WAREHOUSE RECEIPT SYSTEM RUDI EXPERIENCE

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WAREHOUSE RECEIPT SYSTEM RUDI EXPERIENCE

• ESAANET NAIROBI MEETING
• Presented by A.P Lyimo
• 7th May 2009

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Abbreviations

• WRS Warehouse Receipt System
• RUDI Rural Urban Development Initiatives
• FBME Federal Bank of Middle East
• Dunduliza Financial Institution promotes
  establishment of network of Saccos
• Saccos Savings and Credit Cooperative Societies

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Abbreviation cont

• FSDT Financial Sector Deepening Trust
• JCS Techniques Private owned company based in
  Moshi, Tanzania
• DAI Development Alternative Incorporated
• PESA Private Enterprise Support Activities
• USAID United States Agency for International
  Development

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BACKGROUND INFORMATION

• Definition
• Warehouse Receipt System (WRS) is a trade in
  commodities whereby deposit of commodities
  (collateral) in designated warehouse enables the
  access of credit to the depositor.
• The system has been in operation in more than 100
  years in U.S.A and Canada, one of the reasons for
  its establishment being price stability.
• In Africa the system is gaining popularity and
  success e.g. South Africa, Zambia, Uganda and
  Tanzania.

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Rudi's WRS program

• The Warehouse Receipt System (WRS) RUDI program
  was created as a result of feasibility studies
  and sensitization initiated by the USAID-funded
  Development Alternatives Inc. Private Enterprise
  Support Activity project (DAI PESA), in the Mbeya
  Region of Tanzania.
• In ifakara, the WRS was launched in July 2007
• In Mbeya Region, Rudi's assisted WRS was launched
  in June 2008.

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How WRS works

• The farmer warehouses his paddy at harvest time
  when the prices are very low. He immediately gets
  a loan equivalent to 50-60 of the value of the
  warehoused paddy, from the local SACCOS. He uses
  his warehoused paddy as collateral for the loan.
  When the prices are favorable, he sells the
  paddy, pays off the loan plus interest and keeps
  his profit.

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OBJECTIVES OF WRS

• Main Objective
• The aim of the WRS is to enable farmers to
  benefit from seasonal increases in prices,
  increase the competitiveness of traders and raise
  commodity prices through collective marketing and
  bulking of product.
• Other Objectives
• Increase earnings from agricultural production
  and marketing

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WRS objectives cont

• Improve income of smallholder agricultural
  producers and small scale traders by increasing
  their market share
• Strengthen institutions and improve local human
  resources capacities to operate effectively in a
  liberalised market

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THE MAIN STAKEHOLDERS

• RUDI - Advisor
• GOT - Ministry of Agriculture
• APEX - Union of paddy Growers Association
• FBME - The facilitating bank
• DUNDULIZA The facilitating Institution
• SACCOS - Loan Scheme Facilitators
• JCS Techniques - The facilitating
  company
• BUYER - The purchaser of the paddy

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RUDI

• Sensitization of village association leaders on
  WRS
• Sensitization of farmers themselves and village
  Govt.
• Working with other stake holders to get the WRS
  going.
• Training of APEX management
• Linking the banks and other stake holders to APEX
• Identification of a suitable trainer for
  warehouse management (On contract basis)

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RUDI cont.

• Honest broker between the financial institution,
  Saccos, buyers and Apex
• Identify insurance company
• Close monitoring of warehouse operations
• Provide information on regular basis to the key
  stakeholders
• Link potential buyers to Apex

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GOT- Local government

• Working together with RUDI to sensitize the
  farmers
• Dealing with policy issues
• Provision of extension services
• Facilitating availability of subsidized
  fertilizer
• Provision of high quality seeds through the
  research institute

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APEX Union of registered farmer groups

• Work closely with RUDI to sensitize members on
  WRS
• Manage warehouse
• Approve payments to member groups
• Prepare reports to the bank, members etc
• Member of the local SACCO
• Negotiate with potential buyer on members behalf
• Provide price information to members

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APEX cont.

• Registered as companies
• Have offices/officers and a business license
• Have bank accounts
• Agreed at village level on what varieties of
  paddy to grow.
• Work with village associations to identify paddy
  collection centers
• Agreed with members to sell their paddy
  collectively

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APEX cont

• Have a marketing section within the Apex to deal
  with bulk sales of their paddy
• Work with their members right from planting the
  paddy to irrigation, fertilizing etc.
• Represent the farmer at all levels of discussions
  and negotiations
• Have regular meetings to give update reports to
  their members through council meetings, on all
  areas of their operations

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FBME

• Provided loan to Apex through Saccos in 2007 in
  Ifakara
• Showed interest in continue issuing loan to Apex
  through Saccos but interest was quite high 20
  p.a, Saccos 6
• Operate from Dar es Salaam. No branch in the
  district
• It channels loan through SACCOS

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DUNDULIZA

• Montreal based financial institution (Casse
  Populaire) saccos turned to bank
• Came to Tanzania to promote network of saccos (
  Apex saccos)
• Got loan from Financial Sector Deepening Trust
  (FSDT) only in Mbarali, Mbeya
• Gave loan to Apex through Saccos
• Charged interest of 7 per year to Saccos
• Saccos add 24 interest to Apex members

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SACCOS

• Obtain money from the bank as loans to service
  the farmers
• Work closely with APEX to ensure that the loan
  scheme for the farmers is working efficiently
• Ensure that each loan applicant not only gets his
  loan but also gets the correct amount, and that
  all deductions made are genuine.
• Keep all SACCOS charges to a minimum

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JCS Techniques

• Private company.
• Friend of RUDI
• Purchased rice from Ifakara in 2007. Paid 25
  over existing farm gate price
• Gave loan to Ifakara Apex in 2008
• Charged 10 interest a year
• Willing to assist farmers to increase income

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BUYER

• Purchaser of paddy/rice in the warehouse
• Ready to pay premium price for quality paddy/rice
• Pay cash through the bank
• Can be from the same districts or outside

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COMPONENTS OF THE WAREHOUSE RECEIPTS SYSTEM

• Warehouse
• Have calibrated certified weigh equipment and
  fire extinguishers
• Strong and properly finished floor, roofing,
  walls, doors and windows
• Reliable securities
• Be clean with good drainage system
• Accessible road to the warehouse throughout the
  year
• Proper lighting
• Properly fence
• Separate furnished and equipped office

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COMPONENTS OF THE WAREHOUSE RECEIPTS SYSTEM Cont

• Commodity
• Non Perishable
• Conform to the established official standards
• Suitable condition for storage, transportation
  and handling
• Be deposited by individual or group
• Be stored in its original state or changed form
  depending on the instructions by depositors or
  nature of the commodity itself
• Warehouse Receipt receipt that issued by a
  warehouse operator in respect of storage handling
  of the commodity. It shows quantity and quality
  of a commodity in storage
• Negotiable receipt goods are delivered to the
  person named in the receipt or his order
• Non- negotiable receipt goods are delivered to
  the bearer of the receipt only.

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COMPONENTS OF THE WAREHOUSE RECEIPTS SYSTEM
Cont

• Loan
• Funds are issued to the depositor upon
  surrendering a warehouse receipt (Certificate of
  Pledge)
• Measures used for consideration of loan facility
• Issue of loan at reasonable amount
• Use of risk mitigation instruments (future
  contracts, price insurance etc)
• Client character assessment
• Register of first charge by the lenders

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COMPONENTS OF THE WAREHOUSE RECEIPTS SYSTEM Cont

• Market
• - Individuals, Companies Cooperatives who can buy
  commodity from Warehouse at competitive price
• - Legal Framework
• The warehouse Receipt Act No 10 of 2005
• The warehouse regulations of 2006
• The Tanzania Warehouse Licensing Board

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WAREHOUSING THE PADDY
1
FARMER GROUP
APEX WAREHOUSE
Paddy
2
GRN
3
4
5
GRN
GRN Approval
LOAN
APEX
GRN Approval
SACCOS
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SELLING THE PADDY
1
BUYER
APEX
CASH
2
Loan Repayment
PADDY
4
WAREHOUSE
SACCOS
3
RELEASE ORDER
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How RUDI assisted WRS Operates?

• Farmer group in the village selects committee to
  manage warehouses. Members for the committee
  should be honest, hard worker and no criminal
  records.
• Committee checks quality of paddy brought to the
  warehouse and weighs. Issue a receipt to owners
  of paddy
• Committee is responsible to identify truck and
  transport the paddy to the Apex warehouse.
• The Apex has committee to manage WRS.

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WRS operations cont

• 6. The committee checks quality and rebag the
  paddy at 100 kg
• 7. Apex warehouse manager weighs the paddy and
  issue GRN to the group manager
• 8. The group manager presents the GRN to the
  Saccos where they receive 50-60 of the farm
  gate.
• 9. The amount of advance payment is approved by
  members before the season starts

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WRS cont

• 10. Farmer group borrows against commodity
• 11. Apex works closely with RUDI to collect price
  information from dar markets
• 12. When the price is good Apex identifies
  different potential buyers to discuss the price
• 13. Buyer gets the commodity from the warehouse
• 14. He pays cash through the bank
• 15. Apex paid the loan with interest, charge
  agreed commission fees and paid members.

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• \

Inspection Licensing Co.
Insurance Co.
Exporter/ Wholesaler or Processor
Warehouse
Bank
Traders and Farmer Organizations
Farmers
Key
Receipt
Trade / seasonal credit
Trade credit
Product
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Checking quality of paddy.
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KEY ACTORS IN THE WRS

• Apex manager (warehouse Operator)
• Receive commodities, conditioning or handling
  grading without discrimination
• Keep open approved schedule of charges for
  services
• Mark the commodity
• Deliver commodity after payment of lien and
  submission of required document
• Issue Warehouse Receipt to the depositor

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Key Actors cont warehouse
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KEY ACTORS IN THE WRS Cont

• The Lender
• Person or institutions which perform the activity
  of finance through WRS.
• Roles of the Lender
• Develop loan agreement using commodity in a
  warehouse as collateral
• Acknowledge the commodity, the warehouse
  operator and the depositor
• Provide guidance to the depositor on financial
  matters
• Issue release order to the warehouse operator

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KEY ACTORS IN THE WRS Cont

• Buyers
• Roles
• - Determine Price
• - Make payment of the stored commodity through
  bank.
• - Remove Commodity from warehouse within seven
  days after settling all payments

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KEY ACTORS IN THE WRS Cont

• Tanzania Warehouse Licensing Board
• Roles
• License warehouse, warehouse operators, warehouse
  inspectors
• Approve warehouse receipts books
• Ensure establishment and maintenance of accurate
  information system
• Develop standards and grading system
• Awareness creation in use of WRS
• Monitoring the operation of the WRS
• Coordination of stakeholder forums

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ADVANTAGES OF WRS

• 1. Depositor
• - Access to loan
• - Good prices
• - small scale farmers/traders work through
  business groups
• - Reduction in post harvest losses
• - Adhere to quality
• - Assurance of marketing information
• 2. Financier
• - Commercial operations with minimum risks
• - Expansion of financial services to rural areas

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ADVANTAGES OF WRS cont.

• 3. Warehouse Operator
• - Creation of employment to rural areas
• - Make use of warehouses
• -
• 4. Buyers
• - Assurance of quality goods
• - Assurance of amount in one place and in time
• - Trade with minimum risks
• - Assurance of marketing information

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CHALLENGES IN FACE WRS IN TANZANIA

• Poor infrastructure (markets, roads processing
  facilities)
• Capacity building (farmers, w/o, Financial
  Institutions and Govt)
• Warehouses that qualify for the system
• Lending procedures and availability of financial
  services close to farmers.
• Assurance of markets for the stored commodities.
• Quality of commodities produced
• Recognised commodity standards

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Thank you for listening