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Module 5, Session 2 MAP 60/40 Cash Flow MICRO AGRI PRODUCT

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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.

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Session Objectives By 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

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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

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Higher loan amount: –Where repayment comes from non-farm sources + Production Example: Business loanable amount is P10,000 Agriculture loanable amount is P4,000 Total loanable amount is P14,000 Smaller loan amortization Example: P14,000 loan, 6 months, monthly installment Amortization for P8,400 (60%) – P1,400/mo. for 6 months Amortization for P14,000 (100%) – P2,333/mo. for 6 months Benefits of 60/40 to Clients

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Amortized Portion NOT 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)

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Lump Sum Portion NOT 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%)

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CLIENT QUALIFICATION Only clients with seasonal/term agricultural activities are offered this option. –Rice, Corn, Coconut, Mango, Sugarcane, Hog fattening, Other livestock

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DIFFERENT CASH FLOW SCENARIOS

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DEBT CAPACITY ANALYSIS GIVEN: LOAN TERM- 5 Mos. (10 semi-mo. installments) LOAN INTEREST- 2.00% (Business Amortized) REQUESTED LOAN AMOUNT- P 10,000.00

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DEBT CAPACITY ANALYSIS * Round-off to P6,000

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SCENARIO 1 Loan 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 700.00 Loan Entitlement (ARC x 10 installments) 7,000.00 Maximum Loanable Amount 6,364.00 (Loan Entitlement / (1+(2%x5mos)) Agriculture: None

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Amortization Schedule Straight amortization, no lump sum component. Total Payment at the end of the loan term is P6,600 Principal-P6,000.00 Interest- 600.00

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SCENARIO 2 Sources 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 700.00 Loan Entitlement (ARC x 10 installments) 7,000.00 Maximum Loanable Amount 6,364.00 (Loan Entitlement / (1+(2%x5 mos.)) Agriculture : Net Income P 6,000.00 Adjusted Repayment Capacity @ 35% ARCR 2,100.00 Maximum Loanable Amount 1,909.09 (ARC / (1+(2%x 5 mos.))

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Scenario 2: Amortization Schedule 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%

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Non-Farm : Bi-Monthly Net income P 2,000.00 (or amount available for debt service) Adjusted Repayment Capacity @ 35% ARCR 700.00 Loan Entitlement (ARC x 10 installments) 7,000.00 Maximum Loanable Amount 6,364.00 (Loan Entitlement / (1+(2%x5 mos.)) Agriculture : Net Income P15,000.00 Adjusted Repayment Capacity @ 35% ARCR 5,250.00 Maximum Loanable Amount 4,772.73 (ARC / (1+(2%x 5 mos.)) SCENARIO 3 Sources of payment from non-farm and agriculture. Income from agriculture is P15,000.

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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

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

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Non-Farm: Bi-Monthly Net income P 2,000.00 (or amount available for debt service) Adjusted Repayment Capacity @ 35% ARCR 700.00 Loan Entitlement (ARC x 10 installments) 7,000.00 Maximum Loanable Amount 6,364.00 (Loan Entitlement / (1+(2%x5 mos.)) Agriculture: Net Income P15,000.00 Adjusted Repayment Capacity @ 35% ARCR 5,250.00 Maximum Loanable Amount 4,772.73 (Loan Entitlement / (1+(2%x 5 mos.)) Adjusted Maximum Loanable Amount 2,800.00 Scenario 3-A Sources of payment from non-farm & agriculture. Loanable Amount from Agriculture is adjusted to meet the 60/40 policy

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Scenario 3-a: Amortization Schedule 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%

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Credit Buy Now, Pay Later. Credit Someone is willing to loan you money (principal) in exchange for your promise to pay it back, usually with interest.

Credit Buy Now, Pay Later. Credit Someone is willing to loan you money (principal) in exchange for your promise to pay it back, usually with interest.

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