Appraisal of agriculture credit projects
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Transcript of Appraisal of agriculture credit projects
Appraisal of agriculture credit projects Will it produce sufficient Returns to cover
the costs? Will it pay to borrow the money? Will the borrower have sufficient Repayment
capacity to repay the loan? A loan may be profitable, but the farmer still may not be able to meet the payments as they come due.
Does the farmer have the Risk Bearing Ability to carry the risk and uncertainty involved in using the credit?
Appraisal of agriculture credit projects - parameters
1. Return: The incremental use of capital
resources made available through credit must generate incremental net income sufficient to repay the amount of loan and also leave the farmer better off.
Debt to service ratio (in case of crop loan)
Appraisal of agriculture credit projects - parameters
2. Repayment capacity:
Refers to the amount available with farmer after meeting his farm and family needs and obligations to repay the loan
Appraisal of agriculture credit projects - parameters To calculate the repayment
capacity, four things are important:a. Total farm return with creditb. The type of credit – whether self
liquidating or non-self liquidatingc. Income from other sourcesd. Family living expenses and cash
obligations
Appraisal of agriculture credit projects - parameters Net farm return with credit (A) Income with other sources (B) Family living expenses (C) Other loan instalments (D) RC = A+B-C-D RC > Amount of instalment Repayment capacity should coincide
with the date of repayment.
Appraisal of agriculture credit projects - parameters Net flow after financing
= Net flow before financing + Long term loans + Short term loans – Debt servicing of long term loans – Interest on short term loans
The net flow after financing must be a positive figure to satisfy the criterion of repayment capacity.
Appraisal of agriculture credit projects - parameters
3. Risk bearing ability The investment may subject to a
degree of risk Cost might increase by x per cent Benefit might decrease by y per cent Benefits may start later than
anticipated Benefits may end earlier than
anticipated
Appraisal of agriculture credit projects - parameters
Sensitivity analysis is undertaken to recalculate the return and repayment capacity
Revised net incremental income Revised net farm income