Presentation on theme: "Rural and Agricultural Lending"— Presentation transcript:
1 Rural and Agricultural Lending Bob PriceFINCA InternationalMicrofinance is a powerful tool to fight poverty. When poor people have access to financial services, they can earn more, build their assets, and cushion themselves against external shocks. Poor households use microfinance to move from everyday survival to planning for the future: they invest in better nutrition, housing, health, and education.
2 Overview of Microfinance FINCA: Village Banking and Rural ApplicationsCase Studies: Rural MicrofinanceThe Frontier: New Directions & Products
3 Why Microfinance? 4.0B people $2.6T income The traditional financial service market4.0B people$2.6T incomeSub-tier 1 “$2-$4/day” 1.3B - $730-$1500 income - $1TSub-tier 2 “$1-$2/day” 1.6B - $360-$730 income - $890BSub-tier 3 “<$1/dy” 1.1B - <$360 income - $198B1.7B people $6.8T income$1,500-$20,000/year100M people >$20,000/yearRural Problem70-75% of poor live in rural areas; most depend on agriculture for livelihoods.Limited access to financial services“The poor stay poor, not because they’re lazy, but because they have no access to capital.”Milton Friedman, Economist & Nobel LaureateClick Once to Highlight Traditional Market (top of pyramid)Click Again to Demonstrate Gap (in bottom)Sources: World Bank, CK Prahalad, The Fortune at the Bottom of the Pyramid; Visa estimates
4 How Finance Helps Access to financial services Increases & diversifies incomeBuilds assets & securityEMPOWERS WOMENMicrofinance is a powerful tool to fight poverty. When poor people have access to financial services, they can earn more, build their assets, and cushion themselves against external shocks. Poor households use microfinance to move from everyday survival to planning for the future: they invest in better nutrition, housing, health, and education.Household incomeFinancial services can improve poor people’s lives by providing needed financing for business activities, which can increase their household incomes. While increased earnings are by no means automatic, reliable sources of credit provide a fundamental basis for planning and expanding business activities, which can enable clients to save, manage cash flows, and reduce the need to sell assets to in times of crisis.Asset buildingDue to increased income, and the ability to save and take on credit, microfinance can provide the means for poor people to acquire land, construct or improve their home, purchase animals and consumer durables, or create or expand their businesses. Studies show that clients who take part in microfinance acquire more productive assets over time than those who do not.Empowering womenMany microfinance programs target poor women. For women, money management, greater control over resources, and access to knowledge leads to more choices and a voice in family and community matters. Economic empowerment is accompanied by growth in self-esteem, self-confidence, and new opportunities. Many qualitative and quantitative studies have documented how access to financial services has improved the status of women within the family and the community. Women often become more assertive and confident. In regions where women's mobility is strictly regulated, women have often become more visible and are better able to negotiate the public sphere. Women involved in microfinance may also own assets, including land and housing, and play a stronger role in decision making. In some programs that have been active over many years, there are even reports of declining levels of violence against women.Reducing vulnerabilityBy increasing earnings and savings, financial services allow poor households to make the transformation from every-day survival to planning for the future. Households are able to send more children to school for longer periods and to make greater investments in their children's education. Increased earnings can lead to better nutrition and better living conditions, which translates into a lower incidence of illness. Increased earnings and access to microinsurance also mean that clients may seek out and pay for health care services when needed, rather than go without or wait until their health seriously deteriorates.Builds confidence in the future and willingness to make long-term investments
5 Impact of Microfinance have 12-56% higher household incomeshow family-wide improvement in nutritionare 14%-68% more likely to move up the economic ladderinvest more in their children’s educationCompared to non-clients, microfinance clients…Sources: Measuring the Impact of Microfinance: Taking Stock of What We Know, Grameen Foundation USA Publication Series, December Doocy et al., Journal of Microfinance. Vol. 7, #1, 2005.
6 Overview of Microfinance FINCA: Village Banking and Rural ApplicationsCase Studies: Rural MicrofinanceThe Frontier: New Directions & Products
7 Where FINCA Works Eurasia Armenia Azerbaijan Georgia Kosovo Kyrgyzstan RussiaTajikistanFINCA HQWashington DCGreater Middle EastFINCA has learned over the past two decades that our methodology is transferable to different regions because, and we make adjustments to our products and services, based on the needs of the area we are serving. We currently operate programs in 20 countries of Latin America, Africa and Eurasia and have established a regional hub system to provide technical assistance and oversight. Regional headquarters offices are located in Kampala, San Jose and Kiev.AfghanistanJordanLatin AmericaEcuadorEl SalvadorGuatemalaHaitiHondurasMexicoNicaraguaAfricaDR CongoMalawiTanzaniaUgandaZambiaRegional HubsSan Jose, Costa RicaKampala, UgandaKiev, Ukraine
8 Vital Statistics * Indicator Region Total Latin America Africa Eurasia GMEActive clientsLoans outstandingDisbursements†Client savingsFSS**130,425$27.8M$106M$11.6M99%286,826$90.8M$314M$10.9M100%263,900$225M$371M-115%47,561$7.5M$15.3M$102k46%741,576$341M$806M$22.7M98%* data as of 31-Dec-08† Annualized** Financial self-sufficiency
9 Profile of FINCA’s Clients 70% of clients are women20-50 years oldSupport five family members plus other relatives, neighbors and orphansTypical BusinessesRural clients: smallholder farmers, animal husbandry, agricultural marketers, food processors, etc.Urban clients: street vendors, service providers, artisans, etcOur clients are the productive poor, mostly women, who have lived their lives in severe poverty. Although FINCA does not discriminate, it targets women clients because they are the least able to access credit, and because women with children are typically the poorest segment of the poor.Of the 1.3 billion people living in poverty worldwide, women account for 70 percent. In the developing world, and even in the United States, a woman's chances of receiving credit are markedly lower than a man's, and yet, in an increasing number of families, the woman provides a substantial portion—or all—of the family's income. Our clients typically feed and clothe their families on a cash budget of $3 per week.In addition to supporting their immediate family, our clients often provide some income for their extended family and, in many areas (especially Africa), our clients also care directly, or indirectly, for multiple children orphaned by acts of violence or AIDS.
10 FINCA’s Products Credit Savings Insurance Remittances Village Banking (i.e., group loans)IndividualRural Loan ProductHousing, etc.SavingsInsuranceCredit LifeAccidentHealthRemittancesAdditional loan servicesSecond generation loansEducation loansAdditional social servicesHealth education (i.e., maternal health, HIV/AIDS prevention education)Business training services
11 How Does Village Banking Work? Group LendingSolidarity GuaranteeStep creditGroup RepaymentGroup LoanVillage Bank-Interest -Principal -SavingsIndividual LoanFoodHealth CareEducationClientSelf-Employment ActivitiesIncomeSalesCustomers11
12 Rural Loan Products (RLP) The RLP is a specialized loan product is:designed forrural communitieswhere there is a huge unmet demand for financial servicessupportsrural income generating activitiescrop planting, animal husbandry, market gardening, dairy production, processing, and trade in rural produceDelivers loans from$200 to $1,000with a term of up to twelve months (varies by locale)Relies ongroup solidarityto guarantee loans, capitalizing on the value of a client’s reputation in the community
13 Traditional Agricultural Lending Finances a specific commodity or growing activity.High risk for client and lending institution.staple crop production
14 FINCA Rural Loan Product salariespensionsremittancestrade incomemarket gardeningservices incomedairy production and saleAnalyzes all income streams.staple crop productionConstructs a suitable loan treating the rural household as an integrated economic unit.
15 Overview of Microfinance FINCA: Village Banking and Rural ApplicationsCase Studies: Rural MicrofinanceThe Frontier: New Directions & Products
16 FINCA & Food for Progress (FFPr) PartnershipBegan in 2000Ecuador, Georgia, Guatemala, Nicaragua, Tanzania, Uganda, Zambia, to datePurposeInfuse capital into rural & agricultural economiesIncrease ag production, processing & marketingIncrease on and off-farm incomesIncrease access to foodOutcomes116,000+ clients served676,000+ lives benefited$93 million in recycled FFPr loan capital disbursed every yearClick once for PartnershipFINCA has monetized 119,300 metric tons of US ag productsClick once for PurposeUSDA’s own goal is: strengthening private sector agricultural and economic development and enhanced food security in recipient countriesClick once for OutreachFINCA Zambia has disbursed 26,413 loans to new clients, surpassing the original target by 267%
17 FFPr Impact in Ecuador FFP #2 FFP #1 Click once for emphasis on textFINCA Ecuador doubled its client targets to 16,00010-fold increase in client outreach and 50-fold increase in loan portfolio
18 2006: Exceed client target by 35% FFPr Impact in Georgia2006: Exceed client target by 35%FFP(Click for emphasis on text)As a result of FFPr, FINCA Georgia:More than doubled its client outreachMore than tripled its portfolio.In 2004 disbursed a total of $7.5M. In 2007 disbursed $25M.To put this figure into perspective , $25M is $10M more that USAID provided to Georgia for Econ Growth in 2004 ($14M).Developed an ag. loan tailored to crop cyclesGrew its agricultural portfolio to 32% (2006)Focused on the poor as shown by an average rural loan size of $673 USD, compared to $ USD for other rural lendersGrew its geographic footprint from 9 to 27 officesDoubled outreach, tripled portfolio, introduced an agricultural loan product (grew it to 32% of portfolio), grew from 9 to 27 offices
19 FFPr Impact in Guatemala Click once for text highlighting:In 2007 alone, FG disbursed $23M, which is more than 5 times what USAID invested in econ freedoms strategic objective, and more than half what USAID invested in all programs in Guatemala that year.Client outreach increased 115%, loan portfolio increased 180%” 3 new offices opened in secondary cities19
20 FFPr Impact in Guatemala Food Security Enhanced.In 2006, 30% of clients reported food insecurity…only 18% reported the same in ‘08.Jobs Created.The number of clients with employees nearly doubled, from 8% in ’06…to 15% in 2008.Agricultural Economy Strengthened.Nearly 70% of clients used their loans to build and grow ag. / ag-related business, a sector dominated by the poor.Avg. USDA client loan size grew 29% from $406 in 2006 to $570 in 2008.Click for sequence.Ag sector includes production, processing and sales – value chainsStandard of Living Increased.Daily per capita spending grew from $2.92…to $3.17 (inflation-adjusted).
21 Overview of Microfinance FINCA: Village Banking and Rural ApplicationsCase Studies: Rural MicrofinanceThe Frontier: New Directions & Products
22 Challenges Long-term Problem: Reaching the Remote Poor 75% of world poorest reside in rural areas60%+ of rural families depend on agriculture (85% in Africa)Tactical Challenges: Operational RoadblocksDeveloping a sustainable service model is challengingDispersed and uneven demandPoor infrastructureLack of client informationHigh risk enterprisesLack of useable collateralPrevailing Circumstances: Global Economic SlowdownDonations – stable, but at riskInvestments – drying upClients – remittances downincrease transaction costsincrease provisioning
23 Penetration of Microfinance 68.0% Coverage11.4% Coverage20.2% Coverage28.8% Coverage* State of the MicroCredit Summit 2004
24 Future Directions & Innovations Goal: Reach the remote, rural poor via a sustainable financial services delivery model.Build Partnerships & Strengthen Existing Sectors and Mechanisms (e.g. Value Chains)FFPr support in Zambia stimulated value chain projectFINCA exploring provision of financial services to the dairy value chainApplying Delivery Technology to Reduce CostsUsing handheld / mobile technology, ATMs, Point of Sale devices to save costs while:Expanding into remote, un-served rural areasReducing human resource costs (time, tasks – e.g. recordkeeping)Improving availability of client information (performance / risk)Providing Products to Enhance ResilianceProvision of financial products that reduce vulnerability & build safety netsSavings, micro-insurance, and targeted loan products (micro-energy loans)
25 Future Directions & Innovations Build Safety Nets to Enhance Resiliencesavings, insurance, targeted loan products (e.g., micro-energy)Deploy Technology (mobile phones, ATMs, PoS)expand to un-served rural areasreduce human resource costsimprove availability of client information (performance / risk)Build Partnerships & Strengthen Existing Mechanismsprovide credit to the dairy value chain (outgrowth of FFPr activity in Zambia)Goal: Reach rural poor via a sustainable financial services delivery model