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Improving Efficiency in Agricultural Micro Lending at Universal Banks by Michael Kortenbusch Business and Finance Consulting (BFC) Berlin May 5, 2006. The Development Finance Experts. Efficiency is the key factor for successful agricultural lending operations Challenges for Banks: - PowerPoint PPT PresentationTRANSCRIPT
Improving Efficiencyin Agricultural Micro Lending
at Universal Banks by
Michael KortenbuschBusiness and Finance Consulting (BFC)
BerlinMay 5, 2006
The Development Finance Experts
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Efficiency is the key factor for successful agricultural lending operations
Challenges for Banks:• Low Client Density• Client Accessibility• Uniform Products
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Agriculture in the Caucasus
Low transaction sizes and large distances to banks are the key challenges
Azerbaijan (Beylagan) Georgia (Shida Kartli)
Number of villages 250 313
Average farm size (ha) 5 1.25
Distance to next bank (km) 30 35
Supply with formal credit 10% 25%
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Three steps to improve staff productivity
2. Business Process Optimization 3. Product
1. Clustering
Customizing the approach reduces administrative costs
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1. Clustering
Case One: United Georgian Bank, GeorgiaImplementer: Bankakademie, BFC
Selection of one subsegment in target villages to increase the concentration of customers
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1. Clustering
Case Two: Parabank, Azerbaijan
Selection of two subsegments in target villages
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2. Business Process Organization
Case One: United Georgian BankImplementer: Bankakademie, BFC
– Creditomobile– Joint processing– Streamlined risk assessment– Collateral + peer pressure – “Universal” lending staff
Average loan processing time is 3 (express loan) and 10 (standard loan) days
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2. Business Process Organization
• Case Two: Parabank, Azerbaijan– Group lending– Social screening– No collateral for group lending – “Universal lending” staff
Loan processing time: 25 days
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3. Products
Express Agro Loan – USD 200 – 3,300– 30 - 36% p.a.– Up to 14 months– No registered collateral– Third party guarantee– Flexible repayment
schedule– No prepayment fee
• Case One: United Georgian BankImplementer: Bankakademie, BFC
Flexibility in collateral requirements and repayment modus are key factors
Loans are disbursed and repaid in local currency only
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3. Products
• Case Two: Parabank, Azerbaijan
Loans are disbursed and repaid in local and foreign currency
Flexibility in collateral requirements and repayment modus are key factors
Group Agro Loan– USD 100 – 1,500– 30 – 36% p.a.– Up to 24 months– No collateral– Group solidarity principle– Flexible repayment
schedule
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Results
Microlending to agriculture can be as productive as microlending to urban enterprises
UGB Georgia Parabank Azerbaijan
Agro Loan Officer productivity(#, USD) 22 – 35,000 16 – 20,000
Micro Loan Officer productivity(#, USD) 15 – 26,000 12 – 22,000
Outstanding Loan Portfolio(#, USD) 316 – USD 455,000 1,143 – USD 1,025,000
Portfolio at risk (%): + 1 day 3.5% 3.6%(0% for Group Loans)
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Results
Conclusions1. Clustering compensates for larger distances
2. Business Process Organization means:- Streamlining the credit cycle- Serving a group, instead of an individual
3. Product: flexible and easy to get
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Thank you!
Business and Finance Consulting (BFC)Microfinance Research and ImplementationActive in 9 countries:
Clients: EBRD, KfW, World Bank, EEDAddress:Zur Geest 7, 59399 Olfen, GermanyTel./Fax: (+49 2595) 385365E-mail: [email protected]: www.bfconsulting.org