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Rural and Agricultural Lending Bob Price FINCA International.

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Presentation on theme: "Rural and Agricultural Lending Bob Price FINCA International."— Presentation transcript:

1 Rural and Agricultural Lending Bob Price FINCA International

2 Overview of Microfinance FINCA: Village Banking and Rural Applications Case Studies: Rural Microfinance The Frontier: New Directions & Products

3 Why Microfinance? Sources: World Bank, CK Prahalad, The Fortune at the Bottom of the Pyramid; Visa estimates 4.0B people $2.6T income Sub-tier 1 $2-$4/day 1.3B - $730-$1500 income - $1T Sub-tier 2 $1-$2/day 1.6B - $360-$730 income - $890B Sub-tier 3 <$1/dy 1.1B - <$360 income - $198B 1.7B people $6.8T income $1,500-$20,000/year 100M people >$20,000/year Limited access to financial services The traditional financial service market Rural Problem 70-75% of poor live in rural areas; most depend on agriculture for livelihoods.

4 How Finance Helps Access to financial services Builds confidence in the future and willingness to make long-term investments Increases & diversifies income Builds assets & security EMPOWERS WOMEN

5 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, have % higher household income are 14%- 68% more likely to move up the economic ladder show family-wide improvement in nutrition invest more in their childrens education Compared to non-clients, microfinance clients… Impact of Microfinance

6 Overview of Microfinance FINCA: Village Banking and Rural Applications Case Studies: Rural Microfinance The Frontier: New Directions & Products

7 Where FINCA Works Eurasia Armenia Azerbaijan Georgia Kosovo Kyrgyzstan Russia Tajikistan DR Congo Malawi Tanzania Uganda Zambia Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua FINCA HQ Washington DC Latin America Africa Afghanistan Jordan Greater Middle East San Jose, Costa Rica Kampala, Uganda Kiev, Ukraine Regional Hubs

8 741,576 $341M $806M $22.7M 98% 263,900 $225M $371M - 115% 286,826 $90.8M $314M $10.9M 100% 130,425 $27.8M $106M $11.6M 99% Active clients Loans outstanding Disbursements Client savings FSS ** IndicatorRegio n Total Africa Latin America Eurasia * data as of 31-Dec-08 Annualized ** Financial self-sufficiency 47,561 $7.5M $15.3M $102k 46% GME Vital Statistics *

9 Profile of FINCAs Clients 70% of clients are women years old Support five family members plus other relatives, neighbors and orphans Typical Businesses – Rural clients: smallholder farmers, animal husbandry, agricultural marketers, food processors, etc. – Urban clients: street vendors, service providers, artisans, etc

10 FINCAs Products Credit – Village Banking (i.e., group loans) – Individual – Rural Loan Product – Housing, etc. Savings Insurance – Credit Life – Accident – Health Remittances

11 Individual Loan How Does Village Banking Work? Group Repayment Group Loan Village Bank Self-Employment Activities Sales Income -Interest -Principal -Savings -Interest -Principal -Savings Client Food Health Care Education Customers Group Lending Solidarity Guarantee Step credit

12 The RLP is a specialized loan product is: Rural Loan Products (RLP) designed for rural communities where there is a huge unmet demand for financial services supports rural income generating activities crop planting, animal husbandry, market gardening, dairy production, processing, and trade in rural produce Delivers loans from $200 to $1,000 with a term of up to twelve months (varies by locale) Relies on group solidarity to guarantee loans, capitalizing on the value of a clients reputation in the community

13 staple crop production Traditional Agricultural Lending Finances a specific commodity or growing activity. High risk for client and lending institution.

14 salaries pensions remittances trade income market gardening services income dairy production and sale Analyzes all income streams. staple crop production Constructs a suitable loan treating the rural household as an integrated economic unit. FINCA Rural Loan Product

15 Overview of Microfinance FINCA: Village Banking and Rural Applications Case Studies: Rural Microfinance The Frontier: New Directions & Products

16 FINCA & Food for Progress (FFPr) Partnership –B–Began in 2000 –E–Ecuador, Georgia, Guatemala, Nicaragua, Tanzania, Uganda, Zambia, to date Purpose –I–Infuse capital into rural & agricultural economies –I–Increase ag production, processing & marketing –I–Increase on and off-farm incomes –I–Increase access to food Outcomes –1–116,000+ clients served –6–676,000+ lives benefited –$–$93 million in recycled FFPr loan capital disbursed every year

17 FFPr Impact in Ecuador FFP #1 FFP #2 10-fold increase in client outreach and 50-fold increase in loan portfolio

18 FFPr Impact in Georgia FFP 2006: Exceed client target by 35% Doubled 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 FFP Client outreach increased 115%, loan portfolio increased 180% 3 new offices opened in secondary cities

20 to $3.17 (inflation-adjusted). Avg. USDA client loan size grew 29% from $406 in 2006 to $570 in to 15% in only 18% reported the same in 08. FFPr Impact in Guatemala Standard of Living Increased. Daily per capita spending grew from $2.92… Jobs Created. The number of clients with employees nearly doubled, from 8% in 06… Food Security Enhanced. In 2006, 30% of clients reported food insecurity… Agricultural Economy Strengthened. Nearly 70% of clients used their loans to build and grow ag. / ag-related business, a sector dominated by the poor.

21 Overview of Microfinance FINCA: Village Banking and Rural Applications Case Studies: Rural Microfinance The Frontier: New Directions & Products

22 Challenges Long-term Problem: Reaching the Remote Poor – 75% of world poorest reside in rural areas – 60%+ of rural families depend on agriculture (85% in Africa) Tactical Challenges: Operational Roadblocks Developing a sustainable service model is challenging – Dispersed and uneven demand – Poor infrastructure – Lack of client information – High risk enterprises – Lack of useable collateral Prevailing Circumstances: Global Economic Slowdown – Donations – stable, but at risk – Investments – drying up – Clients – remittances down increase transaction costs increase provisioning

23 68.0% Coverage 11.4% Coverage 20.2% Coverage 28.8% Coverage * State of the MicroCredit Summit 2004 Penetration of Microfinance

24 Future Directions & Innovations Goal: Reach the remote, rural poor via a sustainable financial services delivery model. Using handheld / mobile technology, ATMs, Point of Sale devices to save costs while: Expanding into remote, un-served rural areas Reducing human resource costs (time, tasks – e.g. recordkeeping) Improving availability of client information (performance / risk) Build Partnerships & Strengthen Existing Sectors and Mechanisms (e.g. Value Chains) FFPr support in Zambia stimulated value chain project FINCA exploring provision of financial services to the dairy value chain Applying Delivery Technology to Reduce Costs Providing Products to Enhance Resiliance Provision of financial products that reduce vulnerability & build safety nets Savings, micro-insurance, and targeted loan products (micro-energy loans)

25 Future Directions & Innovations Build Safety Nets to Enhance Resilience – savings, insurance, targeted loan products (e.g., micro-energy) Deploy Technology (mobile phones, ATMs, PoS) – expand to un-served rural areas – reduce human resource costs – improve availability of client information (performance / risk) Build Partnerships & Strengthen Existing Mechanisms – provide credit to the dairy value chain (outgrowth of FFPr activity in Zambia)

26 Thank You

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