1. Improving Efficiency in Agricultural Micro Lending at Universal Banks by Michael Kortenbusch Business and Finance Consulting (BFC) Berlin May 5, 2006 The Development Finance Experts

2. 2 Efficiency is the key factor for successful agricultural lending operations Challenges for Banks: Low Client Density Client Accessibility Uniform Products

3. 3 Agriculture in the Caucasus Low transaction sizes and large distances to banks are the key challenges Azerbaijan (Beylagan)Georgia (Shida Kartli) Number of villages 250313 Average farm size (ha) 51.25 Distance to next bank (km) 3035 Supply with formal credit 10%25%

4. 4 Three steps to improve staff productivity 2. Business Process Optimization 3. Product 1. Clustering Customizing the approach reduces administrative costs

5. 5 1. Clustering Case One: United Georgian Bank, Georgia Implementer: Bankakademie, BFC Selection of one subsegment in target villages to increase the concentration of customers

6. 6 1. Clustering Case Two: Parabank, Azerbaijan Selection of two subsegments in target villages

7. 7 2. Business Process Organization Case One: United Georgian Bank Implementer: Bankakademie, BFC –Creditomobile –Joint processing –Streamlined risk assessment –Collateral + peer pressure –“Universal” lending staff Average loan processing time is 3 (express loan) and 10 (standard loan) days

8. 8 2. Business Process Organization Case Two: Parabank, Azerbaijan –Group lending –Social screening –No collateral for group lending –“Universal lending” staff Loan processing time: 25 days

9. 9 3. Products Express Agro Loan –USD 200 – 3,300 –30 - 36% p.a. –Up to 14 months –No registered collateral –Third party guarantee –Flexible repayment schedule –No prepayment fee Case One: United Georgian Bank Implementer: Bankakademie, BFC Flexibility in collateral requirements and repayment modus are key factors Loans are disbursed and repaid in local currency only

10. 10 3. Products Case Two: Parabank, Azerbaijan Loans are disbursed and repaid in local and foreign currency Flexibility in collateral requirements and repayment modus are key factors Group Agro Loan –USD 100 – 1,500 –30 – 36% p.a. –Up to 24 months –No collateral –Group solidarity principle –Flexible repayment schedule

11. 11 Results Microlending to agriculture can be as productive as microlending to urban enterprises UGB GeorgiaParabank Azerbaijan Agro Loan Officer productivity (#, USD) 22 – 35,00016 – 20,000 Micro Loan Officer productivity (#, USD) 15 – 26,00012 – 22,000 Outstanding Loan Portfolio (#, USD) 316 – USD 455,0001,143 – USD 1,025,000 Portfolio at risk (%): + 1 day 3.5% 3.6% (0% for Group Loans)

12. 12 Results Conclusions 1.Clustering compensates for larger distances 2.Business Process Organization means: - Streamlining the credit cycle - Serving a group, instead of an individual 3.Product: flexible and easy to get

13. 13 Thank you! Business and Finance Consulting (BFC) Microfinance Research and Implementation Active in 9 countries: Clients: EBRD, KfW, World Bank, EED Address: Zur Geest 7, 59399 Olfen, Germany Tel./Fax: (+49 2595) 385365 E-mail: info@bfconsulting.org Website: www.bfconsulting.org