Implementing Agricultural Lending under the TMSEF Peter Bereschka Agroinvestbank Liaison Manager RRS Regional Manager Presentation to the Rural Finance Workshop Dushanbe, November 29, 2006

Page 2 Implementing Agricultural Lending within the TMSEF 29/11/ Target Group Assessment of Agricultural Business Rationale for Agricultural Lending 4 4 Credit Conditions 5 5 Organization of Repayment Project Planning

Page 3 Implementing Agricultural Lending within the TMSEF 29/11/2006 Rationale for Agri-Lending Approach New TMSEF Agricultural Lending Approach overcomes deficiencies TMSEF Microbusiness Approach Relatively stable and regular cash flows enable monthly repayment Short maturities, no grace period Analysis of short period of business activity performed in the past as forecast of future repayment capacity Needs of Agricultural Business High seasonal fluctuations make flexible repayment plan necessary No immediate effect of investment makes long maturities and grace period necessary Fluctuating business activity makes analysis of activity performed in the past and forecast of future activities necessary

Page 4 Implementing Agricultural Lending within the TMSEF 29/11/2006 Target Group Focus on clients whose income depends to a significant part on: -Crop production -Production of fruits and vegetables -Animal husbandry -Beekeeping -Providing services and input for agriculture (e.g. harvesting services, fertilizers, machinery) -Trade and processing of agricultural goods -Rural non-agricultural activities Minimal working experience of business: 12 months Cotton production is excluded from target group

Page 5 Implementing Agricultural Lending within the TMSEF 29/11/2006 Assessment of client’s Business Skills (min. 12 months experience in certain activity) Assessment of client’s Technical Competence (few seasons of activity in certain field – can be acquired by working in family business, kolkhoz, as dependable worker, through education, etc.) Business Analysis I

Page 6 Implementing Agricultural Lending within the TMSEF 29/11/2006 Calculation of cash flow: -Analysis of daily sales from all regular and irregular cash- generating activities -Analysis of monthly cash flows of business for last season as basis for forecast of cash flows fur future season (up to 12 months) following a conservative approach: -Yield on assets purchased for credit are not included into the future cash flow -Current and expected development of prices of agricultural products is taken into consideration -Assumption of assets productivity according to the average productivity achieved in the market Business Analysis II Results basis for tailor-made repayment plan

Page 7 Implementing Agricultural Lending within the TMSEF 29/11/2006 Loan Purpose Working Capital - purchasing seeds, fertilizers and other goods required for client’s business activity Harvest Loans - short-term loans primarily for financing renting of machinery as well as additional labor resources Fixed Assets - new equipment, renovation of farm facilities, purchase of vehicles and tractors used for business purposes, purchase of long term land renting rights, etc.

Page 8 Implementing Agricultural Lending within the TMSEF 29/11/2006 Maturity First loanSecond loanThird loan Without 70% hard collateral12 months18 months24 months With 70% hard collateral18 months24 months Maturities over 12 months should be granted only of the loan purpose is increase of fixed assets

Page 9 Implementing Agricultural Lending within the TMSEF 29/11/2006 Up to 3 months if credit up to 12 months Up to 6 months if credit over 12 months Grace period can be granted for any instalment within the maturity (for instance – 7 th, 8 th and 12 th instalment). Grace Period

Page 10 Implementing Agricultural Lending within the TMSEF 29/11/2006 Standard scheme of equal monthly instalments Quarterly scheme, where interest is paid monthly and principal will be paid quarterly Tailor-made repayment plans adjusted on cash flow with monthly payments of interest and individually defined repayments of principal (foreseen for a later stage of the project) Remark: Monthly repayment of interest obligatory as one of the most important monitoring tools! Repayment Schedule

Page 11 Implementing Agricultural Lending within the TMSEF 29/11/2006 Collateral Hard CollateralSoft Collateral GoldDomestic goods of value Real EstateBusiness Equipment Term DepositsInventory (including livestock) Harvesters and TractorsFuture harvest (Right of long-term rent of land) (Vehicles) At least two types of collateral are required for each loan (mixed collateral) Guarantee letters issued by institutions or physical persons are accepted

Page 12 Implementing Agricultural Lending within the TMSEF 29/11/2006 Interest Rate and Commission Interest rate identical to rate of standard loans because: Product is not cheaper – more travel expenses, analysis more complicated and time-consuming Risk of default higher due to high seasonality and vulnerability to external shocks Significant difference between to standard and agricultural loans increases risk of corruption, manipulations, and adverse selection Commission applied for disbursement in order to: Cover additional expenses and compensate the higher risk of the bank Remunerate loan officers and branch managers for additional workload

Page 13 Implementing Agricultural Lending within the TMSEF 29/11/2006 Loan amount of up to USD 10,000 in the starting phase Disbursement in up to three tranches possible Formalization of credit lines based on registered collateral facilitates taking of repeat loans Parallel loans within the framework of a a credit line possible Particularities

Page 14 Implementing Agricultural Lending within the TMSEF 29/11/2006 Repayments can be done from any of the bank’s branches or entitled outlets Cooperation with other banks via money transfer Scheduling of repayments on the same day for a local group of customers -Employment of money collectors for remote areas -Self-Organization of the repayment group Organization of Repayment

Page 15 Implementing Agricultural Lending within the TMSEF 29/11/2006 Project Planning Projekt Planning & Kick-off Pilot Phase I Pilot Phase II Roll-Out in more TMSEF Branches 2 months  Adjustment of TMSEF Agricultural Lending Procedures and Conditions  Set portfolio projections  Selection of 6 LOs from existing TMSEF lending units selected for the pilot phase  Training of Loan Officers for Agricultural Lending  Start of Pilot Phase in two branches of one partner bank, i.e. Kulyab, Gissar, Kurgan-Tyube  Start of Pilot Phase in two branches of two partner banks, i.e. Kulyab, Kurgan- Tyube  Review of pilot phase (targets, portfolio quality, experience, etc.)  Implementation of recommendations by project management  Expansion of product to more branches and partbner banks 2 months December 2006 Ongoing TMSEF Agricultural Lending is based on existing TMSEF lending organization and procedures

Page 16 Implementing Agricultural Lending within the TMSEF 29/11/2006 THANK YOU FOR YOUR ATTENTION!!!