slide1 n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
A New Rural Finance Model PowerPoint Presentation
Download Presentation
A New Rural Finance Model

Loading in 2 Seconds...

play fullscreen
1 / 33

A New Rural Finance Model - PowerPoint PPT Presentation


  • 55 Views
  • Uploaded on

A New Rural Finance Model. The World Bank December 5, 2002. C ONTENTS. Introduction Theoretical Framework Background A New Rural Development Model Banrural: What Went Wrong? Strategic Alternatives The New Model Financiera Rural What is Financiera Rural?

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'A New Rural Finance Model' - dillian


Download Now An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

A New Rural Finance Model

The World Bank

December 5, 2002

slide2

CONTENTS

  • Introduction
    • Theoretical Framework
    • Background
  • A New Rural Development Model
    • Banrural: What Went Wrong?
    • Strategic Alternatives
    • The New Model
  • Financiera Rural
    • What is Financiera Rural?
    • Results After Two Years of Operations
  • Lessons Learned and Challenges Ahead
slide3

INTRODUCTION

T h e o r e t i c a l

F r a m e w o r k

Evolution of Rural Credit as Public Policy…

  • Government Intervention
  • Directed Credit
  • Subsidized i-rates
  • Debt Forgiveness
  • Restructurings

Disappointing Results

Useful, but Insufficient

Macroeconomic Reforms

Structural distortions & regional disparities remain in rural sector

Financial Systems Approach

Government as facilitator of market forces

Non Interest-Rate,

Targeted Subsidies

Improvement in Producer & RFI Capabilities

Basic premise: an efficient, well structured, regulated rural financial market facilitates economic growth and reduces poverty.

slide4

INTRODUCTION

The History of Mexico’s Rural Credit Banks

First public bank focused on agricultural development, Banco Nacional de Crédito Agrícola, S.A.

On December 26, 2002, Congress passed a law authorizing the creation of a new development agency: FINANCIERA RURAL (FR).

1926

1975

2002

2003

Rural Credit Bank (Banrural) to unify existing agricultural and rural state banks. Ceased operations in 2002.

July 1st  FINANCIERA RURAL started operations.

slide6

BANRURAL

What Went Wrong?

Inefficient Operating Structure: system of 13 regional banks operating as “independent” entities

Operating costs above operating income

Distorting, subsidy-based first-tier operation

“Unlimited” access to public funds allocated by Congress

No risk-management strategies

Unsustainable non-performing loan ratio

No strategic planning

Political pressure and moral hazard; no payment culture among customers

Inadequate supervision from authorities; negative incentive structure

BANKRUPTCY

slide7

THE CONTEXT

Mexico’s Rural Sector

  • “Rural” refers to localities of 50,000 or less inhabitants.
  • 61% of extremely poor families live in rural areas.*

Spacial

Dispersion

Poverty

Covariance

Risk

Ethnicity Issues

RURAL SECTOR

CHARACTERISTICS

Seasonality

No Access to

Financial Svcs.

Migration

No Integrated

Prod. Chains

*Data as of 2004. World Bank estimates, using the ENIGH 2002.

slide8

2002

Strategic Alternatives

POLITICAL CONTEXT

  • Corporate Governance
  • Restructuring / Recapitalization

GOVT. BUDGET CONSTRAINTS

MARKET DEVELOPMENT

  • New Development Agency

PRESENCE OF SUSTAINABLE FINANCIAL INSTITUTIONS

MARKET FORCES ALONE WERE NOT ENOUGH TO ACHIEVE THE PUBLIC POLICY OBJECTIVE OF RURAL DEVELOPMENT

slide9

REDIRECTING STRATEGY

A New Rural Development Model

Poverty Reduction Through Self-Sustainable Institutions

Rural Development Agency with “private bank” practices

Sustainable

Rural

Financial

System

Credit: Emphasis on service & “down-up” approach to product design

Government as

a Facilitator

NEW RURAL DEVELOPMENT MODEL

Efficiency+Profitability+Social Development = Success

Subsidies: Temporary. Only directed to improving producer & RFI capabilities

No differentiated regulatory framework vs. private banks

slide11

COMPARATIVE ANALYSIS

Financiera Rural vs. Banrural

Banrural

Financiera Rural

  • Development bank focused on agricultural activities
  • Funding through “unlimited” access to loans from the Federal Government
  • Operated as a subsity manager, with a high ratio of non-performing loans
  • Inefficient cost structure; operating costs over 100% of operating income
  • Defficient risk management
  • New Development Agency focused on rural productive projects
  • Legally banned from taking deposits, loans or market funding. Must maintain endowment value over time to sustain operations
  • Operates with credit processes that apply international best practices. Has spread payment culture among clients
  • Efficient cost structure
  • Best risk management practices

* The Mexican Government received a USD 505 million IBRD loan for the creation of Financiera Rural.

slide12

FINANCIERA RURAL

Mission and Vision

Agriculture

Forestry

Structural Transformation of Rural Credit

Supports any productive activity in the rural area

Fishing

Productivity

Tourism

Commerce

FR

MEXICAN GOVERNMENT

Financial Resources

Supports the creation and consolidation of Rural Financial Institutions

Creation of a Rural Financial System

Training and Advisory Services

Quality of Life

Technical Assistance

* “Rural” refers to locations with up to 50,000 inhab.

slide13

FINANCIERA RURAL

Objectives

  • Grant credit to rural producers, directly[1] or organized in informal credit organizations, as well as rural financial intermediaries, through:
    • Products, programs and services designed to suit the specific needs of the rural sector
    • The use of commercial bank branches for the dispersion of funds and the reception of payments
  • Promote the creation, development, strenthening and organization of Rural Financial Intermediaries (RFIs), providing training, advisory and technical assistance services
  • Provide training, advisory services and technical assistance to producers for the better use of credit

[1] Even thouth currently Financiera Rural operates in the first tier, as well as the second, in the long term it expects to serve only as a second-tier lending institution.

slide14

FINANCIERA RURAL

Geographical Distribution

  • Six Regional Coordinating Areas
  • 96 Local Agencies (Branches)
  • Corporate Offices in Mexico City
slide15

FINANCIERA RURAL

Decision-Making Processes

  • 12 Members of the Board, Incluiding the Ministries of Finance and Agriculture, the Central Bank and several Agricultural Organizations.
  • Organizational Structure with 6 Operational Units, 6 Regional Heads and an independent Risk Management Unit; all report to the CEO.

CREDIT COMMITTEE

  • Top Management
  • Independent Members
  • Central Bank
  • Ministry of Finance

RISK MGMT. COMMITTEE

OPERATIONS COMMITTEE

slide16

FINANCIERA RURAL

An Integral Model

RURAL DEVELOPMENT AGENCY

Initial Endowment of USD 1.72 billion**

Technical assistance for credit enhancement and the creation of RFIs

USD1,534 Mill.

Credit*

USD 79 Mill.

pre-operating

expenses

USD 49 Mill.

Technical

Assistance

Credit

Supervised Rural Financial Intermediaries

Informal Rural Credit Institutions

Individual Rural Producers

*Of the initial USD 1.6 billion, USD 46 million could be used for the acquisition of Banrural assets (other than loans).

** Provided by Congress.

slide17

FINANCIERA RURAL

Second-Tier Customer Base

  • Rural Financial Intermediaries
  • Credit Unions (Uniones de Crédito)
  • Financial Cooperative Associations (Sociedades Financieras Populares*).
  • Thrift Cooperatives (Sociedades Cooperativas de Ahorro y Préstamo*).
  • Depository Warehouses (Almacenes Generales de Depósito).
  • Other Organizations
  • Agribusinesses
  • Non-regulated financial intermediaries
  • Microfinance organizations
  • Local producer organizations

*Governed by the new law for popular savings and loans (Ley de Ahorro y Crédito Popular)

slide18

FINANCIERA RURAL

Loan Pricing

RISK MARGIN

OPERATING COST

Interest Rate Components

Average: Cetes + 5 pp

INFLATION

slide19

FINANCIERA RURAL

Credit Enhancement

Commercialization

Of the Product

Conception of

the Project

FR C R E D I T

  • Before Granting
  • Credit
  • Business and
  • Market Plans

Specialized Technical Assistance and Training

CREDIT ACCOMPANIMENT

*Payment of 70% of the service cost, with an upper limit of USD 3,300 per item. Total support up to USD 19,600.

slide20

FINANCIERA RURAL

The Road to Intermediation

FR’s Credit and Technical Assistance to Develop Institutional Capabilities

Individual Producers

Supervised Rural Financial Intermediaries

Z

A

Unsupervised Credit Organizations

Establishment

Sustainable Development

slide21

FINANCIERA RURAL

Main Achievements After Two Years of Operations

slide22

TOTAL CREDIT

USD Million

--------Financiera Rural---------

---Banrural-------

Avg.

2001-2002

2003

2004

2005p/

Source: Financiera Rural.

p/Programmed

slide23

OPERATING COSTS / NET LOAN PORT.

45

7.5

Banrural

2002

FR

Oct 2005

%

MAIN INDICATORS

Financiera Rural vs. Banrural

NON-PERFORMING LOAN RATIO

NET INTEREST MARGIN

48.0

9.42

%

%

2.6

-1.67

Banrural

2002

FR

Oct 2005

Banrural

2002

FR

Oct 2005

EFFICIENCY RATIO*

623

%

96

45

Banrural

2002

FR

Oct 2005

*Operating Costs / Operating Income (Margin + Commissions + Trading

Net Income before training and technical assistance to RFIs and Repomo on non-loanable assets.

slide24

PROFITABILITY

Financiera Rural vs. Banrural

RETURN ON EQUITY

%

Banrural

2002

Banrural

June 2003

0%

3.5

FR 2004

FR 2005e

-32.8

-97.6

206

96

e/ Expected

slide25

CREDIT EVOLUTION

2 0 0 4 - 2 0 0 5

Nr. OF CREDITS

CREDIT AMOUNT

7.8%

8.9%

163,878

902

USD Million

Number of Credits

150,485

837

2004

2005 OCT

2004

2005 OCT

CREDIT THROUGH RFIs

62%

118

USD Million

73

96

2004

2005 OCT

slide26

CREDIT

2 0 0 4 - 2 0 0 5

LOAN RECOVERIES

LOAN PORTFOLIO

37.6%

60.9%

947

740

USD Million

688

460

2004

2005 OCT

2004

2005 OCT

  • Financiera Rural’s credit has reached 15% of total financing to Mexico’s rural sector, using its own resources and applying its own interest rate policies.
  • Most credits have benefited producers with anual income below 140,000 pesos (USD 13,084).
  • Over 387,000 producers have benefited directly from loans that average 62,000 pesos (USD 5,794).

2.9%

96

2.6%

slide27

STRUCTURE

Comparative Efficiency

PERSONNEL

OPERATING COSTS

69%

73%

Number of Employees

3,459

293

USD Million

1,061

79

BANRURAL

FINANCIERA RURAL

BANRURAL

2002

FINANCIERA RURAL

2005

OFFICES

206

6

96

12

Regional Centers

Banks

Branches

Agencies

BANRURAL

FINANCIERA RURAL

slide28

CONFERENCES AND SEMINARS

339

183

34

2003

2004

2005 OCT

TRAINING

Specialized Technical Assistance

TRAINING COURSES

TRAINED PRODUCERS

Nr. Of Courses

46,111

46,481

Nr. Of Producers

1,242

1,371

13,650

368

2003

2004

2005 OCT

2003

2004

2005 OCT

PARTICIPATING PRODUCERS

Nr. Of Producers

Nr. Of Conferences

95,881

39,395

10,283

2003

2004

2005

slide29

TRAINING

Creating a Rural Financial System

SUPPORTED ENTITIES IN TRANSITION TO BECOMING FORMAL RFIs

Nr.of Institutions

138

00

47

NUMBER OF “SUPPORTS”

GRANTED

2004

2005 OCT

151

Nr. Of Supports

53

2004

2005 OCT

slide30

Lessons Learned

and Challenges Ahead

slide31

LESSONS LEARNED

A New Rural Development Model

  • Macroeconomic reforms, although necessary, have not been enough to correct existing disparities and market imperfections in rural areas.
  • A new approach to rural development is based on an “integral” vision that goes to the micro-level using a “down-up” approach to ensure the success of entire production chains.
  • Unsuccessful past Government experiences which targeted rural credit development through directed, subsidized credit are being replaced with a new model, where:
    • The Government acts only as a facilitator for market forces to operate efficiently.
    • Subsidies are used only to build producer capabilities and to support the creation of financial intermediaries.
    • Government development institutions have to be profitable in order to ultimately reduce poverty.
slide32

CHALLENGES AHEAD

Sustainable Growth of Financiera Rural

  • Continue to strengthen the rural financial system in order to gradually pull out of the first-tier.
  • Maintain the value of FR’s endowment over time, through self-sufficient operations.
  • Tailor FR’s programs and products to a dynamic rural sector.
  • Differentiate interest rates based on tier and risk level of clients.
  • Diversify client base into non-agricultural activities.
  • Improve human resource management.
  • Foster the relationship and coordination with other government entities and international institutions.
  • Find alternative liquidity sources (loan securitization).
slide33

A New Rural Finance Model

The World Bank

December 5, 2002