Module 5, Session 2

MAP 60/40 Cash Flow

MICRO AGRI PRODUCT

Introduction• The results of MABS’ survey in 2006

revealed that there remains a high demand for lump sum mode of payment among farmers.

• To address this concern, a partial lump sum repayment scheme called 60/40 was introduced.

• Compared to full lump sum, the 60/40 mode of payment will mitigate the risks of total non-payment in case something happens to agricultural production.

Session ObjectivesBy the end of the session, the participants will be able to:

• Understand the rationale behind the 60/40 mode of payment

• Pilot the 60/40 mode of payment• Use the MAP 60/40 Cash flow

What is 60/40 Mode of Payment?

• 60% of the total loan amount (P+I) is amortized while 40% (P+I) is paid lump sum.

• Only clients with seasonal/term agricultural activities are qualified to avail.

Example:– Rice, Corn, Coconut, Mango, Sugarcane, Hog

fattening, Other livestock

• Higher loan amount:– Where repayment comes from non-farm

sources + ProductionExample: Business loanable amount is P10,000 Agriculture loanable amount is P4,000Total loanable amount is P14,000

• Smaller loan amortizationExample: P14,000 loan, 6 months, monthly installmentAmortization for P8,400 (60%) – P1,400/mo. for 6 monthsAmortization for P14,000 (100%) – P2,333/mo. for 6 months

Benefits of 60/40 to Clients

Amortized PortionNOT LESS THAN 60%

• Collected on regular basis (amortized Principal)

• Interest rate is spread over the entire term of the loan and collected regularly (amortized Interest).

• Amortized portion may be more than 60% but not less.

Example: 10,000 Loan (Principal + Interest)Amortized portion = P 7,000 (70% of total)Χ Amortized portion = P 5,000 (50% of total)

Lump Sum PortionNOT MORE THAN 40%

• Principal and interest are collected at the end of the loan term

• The Lump sum portion should not be over 40%.

Example: P10,000 loan (Principal + Interest) Lump sum portion = P3,500 (35%)Χ Lump sum portion = P5,000 (50%)

CLIENT QUALIFICATION

• Only clients with seasonal/term agricultural activities are offered this option.

– Rice, Corn, Coconut, Mango, Sugarcane, Hog fattening, Other livestock

 

DIFFERENT CASH FLOW SCENARIOS

DEBT CAPACITY ANALYSIS

GIVEN:LOAN TERM - 5 M os. (10 semi-

mo. installments)

LOAN INTEREST - 2.00% (Business Amortized)

REQUESTEDLOAN AMOUNT - P 10,000.00

DEBT CAPACITY ANALYSISNET BUSINESS & HOUSEHOLD INCOME Bi-MonthlyDebt Capacity AnalysisEquivalent of Daily Net IncomeEquivalent of Weekly Net IncomeEquivalent of Bi-Monthly Net IncomeEquivalent of Monthly Net IncomeAmount Available for Debt Service(AADS) 2,000.00 Adjusted Repayment Capacity (ARCR @35%) 700.00 Loan Entitlement [ARC x No. of Installments) 7,000.00 *Max. Loanable Amount [Loan Entitlement / 1+(Int. x No. of Months)] 6,363.64

* Round-off to P6,000

SCENARIO 1Loan payment comes from non-farm source

only

Non-Farm : Bi-Monthly Net income P 2,000.00(or amount available for debt service)

Adjusted Repayment Capacity @ 35% ARCR 700.00Loan Entitlement (ARC x 10 installments) 7,000.00Maximum Loanable Amount 6,364.00(Loan Entitlement / (1+(2%x5mos))

Agriculture : None

Amortization ScheduleStraight amortization, no lump sum component.

Total Interest Principal Balance6,000.00

660.00 60.00 600.00 5,400.00 660.00 60.00 600.00 4,800.00 660.00 60.00 600.00 4,200.00 660.00 60.00 600.00 3,600.00 660.00 60.00 600.00 3,000.00 660.00 60.00 600.00 2,400.00 660.00 60.00 600.00 1,800.00 660.00 60.00 600.00 1,200.00 660.00 60.00 600.00 600.00 660.00 60.00 600.00 -

6,600.00 600.00 6,000.00

NON-FARM

Total Payment at the end of the loan term is P6,600Principal - P6,000.00Interest - 600.00

SCENARIO 2Sources of payment from non-farm and agriculture.

Income from agriculture is P6,000.

Non-Farm : Bi-Monthly Net income P 2,000.00(or amount available for debt service)Adjusted Repayment Capacity @ 35% ARCR 700.00Loan Entitlement (ARC x 10 installments) 7,000.00Maximum Loanable Amount 6,364.00(Loan Entitlement / (1+(2%x5 mos.))

Agriculture : Net Income P 6,000.00Adjusted Repayment Capacity @ 35% ARCR 2,100.00Maximum Loanable Amount 1,909.09(ARC / (1+(2%x 5 mos.))

Scenario 2:

Amortization SchedulePAYMENTGrand Total Total Interest Principal Balance Total Interest Principal Balance

6,000.00 2,000.00 660.00 660.00 60.00 600.00 5,400.00 - 2,000.00 660.00 660.00 60.00 600.00 4,800.00 - 2,000.00 660.00 660.00 60.00 600.00 4,200.00 - 2,000.00 660.00 660.00 60.00 600.00 3,600.00 - 2,000.00 660.00 660.00 60.00 600.00 3,000.00 - 2,000.00 660.00 660.00 60.00 600.00 2,400.00 - 2,000.00 660.00 660.00 60.00 600.00 1,800.00 - 2,000.00 660.00 660.00 60.00 600.00 1,200.00 - 2,000.00 660.00 660.00 60.00 600.00 600.00 - 2,000.00

2,860.00 660.00 60.00 600.00 - 2,200.00 200.00 2,000.00 - 8,800.00 6,600.00 600.00 6,000.00 2,200.00 200.00 2,000.00

NON-FARM (Amortized) AGRICULTURE (Lump Sum)

Lump sum Payment:

Last amortization P 660

+ Agri lump sum payment 2,200

Total payment, end of term 2,860

60/40 Ratio:

End of term payment P 2,860

/ Total loan payment 8,800

Lump sum rate to total 33%

Non-Farm : Bi-Monthly Net income P 2,000.00(or amount available for debt service)Adjusted Repayment Capacity @ 35% ARCR 700.00Loan Entitlement (ARC x 10 installments) 7,000.00Maximum Loanable Amount 6,364.00(Loan Entitlement / (1+(2%x5 mos.))

Agriculture : Net Income P15,000.00Adjusted Repayment Capacity @ 35% ARCR 5,250.00Maximum Loanable Amount 4,772.73(ARC / (1+(2%x 5 mos.))

SCENARIO 3Sources of payment from non-farm and agriculture.

Income from agriculture is P15,000.

PAYMENTGrand Totals Total Interest Principal Balance Total Interest Principal Balance

6,000.00 4,500.00 660.00 660.00 60.00 600.00 5,400.00 - 4,500.00 660.00 660.00 60.00 600.00 4,800.00 - 4,500.00 660.00 660.00 60.00 600.00 4,200.00 - 4,500.00 660.00 660.00 60.00 600.00 3,600.00 - 4,500.00 660.00 660.00 60.00 600.00 3,000.00 - 4,500.00 660.00 660.00 60.00 600.00 2,400.00 - 4,500.00 660.00 660.00 60.00 600.00 1,800.00 - 4,500.00 660.00 660.00 60.00 600.00 1,200.00 - 4,500.00 660.00 660.00 60.00 600.00 600.00 - 4,500.00

5,610.00 660.00 60.00 600.00 - 4,950.00 450.00 4,500.00 - 11,550.00 6,600.00 600.00 6,000.00 4,950.00 450.00 4,500.00

NON-FARM (Amortized) AGRICULTURE (Lump Sum)

Scenario 3:

Amortization Schedule

60/40 Ratio:

End of term payment P 5,610

/ Total loan payment 11,550

Lump sum rate to total 49%

Lump sum Payment:

Last amortization P 660

+ Agri lump sum payment 4,950

Total payment, end of term 5,610

In order to maintain the 60/40 ratio between Amortized and Lump Sum payments, the Agri portion of the loan must be adjusted.

Non-Farm : Bi-Monthly Net income P 2,000.00(or amount available for debt service)Adjusted Repayment Capacity @ 35% ARCR 700.00Loan Entitlement (ARC x 10 installments) 7,000.00Maximum Loanable Amount 6,364.00(Loan Entitlement / (1+(2%x5 mos.))

Agriculture: Net Income P15,000.00Adjusted Repayment Capacity @ 35% ARCR 5,250.00Maximum Loanable Amount 4,772.73(Loan Entitlement / (1+(2%x 5 mos.)) Adjusted Maximum Loanable Amount 2,800.00

Scenario 3-ASources of payment from non-farm & agriculture.

Loanable Amount from Agriculture is adjusted to meet the 60/40 policy

Scenario 3-a: Amortization Schedule

PAYMENTGrand Total Total Interest Principal Balance Total Interest Principal Balance

6,000.00 2,800.00 660.00 660.00 60.00 600.00 5,400.00 - 2,800.00 660.00 660.00 60.00 600.00 4,800.00 - 2,800.00 660.00 660.00 60.00 600.00 4,200.00 - 2,800.00 660.00 660.00 60.00 600.00 3,600.00 - 2,800.00 660.00 660.00 60.00 600.00 3,000.00 - 2,800.00 660.00 660.00 60.00 600.00 2,400.00 - 2,800.00 660.00 660.00 60.00 600.00 1,800.00 - 2,800.00 660.00 660.00 60.00 600.00 1,200.00 - 2,800.00 660.00 660.00 60.00 600.00 600.00 - 2,800.00

3,880.00 660.00 60.00 600.00 - 3,220.00 420.00 2,800.00 - 9,820.00 6,600.00 600.00 6,000.00 3,220.00 420.00 2,800.00

BUSINESS (Amortized) AGRICULTURE (Lumpsum)

Lump sum Payment:

Last amortization P 660

+ Agri lump sum payment 3,220

Total payment, end of term 3,880

60/40 Ratio:

End of term payment P 3,880

/ Total loan payment 9,820

Lump sum rate to total 40%