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Rural and Agricultural Lending

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. The traditional financial service market. 1.7B people $6.8T income

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Rural and Agricultural Lending

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  1. Rural and Agricultural Lending Bob Price FINCA International

  2. Overview of Microfinance • FINCA: Village Banking and Rural Applications • Case Studies: Rural Microfinance • The Frontier: New Directions & Products

  3. The traditional financialservice market 1.7B people$6.8T income $1,500-$20,000/year 100Mpeople>$20,000/year 4.0B people $2.6T income Sub-tier 1 “$2-$4/day” 1.3B - $730-$1500 income - $1T Sub-tier 2 “$1-$2/day” 1.6B - $360-$730 income - $890B Sub-tier 3 “<$1/dy” 1.1B - <$360 income - $198B Rural Problem 70-75% of poor live in rural areas; most depend on agriculture for livelihoods. Limitedaccess to financial services Why Microfinance? Sources: World Bank, CK Prahalad, The Fortune at the Bottom of the Pyramid; Visa estimates

  4. Increases & diversifies income Builds assets & security EMPOWERS WOMEN Builds confidence in the future and willingness to make long-term investments How Finance Helps Access to financial services

  5. Impact of Microfinance have 12-56% higher household income show family-wide improvement in nutrition are 14%-68% more likely to move up the economic ladder invest more in their children’s education Compared to non-clients, microfinance clients… 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.

  6. Overview of Microfinance • FINCA: Village Banking and Rural Applications • Case Studies: Rural Microfinance • The Frontier: New Directions & Products

  7. Where FINCA Works Eurasia Armenia Azerbaijan Georgia Kosovo Kyrgyzstan Russia Tajikistan FINCA HQ Washington DC Greater Middle East Afghanistan Jordan Latin America Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Africa Regional Hubs DR Congo Malawi Tanzania Uganda Zambia San Jose, Costa Rica Kampala, Uganda Kiev, Ukraine

  8. 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

  9. FINCA’s Products • Credit • Village Banking (i.e., group loans) • Individual • Rural Loan Product • Housing, etc. • Savings • Insurance • Credit Life • Accident • Health • Remittances

  10. designed for rural communities where there is a huge unmet demand for financial services 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 supports rural income generating activities crop planting, animal husbandry, market gardening, dairy production, processing, and trade in rural produce Rural Loan Products (RLP) The RLP is a specialized loan product is:

  11. Traditional Agricultural Lending Finances a specific commodity or growing activity. High risk for client and lending institution. staple crop production

  12. trade income salaries services income pensions market gardening remittances dairy production and sale Analyzes all income streams. Constructs a suitable loan treating the rural household as an integrated economic unit. FINCA Rural Loan Product staple crop production

  13. Overview of Microfinance • FINCA: Village Banking and Rural Applications • Case Studies: Rural Microfinance • The Frontier: New Directions & Products

  14. 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

  15. FFPr Impact in Ecuador FFP #2 FFP #1 10-fold increase in client outreach and 50-fold increase in loan portfolio

  16. FFPr Impact in Georgia 2006: Exceed client target by 35% FFP Doubled outreach, tripled portfolio, introduced an agricultural loan product (grew it to 32% of portfolio), grew from 9 to 27 offices

  17. FFPr Impact in Guatemala FFP Client outreach increased 115%, loan portfolio increased 180%”3 new offices opened in secondary cities

  18. FFPr Impact in Guatemala only 18% reported the same in ‘08. Food Security Enhanced. In 2006, 30% of clients reported food insecurity… Jobs Created. The number of clients with employees nearly doubled, from 8% in ’06… to 15% in 2008. Avg. USDA client loan size grew 29% from $406 in 2006 to $570 in 2008. Agricultural Economy Strengthened. Nearly 70% of clients used their loans to build and grow ag. / ag-related business, a sector dominated by the poor. Standard of Living Increased. Daily per capita spending grew from $2.92… to $3.17(inflation-adjusted).

  19. Overview of Microfinance • FINCA: Village Banking and Rural Applications • Case Studies: Rural Microfinance • The Frontier: New Directions & Products

  20. increase transaction costs increase provisioning 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 Roadblocks Developing 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

  21. 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)

  22. Thank You

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