery, like improper back-office support systems, incompetent management, and absence of a methodical product development system or wrong product features.

Opportunities – External circumstances that make business prospects good for the MFI, like a growing market demand, increasing support from development partners, growing incomes of local people, weak competition etc.

Threats - External circumstances that make business prospects doubtful or challenging for the MFI, like a shrinking market for the products, reduced support from development partners, increasing levels of poverty among locals, strong existing competition, incoming competition etc.


STEP 7: Produce the Review ReportAnalyse all the findings from the previous steps and prepare a review report, focused on product and related issues. The report should be straight forward, simple enough to be understood by even the modest MFI management and board members/clients, and comprehensive enough to cover all the pertinent issues. It summarise the findings and conclusions of the previous steps conducted. This report is to be discussed with board and management.

Sample: Review Report Format for the Management / Board

LIST OF ACRONYMSCollect a list of acronyms used and their meaning. TABLE OF CONTENTSCreate a table of contents for a convenient overview of the report.

1. INTRODUCTIONGeneral context of the MFI, rationale for the review and expected benefits from the assignment A brief summary (in the form of bullet points) of the assignment objectives

2. EXISTING POLICIES AND PROCEDURESRefer to your findings in STEP2: REVIEW THE POLICIES AND PROCEDURES (P&P) MANUALS. A recoup of the availability and adequacy of product policies and procedures, including a summary of the extent to which the policies are followed.

3. MEETING WITH BOARD AND MANAGEMENTRefer to the conclusions in STEP 3: HOLD THE FIRST MEETING WITH BOARD AND MANAGEMENT. Display the stakeholder commitment to product innovation. Explain your objective view of the commitment and ability of the management and board to carrying out the product review and development.

4. PRODUCT REVIEW AND ANALYSISRefer to the data collected in STEP 4: REVIEW THE EXISTING PRODUCTS to provide the following information: Summary of savings productsSavings products featuresSummary of loan productsLoan products featuresLoan portfolio quality: Brief explanation of the results of the sample of recently retired/ past due loan accounts analysed. Explain any patterns common to certain products that could help in explaining delinquency, and list all the causes of delinquency. Statement of the overall profitability of the MFI’s operations. Analysis of the profitability of existing products. This should include a brief explanation of how the MFI costs and prices its products and a concise explanations of the profitability of each product. Non-Profitable and “Cannibal Products” should be pointed out clearlyand it should be shown why they are unprofitable.

5. RESULTS OF THE MARKET SURVEY What clients like about the products (list the most relevant field responses).What clients do not like about the products (list the most relevant field responses).Requested new productsRequested product refinementsOverview of the potential for business expansion

6. SUMMARY OF THE SWOT ANALYSISHighlights of the SWOT analysis in text form. List of persons interviewed / discussed with throughout the exercise.

7. RECOMMENDATIONSNew Products: State the types and reasons for the proposed new product(s) including their key features. Refinement of existing products: State the proposed changes /adjustments of existing products, giving reasons why. Other General Recommendations: Provide other recommendations for weaknesses and threats detected in the SWOT analysis.


STEP 8: Develop Product PrototypesAfter agreeing with the board and management on the key feature of the new and refined products, develop product prototypes for the new products, including:

The key features of each recommended product, including minimum and maximum loan periods, quantitative limits, product • purpose, repayment frequency, etc.Pricing: Fees, penalties and interest chargeable or payable• Construct simple profit & loss projections for each new product, assessing the potential contribution of each of the new • products to the institution.Recommended testing and rollout plans•

Sample: Loan Product Prototype

Features PROVISIONS

TYPICAL LOAN PURPOSE

ELIGIBILITY

LOAN AMOUNTS

LOAN PERIOD

INTEREST RATE

REPAYMENT PATTERN

FEES AND OTHER CHARGES

ASSET USEFUL LIFE

PROCESS FROM LOAN APPLICATION TO RETIREMENT (Chronological order)

OWNERSHIP OF ASSETS

LOAN SECURITY

LOAN DOCUMENTATION

LOAN RESCHEDULING

ACTION IN CASES OF DELINQUENCY

This example is for a loan product. The contents may be appropriately changed for use on a deposit/savings product.

Testing PlanThe Testing Plan sets out the key issues to be observed during the testing period, the length of the test period and parameters to be used to determine the potential success of the product. This should include a pilot monitoring plan with predetermined targets against which actual performance will be rated. It should also include the number of loans / clients targeted for the test. An example of the targets’ summary is presented in the following table:


Sample: Testing Plan

Date after AGM approval Performance indicator/ target Person responsible for tracking

End of second month

End of fourth month

End of sixth month

End of eighth month

End of tenth month

End of twelfth month

Launch and Rollout Plan

Give a concise explanation of the suitable procedure for executing the rollout after the test period.

Marketing Plan

Present a brief, comprehensive and practical; marketing strategy for the proposed new or refined product(s).

Other Recommendations

Make other recommendations to ensure that the proposed new or improved products succeed.

STEP 9: Present to Board & ManagementPresent the Review Report, together with the product prototype(s), including conclusions and recommendations for product refinement & development, to the board and management, noting their comments. Agree with them on the recommendations to be used in developing new product prototypes, and in refining the existing products. Identify crucial issues to obtain consensus on with board and management. During the discussions with board and management, record the comments and agreed positions as follows:

Sample: Format for Meeting Minutes

BOARD/MANAGEMENT COMMENT AGREED POSITION

After the meeting, use the above tabulated information to improve/adjust the report, so that it is fully acceptable to the board and management.


STEP 10 (For SACCOS Only): Get AGM ApprovalThe board should present the product prototypes and recommendations to the members/clients for democratic decision making. The board and other colleagues (especially management) should by this time be in position to explain the proposed new products, having been involved right from the start. They should therefore further clarify any questions and issues from the members/clients.

The board should then seek approval of the members/clients for the new products to be introduced and for the refined ones to be accordingly changed.

STEP 11: Test & Roll OutUsing the recommended testing plan, you should start offering the new products on a test basis, and administering the refined ones in their new state. The test should run for at least six months, during which time required changes are noted and referred to the board for approval. By the end of the test period, the new products should have been adequately refined. Improved product features by this time should ensure that the products are highly appealing to the users and profitable to the institution.

Roll out the new and/ or improved products in line with the earlier prepared rollout plan.

STEP 12: Incorporate Changes into Product Manual(s)After the test period, the new and refined products will have been sufficiently adjusted. At this final stage, the changes should be incorporated into the product manual(s), which from then on be adhered to.


Microfinance Product Development Handbook56

Plot 679, Wamala Rd AMFIU House, Najjanankumbi

P.O Box 26056 Kampala, Uganda. Tel: (256-414)259176 Email: [email protected]

www.amfiu.org.ug

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