Improving Efficiencyin Agricultural Micro Lending

at Universal Banks by

Michael KortenbuschBusiness and Finance Consulting (BFC)

BerlinMay 5, 2006

The Development Finance Experts

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Efficiency is the key factor for successful agricultural lending operations

Challenges for Banks:• Low Client Density• Client Accessibility• Uniform Products

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Agriculture in the Caucasus

Low transaction sizes and large distances to banks are the key challenges

Azerbaijan (Beylagan) Georgia (Shida Kartli)

Number of villages 250 313

Average farm size (ha) 5 1.25

Distance to next bank (km) 30 35

Supply with formal credit 10% 25%

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Three steps to improve staff productivity

2. Business Process Optimization 3. Product

1. Clustering

Customizing the approach reduces administrative costs

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1. Clustering

Case One: United Georgian Bank, GeorgiaImplementer: Bankakademie, BFC

Selection of one subsegment in target villages to increase the concentration of customers

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1. Clustering

Case Two: Parabank, Azerbaijan

Selection of two subsegments in target villages

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2. Business Process Organization

Case One: United Georgian BankImplementer: 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

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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

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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 BankImplementer: Bankakademie, BFC

Flexibility in collateral requirements and repayment modus are key factors

Loans are disbursed and repaid in local currency only

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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

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Results

Microlending to agriculture can be as productive as microlending to urban enterprises

UGB Georgia Parabank Azerbaijan

Agro Loan Officer productivity(#, USD) 22 – 35,000 16 – 20,000

Micro Loan Officer productivity(#, USD) 15 – 26,000 12 – 22,000

Outstanding Loan Portfolio(#, USD) 316 – USD 455,000 1,143 – USD 1,025,000

Portfolio at risk (%): + 1 day 3.5% 3.6%(0% for Group Loans)

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Results

Conclusions1. 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

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Thank you!

Business and Finance Consulting (BFC)Microfinance Research and ImplementationActive in 9 countries:

Clients: EBRD, KfW, World Bank, EEDAddress:Zur Geest 7, 59399 Olfen, GermanyTel./Fax: (+49 2595) 385365E-mail: info@bfconsulting.orgWebsite: www.bfconsulting.org