Post on 29-Mar-2015
Rural and Agricultural Lending
Bob Price
FINCA International
Overview of Microfinance
FINCA: Village Banking and Rural Applications
Case Studies: Rural Microfinance
The Frontier: New Directions & Products
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 - $1TSub-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
100Mpeople
>$20,000/yearLimited
access to financial services
The traditional financial
service marketRural Problem
70-75% of poor live in rural areas; most depend on
agriculture for livelihoods.
How Finance Helps
Access to financial services
Builds confidence in the future and willingness to make long-term investments
Increases & diversifies incomeBuilds assets & securityEMPOWERS WOMEN
Sources: Measuring the Impact of Microfinance: Taking Stock of What We Know, Grameen Foundation USA Publication Series, December 2005. Doocy et al., Journal of Microfinance. Vol. 7, #1, 2005.
have 12-56% higher household
income
are 14%-68% more likely to move up the
economic ladder
show family-wide improvement in
nutrition
invest more in their
children’s education
Compared to non-clients, microfinance clients…
Impact of Microfinance
Overview of Microfinance
FINCA: Village Banking and Rural Applications
Case Studies: Rural Microfinance
The Frontier: New Directions & Products
Where FINCA Works
Eurasia
ArmeniaAzerbaijanGeorgiaKosovoKyrgyzstanRussiaTajikistan
DR CongoMalawiTanzaniaUgandaZambia
EcuadorEl SalvadorGuatemalaHaitiHondurasMexicoNicaragua
FINCA HQWashington
DC
Latin America
Africa
AfghanistanJordan
Greater Middle East
San Jose, Costa RicaKampala, UgandaKiev, Ukraine
Regional Hubs
Profile of FINCA’s Clients
70% of clients are women
20-50 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
FINCA’s Products
Credit– Village Banking (i.e., group loans)– Individual– Rural Loan Product– Housing, etc.
Savings
Insurance– Credit Life– Accident– Health
Remittances
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
$200to
$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 client’s reputation in the
community
staple crop production
Traditional Agricultural Lending
• Finances a
specific
commodity or
growing
activity.
• High risk for
client and
lending
institution.
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
Overview of Microfinance
FINCA: Village Banking and Rural Applications
Case Studies: Rural Microfinance
The Frontier: New Directions & Products
FINCA & Food for Progress (FFPr)
Partnership– Began in 2000– Ecuador, Georgia, Guatemala, Nicaragua,
Tanzania, Uganda, Zambia, to date
Purpose– Infuse capital into rural & agricultural economies– Increase ag production, processing & marketing– Increase on and off-farm incomes– Increase access to food
Outcomes– 116,000+ clients served– 676,000+ lives benefited– $93 million in recycled FFPr loan capital
disbursed every year
FFPr Impact in Ecuador
FFP #1
FFP #2
10-fold increase in client outreach and 50-fold increase in loan portfolio
FFPr Impact in Georgia
0
5,000
10,000
15,000
20,000
25,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Nu
mb
er
of
Cli
en
ts
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
Ou
tsta
nd
ing
Lo
an
Po
rtfo
lio
(U
SD
)
Number of Clients Outstanding Loan Portfolio
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
FFPr Impact in Guatemala
FFP
Client outreach increased 115%, loan portfolio increased 180%”3 new offices opened in secondary cities
to $3.17
(inflation-adjusted).
Avg. USDA client loan
size grew 29% from
$406 in 2006 to $570 in
2008.
to 15% in 2008.
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.
Overview of Microfinance
FINCA: Village Banking and Rural Applications
Case Studies: Rural Microfinance
The Frontier: New Directions & Products
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 RoadblocksDeveloping 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
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)
Thank You