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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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