AFRACA RISK MGMT SEMINAR ON RURAL CREDIT( MALAWI EXPERIENCE) HELD AT METCOURT HOTEL - RSA - PowerPoint PPT Presentation

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AFRACA RISK MGMT SEMINAR ON RURAL CREDIT( MALAWI EXPERIENCE) HELD AT METCOURT HOTEL - RSA

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muscco has three departments sacco development- deals ... lending methodology muscco advocates for solidarity group lending ... other risk mitigating technics ... – PowerPoint PPT presentation

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Title: AFRACA RISK MGMT SEMINAR ON RURAL CREDIT( MALAWI EXPERIENCE) HELD AT METCOURT HOTEL - RSA


1
AFRACA RISK MGMT SEMINAR ON RURAL CREDIT(
MALAWI EXPERIENCE)HELD AT METCOURT HOTEL - RSA
  • Presented by J L D Zainga of
  • MUSCCO

2
INTRODUCTION.
  • MUSCCO MALAWI UNION OF SAVINGS AND CREDIT
    COOPERATIVES LTD.
  • IT WAS FORMED IN 1980 WITH THE SOLE MANDATE OF
    PROMOTING SACCOS IN MALAWI.
  • IT IS THE NATIONAL ASSOCIATION OF SACCOS IN
    MALAWI.

3
MUSCCO
  • MUSCCO HAS 70 PRIMARY SACCOS SPREAD THROUGH OUT
    THE COUNTRY AFFILIATED TO IT.
  • TOTAL SACCO MEMBERSHIP STANDS AT 85,000.
  • OVER 45 OF THE MEMBERSHIP LIVE IN RURAL AREAS.

4
MUSCCO HAS THREE DEPARTMENTS
  • SACCO DEVELOPMENT- DEALS WITH PROMOTION OF SACCOS
    AND TRAINING.
  • FINANCE DEPARTMENT- THE BANKER TO THE SACCOS,
    THE INSURER TO SACCO MEMBERS.
  • GENERAL MANAGEMENT AND ADMINISTRATION.

5
CENTRAL FINANCE PRODUCTS MENU
  • CENTRAL FINANCE RECEIVES DEPOSITS FROM SACCOS IN
    FORM OF 1 SHARES
  • 2 ORDINARY DEPOSITS
  • 3 SPECIAL DEPOSITS
  • 4 FIXED DEPOSITS
  • 5 LOAN COLLATERAL DEPOSIT

6
CENTRAL FINANCE PRODUCTS MENU
  • CENTRAL FINANCE THE LENDER OF LAST RESOLT FOR
    SACCOS AND SMALLHOLDER FARMERS ORGANIZATIONS.
  • CENTRAL FINANCE EXTENDS- LIQUIDITY LOANS
  • DEVELOPMENT LOANS
  • AGRICUTURAL LOANS
  • FARM INPUT LOANS TO SACCOS AND SMALLHOLDER
    FARMERS ASSOCIATIONS

7
MANAGEMENT OF FARM INPUT LOANS.
  • MUSCCO WORKS WITH NATIONAL SMALLHOLDER FARMERS
    ASSOCIATION OF MALAWI (NASFAM) AND KASUNGU
    SMALLHOLDER VIRGINIA PROJECT MONITORED BY LIMBE
    LEAF TOBACCO COMPANY.

8
NASFAM
  • SMALL HOLDER FARMERS IN THE NORTH AND CENTRE GROW
    BURLEY TOBACCO UNDER THE SUPERVISION OF NASFAM IN
    FARMERS ASSOCIATIONS.
  • NASFAM OFFICIALS IDENTIFY TOBACCO CLUBS WITH GOOD
    TOBACCO PRODUCTION RECORDS AND RECOMMEND THEM TO
    MUSCCO FOR FINANCING.

9
KASUNGU SMALLHOLDER VIRGINIA PROJECT.
  • KASUNGU SMALLHOLDER VIRGINIA PROJECT( MONITORED
    BY LIMBE LEAF) PROMOTES THE PRODUCTION OF FLUE
    CURED TOBACCO BY SMALLHOLDER FARMERS.
  • KSVP OFFICIALS IDENTIFY SMALLHOLDER FARMERSCLUBS
    WITH GOOD FLUE CURED PRODUCTION RECORDS AND
    RECOMMEND THEM TO MUSCCO FOR FINANCING

10
THE SCREENING PROCESS
  • MUSCCO, NASFAM AND KSVP SCREEN THE CLUBS AS
    REGARDS TO ELIGIBILITY TO PARTICIPATE IN THE FARM
    INPUT LOAN SCHEME.
  • THE SCREENING PROCESS LOOKS AT THE FOLLOWING
  • PAST YEARS PRODUCTION VOLUMES IN KGS

11
THE SCREENING PROCESS
  • PAST YEARS AVERAGE PRICE PER KG.
  • THE LOAN AMOUNT BEING APPLIED FOR.
  • CHECK THE VALIDITY OF THE CLUBS TOBACCO GROWING
    REGISTRATION NUMBER.
  • CHECK THE VALIDITY OF CLUBS MEMBERSHIP TO THE
    ASSOCIATION.

12
THE SCREENING PROCESS
  • CHECK THE CLUBS ABILITY TO PAY 10 COLLATERAL
    DEPOSIT.
  • CHECK THE CLUBS ABILITY TO PAY 2.5 INSURANCE
    PREMIUM FOR CREDIT LIFE.
  • CHECK IF THE CLUB HAS SIGNED A DIRECT MARKETING
    CONTRACT WITH ANY OF THE REGISTERED TOBACCO
    BUYERS.

13
LENDING METHODOLOGY
  • MUSCCO ADVOCATES FOR SOLIDARITY GROUP LENDING
    METHODOLODY BECAUSE OF THE FOLLOWING REASONS
  • PEER PRESSURE
  • JOINT LIABILITY
  • GROUP COLLATERAL DEPOSITS LIEN.
  • NO ADVERSE SELECTION ON CLUB MEMBERS.
  • LENDING IN CYCLES

14
FARM IN PUT LOAN PACKAGE PER HECTARE
  • TOBACCO INPUTS
  • 9 -50 KGS BAGS OF SUPER D FERTILIZERS
  • 2- 50KG BAGS OF CAN
  • 2-50KG BAGS OF UREA - MAIZE
  • 2-50KG BAGS OF NPK 23210 - MAIZE
  • I PACK OF CHEMICALS
  • MK45,000.00 FOR FIREWOOD AND OTHER ACCESSORIES.

15
FARM INPUT DISBURSEMENT
  • HAVING PAID THE COLLATERAL DEPOSITS REQUIRED
    MUSCCO AND THE FARMERS ORGANIZATION IDENTIFY THE
    SUPPLIER OF FARM INPUT TO SUPPLY THE INPUTS TO
    THE FARMERS IN CLUBS.
  • THE DISTRIBUTION OF FARM INPUTS IS SUPERVISED BY
    THE FINANCING ORGANIZATION AND THE FARMERS
    ORGANIZATION.

16
LOAN DOCUMENTATION
  • AFTER THE COMPLETION OF FARM INPUTS DISTRIBUTION
    CLUBS DO COMPLETE LOAN APPLICATION FORMS.
  • COMPLETE STOP ORDER FORMS FOR LOANS TO BE
    DEDUCTED AT THE MARKET.
  • COMPLETE DIRECT MARKETING AGREEMENTS WITH TOBACCO
    BUYERS.

17
FIELD MONITORING
  • TOBACCO FIELDS MONITORING STARTS IN JANUARY UP TO
    MARCH THE IDEA IS TO VERIFY THAT INDEED
    FERTILIZERS WERE USED FOR THE INTENDED PURPOSE.
  • MONITORING CURING AND SUN DRYING OF TOBACCO IN
    SHEDS
  • ESTIMATING NUMBER OF TOBACCO BALES TO BE SOLD IN
    RELATION TO LOAN SIZE PER MEMBER.

18
FIELD MONITORING
  • MONITORING THE USE OF REGISTRATION NUMBERS TO
    MAKE SURE THAT CORRECT NUMBERS ARE BEING USED.
    THIS CHECKS AGAINST DIVERTING TOBACCO BALES BY
    USING OTHER REGISTRATION NUMBERS TO BY PASS STOP
    ORDERS.

19
FIELD MONITORING
  • URGING FARMERS TO BAIL THEIR TOBACCO VERY EARLY
    SO AS TO BE ABLE TO SALE THEIR TOBACCO EARLIER
    AND MAXIMIZE PROFIT BY PAYING LESS INTEREST ON
    THE BORROWED AMOUNT.
  • WORKING WITH TRANSPORTERS TO ENSURE THAT BALES
    ARE TRANSPORTED TO THE FLOORS IN TIME.

20
TOBACCO SALES MONITORING
  • COLLECTING SALES DATA FROM AUCTION FLOORS TO KNOW
    WHICH CLUBS HAVE COMPLETED REPAYING THEIR LOANS.
  • PREPARE EARLY INTEREST REBATES TO CLUBS THAT HAVE
    COMPLETED REPAYING THEIR LOANS. THIS IS A
    CONTINUOUS EXERCISE UNTIL THE END OF THE TOBACCO
    SELLING SEASON.

21
OTHER RISK MITIGATING TECHNICS INCLUDE
  • LETTERS OF DEFAULT GUARANTEE. THIS IS WHERE A
    MEMORANDUM OF UNDERSTANDING IS SIGNED BETWEEN THE
    TOBACCO BUYER AND THE PROVIDER OF FINANCE IN
    CASES WHERE OUT GROWERS(CONTACTED FARMERS) ARE
    ENGAGED TO GUARANTEE DEFAULTED LOAN AMOUNTS UP TO
    30.
  • COMPULSORY CREDIT LIFE INSURANCE FOR ALL
    SMALLHOLDER FARMERS BORROWING FROM US.

22
TECHNICS
  • LOAN AGING THAT LEADS TO MAKING GOOD LOAN LOSS
    PROVISIONS.
  • LOAN PORTFOLIO MIX i.e.
  • 50 Agriculture Production( cash crops)
  • 50 Agriculture commercial (Food crops)
  • Loan portfolio diversification ( Dont put all
    your eggs in one basket.
  • Loans should have different maturity periods.

23
TECHNICS
  • BUYING WEATHER INDEX INSURANCE TO HEDGE AGAINST
    EXCESS AND DEFICIT RAINFALL ON LOAN PORTFOLIO
    BASIS.
  • ATTENDING FARMERS ASSOCIATIONS AGM AND PRESENT
    SMALL GIFTS TO BEST PERFORMING CLUBS AND
    ASSOCIATIONS.

24
MAJOR RISKS CONTROLLED BY THE ABOVE PROCESSES ARE.
  • DEFAULT RISK .
  • CREDIT RISK
  • LIQUIDITY RISK.
  • INTEREST RISK .
  • MFI-REPUTATION RISK
  • WEATHER RELATED RISKS.

25
EFFECTS OF (IAC) RISKS
  • LOW LEVELS OF DEFAULT -5
  • HIGH INCOME ON LOANS COLLECT 95-97 INTEREST
  • LOAN PORTFOLIO GROWTH.
  • INCREASE IN NUMBER OF FARMERS ACCESSING CREDIT
    FROM MFIS.
  • INCREASE IN MFIS DEPOSITS COLLECTED.

26
EFFECTS OF (IAC) RISKS
  • INCREASED INCOMES FOR FARMERS RESULTING IN
    POVERTY REDUCTION. (use of baseline inform)
  • HIGH LEVEL OF FOOD SECURITY IN RURAL HOUSEHOLDS
    AS TOBACCO LOANS PAY FOR MAIZE FERTILIZERS.
  • HIGH DEMAND FOR LOANS WHEN COMPARED TO FUNDS
    AVAILABILTY.

27
MUSCCO LOAN PORTFOLIO GROWTH IN 3 YEARS
  • PERIOD LOAN AMT REP RATE
  • 2007 MK 20.5 M 100
  • 2008 MK 57.5M 100
  • 2009 MK209.0M ?
  • Our Loan Portfolio has grown this big because of
    high cost of fertilizers in 2008 and increased
    number of KSVP hectares financed in 2009
  • 1US MK 140.00.

28
CHALLENGES
  • MARKET PRICES FLUCTUATIONS
  • HIGH INTEREST RATES
  • HIGH COST OF FERTILIZERS
  • HIGH TRANSPORTATION COSTS
  • HIGH TRANSACTIONAL COSTS IN BANKS .
  • HIGH LABOUR COSTS. ALL THESE HAVE A BEARING ON
    LOAN RECOVERY.

29
PRODUCTION TRIANGLE
  • PRODUCTION
  • Labour , Land,Climate
  • MARKETING FINANCE
  • Auction Cont Prices Loans and Int

30
THE END
  • THANK YOU VERY MUCH FOR YOUR ATTENTION.
  • JLD ZAINGA
  • MUSCCO
  • MALAWI
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