Parque Agricola - ++++via +++Lara Fira the Case of Fira (Mexico)
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Transcript of Parque Agricola - ++++via +++Lara Fira the Case of Fira (Mexico)
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8/2/2019 Parque Agricola - ++++via +++Lara Fira the Case of Fira (Mexico)
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ConferenceonSMEAsset-BackedFinancingInstruments:
Opportu
nitiesinEurope
-Structuredfin
ancein
Mexico:an
Innovativesolutiontointegratesmall
produ
cersinthesupp
lychain
-
Slovakia,May2008
AlbertoLaraLpez
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2
1.1.FIRA
FIRA
2.Financing
AgricultureinMexico
3.FIRA:Cre
atingvalues
olutions
4.FinalRem
arks
A
genda
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3
F
IRAisthelead
ingfinancialin
stitutionforag
ribusinessand
fisheries
inMexico
TrustFundcreatedbytheMexicanGovernment53yearsag
o.
Operatesasasecond-tier
bankthatprovidesfunding
andcredit
guaranteesto
thebankingsystemtofinance
agriculturalan
dfisheries
inMexico.
Publicentitywithprivatebehaviorandbestm
arketpractices
SummarizedBalanceSheetDecem
ber2007
(MillionDollars)
Assets
9,775.8
Financial
Instruments
4,664.5
Loans
3,812.9
OtherAssets
1,298.4
Liabilitie
s
5,047.0
Equity
4,728.8
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*Sm
allproducersare:PD1.-Produ
cerswhoseannualincomeis
notmorethan1,000timesthe
minimumwageoftheregionwhereinvestmentswill
be
madeandPD2.-Producerswhoseannualincomeishigherthan1,000timesbutlessthan3,000timestheminimumwageoftheregionwhere
investmentswillbemade.
FIRAhasincre
asedtheannualcreditflowat
atwodigitrateduring
thelastsixyears
2
,543
3,0
16
3,7
88
4,7
07
4,9
17
5,0
44
5,1
76
1,1
6
3
965
941
2,2
79
1,8
38
1,8
62
1,5
81
500
1,5
00
2,5
00
3,5
00
4,5
00
5,5
00
6,5
00
2
001
2002
200
3
2004
2005
2006
2007
FIRAstotalcreditflow
andcredittosmallprod
ucers*through
commercialbanks
GrowthRate15.9%
2001-2007
GrowthRate13.3%
2000-2007
(Milliondollars2007)
Total
SmallProducers
4
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5
1.FIRA
2.Financing
AgricultureinMexico
3.FIRA:Cre
atingvalues
olutions
4.Finalremarks
A
genda
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6
Agribu
siness,rurala
ndfishingsec
torsinMexico
Agribusinessh
aslesspricevolatilityandhasbecomethesectors
driver.
Also,therea
resomecompetitiveadvantages
inhighlyexportoriented
productsina
gribusinessandfisheriessectors.Ag
ricultural&AgribusinessGDP
(Millonofpesosde1993)
30,0
00
40,0
00
50,0
00
60,0
00
70,0
00
80,0
00
90,0
00
100,0
00
110,0
00
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Agricultural
Agribusiness
AgriculturalP
riceIndex
100
105
110
115
120
125
130
135
140
145
150
Ene-05
Feb-05Mar-05
Abr-05
May-05
Jun-05
Jul-05
Ago-05
Sep-05
Oct-05
Nov-05
Dic-05
Ene-06
Feb-06
Mar-06
Abr-06
May-06
Jun-06
Jul-06
Ago-06Sep-06
Oct-06
Nov-06
Dic-06
Ene-07
Feb-07
Mar-07
Abr-07
May-07
Jun-07
Jul-07
Ago-07
Sep-07
Oct-07
Nov-07Dic-07
Ene-08
Feb-08
Mar-08
CPINational
CPIAg
ribusiness
CPIAgricultural
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7
D
erivingfrom
asymmetricinformationalenderfacesanadverse
selection
p
roblem,specially
inagriculturala
ndfishingsectorsdominatedby
smalland
m
ediumsizeproducers.
T
hereforegatheringfinancialinformationiscostlyanddifficult,sinc
emanyof
these
producers
donotkeepa
formalaccounting.Thus,asse
ssingthe
p
roductive
capab
ility
and
financ
ialstrength
in
an
adequatem
anneris
e
xpensiveforaba
nk.
B
ecauseoftheinvolvedrisks,ban
ksdonotshowanactivelending
activityto
these
sectors,c
oncentrating
the
irloan
portfolio
s
in
otheractivities
like
m
anufacturing,h
ousing
andco
nsumerlending
.Therefore
the
lack
of
s
pecialized
know
ledge
aboutthese
sectors
res
ults
in
muchh
igherrisk
p
erceptionbythe
banksthanthe
actualrisk:Thu
s,asymmetricinformation
p
lays
againsta
ccess
to
credit
markets
for
agriculturalan
d
fishing
e
ntrepreneurs.
Agencyp
roblemsarisin
gfromasymm
etricinformation
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8
Becauseoftheweakenforcem
entofpropertyrightsinMexicoandtodebt
reliefprogramsinthepast,bo
rrowersinsome
instanceshave
hadweak
incentivestorepaytheirloans.
Thishashisto
ricallyresultedinlargenon-performingloanport
foliosand
lossesforban
ks.Inaddition,
thelackofriskassessmentcapabilitiesin
bankswithres
pecttoruralandfishingactivitieshasnotenable
dthemto
conductadequ
atemonitoringto
avoidsuchmoralhazardproblem
s.
Becauseoftheprofileofsmallagriculturaland
fisheries'participantsand
theirleveloffo
rmality,screenin
giscostly.Inad
dition,animportantpartof
theloansaresmallinsize,andtherefore,thec
ostoforiginating
aloanis
relativelyhigh.
The
geograph
iccoverageof
the
bankingsystem
inMexico
remains
concentratedinurbanareas.Highlydispersed
andsmallclientsmakeit
difficultforban
kstoservethea
griculturalandfis
hingsectors.
MoralHazardProbl
emsandTrans
actionCosts
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9
1.FIRA
2.Financing
AgricultureinMexico
3.FIRA:Cre
atingvalues
olutions
4.Finalremarks
A
genda
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10
FIRAsactivity
isaimedatso
lvingmarket
failures/imperfections
withamarke
tapproachandaclearvisionoffinancialm
arket
development
Transactioncosts
Transactioncosts
reduction
reduction
F
IRA
F
IRA
A
symmetric
A
symmetric
information
information
solutions
solutions
Market
Market
making
making
Valuecreation
Valuecreation
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11
FIRAapproache
dthetradingcompaniesandsuppliers
toofferaninno
vativesolution:StructuredF
inance
Solvingtheadv
erseselectionproblem
byfindingawaytomake
screening
effectiveandinexpensive.
Reducing
the
transaction
co
sts
for
theba
nking
sector
to
finance
commoditiessu
ppliers.
Mitigatingrisk
throughdiversificationandadeq
uatecollateralthatreduce
moralhazardproblems;
Hedgingpricevolatilityandcommercialrisksin
awaythatcan
beeasily
understoodand
managedbyafinancialinstitution
.
Designing
new
products
that
could
be
easilyunderstood,p
riced
and
managedbyfin
ancialmarkets.
MainChallengefacedbyFIR
Awasfindingsolutionstothefollo
wing
aspects:
Valuecreation
Valuecreation
Market
Market
making
making
Asymmetric
Asymmetric
information
information
solutions
solutions
Transaction
Transaction
costs
costs
re
dution
re
dution
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12
FIRA
puttogetherateam
of
expertsspecializedinagriculture,fisheries,
investmentbankingandlegalaspectstofindsuch
astructure.
Theresultwasafacilitythatallowed:
a)Trading
companiestom
aintainthecurre
ntrelationshipw
ithsuppliers
while
reducing
thelev
erage
ofitsba
lance
sheetan
d
itscredit
exposu
re,
b)Thecommoditysupplierstoreceiveloan
sinatimelyma
nnerandin
sufficientamountthatallowedthemtoreducetheirfinancialexpenses
and
c)Thefina
ncialsystemtoe
xpanditsinvestm
entopportunities
bycreating
debtinstrumentsthatco
uldbeeasilyassessedandprice
dbybanks,
withreducedriskandtransactioncosts.Adescriptiono
fthefacility
andits
rationalesfollows
:
Thesolutionth
atFIRAdesignedinvolvedtransferring
experiencesinsecuritizationofaccountsreceivables
Valuecreation
Valuecreation
Market
Market
making
making
Asymmetric
Asymmetric
information
information
solutions
solutions
Transaction
Transaction
costs
costs
re
dution
re
dution
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13
S
tructuredfinance:developin
gfinancialme
chanisms
a
daptedtoclient'sneeds
A
BSstructures:
Account
receivables
(working
capital
loans)
Stockofcomm
odities
F
IRA
worksa
s
a
s
tructureagent
F
IRA
p
rovides
F
inancing
and
e
nhancement
Op
timization
offirm's
balance
sheet
Liq
uiditytoallowgrowth
Str
engthenthesupplychain
Tim
elycreditforpro
ducers
Ne
wfinancialsolutionsformore
businessopportunit
ies
Valuecreation
Valuecreation
Market
Market
making
making
Asymmetric
Asymmetric
information
information
solutions
solutions
Transaction
Transaction
costs
costs
re
dution
re
dution
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14
StructuredFinancingwasd
evelopedinth
reegreat
strategicareas
Primary
activity
inG
rains:corn,sorghum,
wheat,beans,etc.
Fishing:aquaculturean
dcaptureofsh
rimpand
tuna.
InventoriesFinancing:sugar,corn,sorghum,
wheat,c
offee,soy,nut,orangejuice,
potatoes
andcaca
o.
This
allowed
positioningFIRA
like
a
developerof
businessesa
ndlinkbetween
smallproducersandbig
globalcorporations.(Example:Nestl-SmallProducers
ofCacaoand
MilkofGoat).
Valuecreation
Valuecreation
Market
Market
making
making
Asymmetric
Asymmetric
information
information
solutions
solutions
Transaction
Transaction
costs
costs
re
dution
re
dution
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15
Primary
Production
Phase
Nonbank
intermediaries
Structureoftitle
rights
Products
Storing
and
Warehou
sing
Inventory
financing
Pignoratious
Structurew
ith
CDstitles.
Trans
formation
Structureoftitle
rights
offba
lancesheet
inventory
financing
SalesPoint
Su
ppliers
de
velopment
Thevisionistoleaveindivid
ualfinancingandadopt
anintegralfor
mula
CD:DepositCertificate
Valuecreation
Valuecreation
Market
Market
making
making
Asymmetric
Asymmetric
information
information
solutions
solutions
Transaction
Transaction
costs
costs
re
dution
re
dution
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Thismechanismp
rovidesliquidityba
sedonfarmersinv
entories.
ThisisaRepoop
eration,itisnotaCreditoperation,soitdoesnotimpac
tonfinancial
statements.
Itdoesnotaffectfirmscreditlineswithotherfinancialin
stitutions.
E
xample1:WhiteCorn,YellowCorn&Whe
at
Inventoryfinan
cingsolution
OtherInvestors
(Ra
bobank,
Deutschebank)
Serv
icer
R
epoofCD
Portfoliosale
Creditderivative
M
exican
Banks
OTC
hedge
W
arehouse
Valuecreation
Valuecreation
Market
Market
making
making
Asymmetric
Asymmetric
information
information
solutions
solutions
Transaction
Tra
nsaction
costs
costs
redution
redution
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17
Generatesafin
ancinginstrum
entforvaluechainswithparticipationof
theprivatesector.
Thereisaprofessionalagentwhichhandleandmanagethecollateral
Theoutputinventorytomarke
tisordered,diminishingtheriskoflow
pricesassociatedtoseasonalexcessofgrain
supply.
Itcreatesliquid
ityfrominvento
riesforgrainsc
onsumer.
FortheBankisalowrisktransactionwithlo
woperationcosts,which
allowsthemto
obtainanattrac
tivereturnbyo
peratedvolume
.
E
xample1:Adv
antagesofgrainsinventory
financing
Valuecreation
Valuecreation
Market
Market
making
making
Asymmetric
Asymmetric
information
information
solutions
solutions
Transaction
Tra
nsaction
costs
costs
redution
redution
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18
BUYER
54
WAREHOUSE
WAREHOUSE
Credit$
Cessionof
Rights
BANK
BANK
Creditwitha
Guaranteeo
f
even96%
6
PRODUCERS,
DEALERSOR
CONSUMERS
PRODUCERS,
DEALERSOR
CONSUMERS
1
Product
2
Certificates
ofdepos
it
8
Margincalls
3 7
SERVICER
RepoofCD
SERVICER
$
E
xample2:Sug
arfinancing
Valuecreation
Valuecreation
Market
Market
making
making
Asymmetric
Asymmetric
information
information
solutions
solutions
Transaction
Tra
nsaction
costs
costs
redution
redution
PUT
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19
Primary
producers
have
access
to
technologies,
financing,
administrationofriskandprod
uctcommercialization.
Suppliers,dealersandindustriesobtaininp
utsinsuitable
amounts,
withthequality
theyneedand
intherequired
time,whichallowsthem
tomakeitsplanningofinvento
ries,production
andsales.
Consumersrec
eiveproductsa
ccordingtothe
irrequirements.
E
xample2:Sug
arfinancinga
dvantages
Valuecreation
Valuecreation
Market
Market
making
making
Asymmetric
Asymmetric
information
information
solutions
solutions
Transaction
Tra
nsaction
costs
costs
redution
redution
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20
Ourstructured
financeinstrumentsofferattractiveinvestment
opportunitiesi
nunexplored
markets
V
alue
chain
integration
Valuecreationfor
participants(income)
Development
analy
ticalcapability
financial
interm
ediaries
Developmentfinancial
market
L
ower
transaction
costs
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50
100
150
200
250
Repos
Fishingand
aquaculture
In2
007FIRAconductedoperati
onsforUS$42
1.7millionsof
structured
financing
Dollars
Millions$
20
9.7
20
9.7
1
5.3
1
5.3
196.7
196.7
Prim
aryActivity
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22
F
IRAalsoparti
cipatesinthederivativesma
rket.Thishas
allowed
theInstitution
tooffervalue
addedproduc
tsandtoimpr
ovethe
portfolioprofitability
Producersrequests
Cashflowgrouping
Interestrateswapclosing
Fixedinterestratecreditdisbursement
C.F.Bund
ling=MoreVo
lume=AttractiveInterestRa
tes
Lowincomebo
rrowersareperceivedhighrisk;th
eirsizelimitsthe
iraccess
toriskmanagementinstruments
.
SWAPSletsmallproducershav
eaccesstovery
competitiveinterestrates.
Smallamountc
redits(lessthan
$10,000dollars)
cangetfixedinterestrate.
ThefinancialriskforFIRAdoes
notincreasesinc
e
Thecreditofferedunderfixedinterestrateishedged100%w
ith
interestra
teswaps(zerom
arketrisk)
Creditriskisminimizedthr
oughastrictsele
ctionofcounterp
arts
Informativeweeklyrateproposal
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23
1.FIRA
2.Financing
AgricultureinMexico
3.FIRA:creatingvaluesolutions
4.FinalRem
arks
A
genda
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24
FIRAdevelopsnewway
stofinancesmallproducers
by
structuredfinancefacilitiesthatcanb
eunderstoodand
adoptedby
thefinancialm
arket
Bystructuredfinance,FIRAis
abletocoordinatestakehold
ers,align
theirincentives
anddistribute
risksalongthesystem
withapositive
impactonparticipantsthatres
ultinanincrea
sedaccesstoproducers
inobtainingloans.
Structured-finan
cedsolutionscanhelpovercomecreditratio
ning.The
keyistodesign
efficientways
toleverageeachparticipantsstrengths,
whilecreating
therightincentivesforthem
tomitigaterisksand
transactioncosts.
Throughreducingtransactioncostsandgiving
solutionstoasymmetric
information,FIR
Acreatesvalueaddedtoitsclients,includ
ingsmall
commodityprod
ucers.
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25
Pointstobe
consideredan
dlessonslearnedwithstruc
tured
financedproducts
Asaruleallcontractsmust
countoninsu
rancesagainstdiseases,
climate,robbery,damage,firesandaccidents
.
Alltheoperationswillhavetobeformalizedwithcontractsbetween
suppliersandp
laintiffs.Contra
ctsshouldestablishthatprod
ucersyield
therightsofcollectionbythes
aleoftheirproductionsothattheincome
oftheirsaleisappliedinfirstinstancetothepaymentofthe
creditplus
thegeneratedinterestsandthesurplusisgiventothem.
Contractsand
legaldocumen
tsshouldbedevelopedbya
nexternal
legaloffice,thathastheres
ponsibilitytog
ivelegalcerta
intytothe
operation.Com
paniesshould
becloselysu
pervisedandqualifiedin
ordertopreven
tbankruptciesorfrauds.
FIRA
isnow
focused
onp
romoting
verticalintegration
structures
relatedwithsupplierdevelopm
ent.
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26
ww
w.fira.gob
.mx