Transcript The Current Legal and Regulatory Environment for MFIs in

Presentation on
Study Visit/
Attachment Program
Bank for Agriculture and
Agricultural Cooperatives
(BAAC) Bangkok, Thailand
From 18th February to
29th February 2008
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Attended By
Kamran Akram Bakhshi
Joint Director
Sardar Muhammad Ejaz
Junior Joint Director
Muhammad Nadeem Khanzada
Junior Joint Director
Abdus Saboor
Assistant Director
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Country Data
Country area :
513,115 sq.km.
Population :
65.7 million
Population growth :
1.5 %
Religions :
Buddhism
Muslim
Christianity
Others
95 %
3.8 %
0.5 %
0.7 %
Administrative divisions :
Capital city :
76 provinces
Bangkok
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Economic Structure
• Agriculture (10%)
•
•
•
•
Manufacturing (44%)
Trade (15%)
Service (28%)
Real estate (3%)
Agriculture accounts for 10% of GDP and 16% of
total export value.
42 million People or 69% of the population live in rural
areas and their major occupation is farming.
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Bank for
Agriculture and
Agricultural
Cooperatives
(BAAC)
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HEAD
OFFICE
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BAAC VISION
“ To be a secured rural
development bank with
modern management
focusing on the uplift of
the small-scale farmers’
quality of life”
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Legal Framework
BAAC was established under the “Bank
for Agriculture and Agricultural
Cooperatives Act” in 1966 as a
government – owned bank.
BAAC is supervised by the Ministry of
Finance but in practice, MOF asks BOT to
supervise BAAC.
BAAC’s mandate has been to provide
credit to farm households (individual
farmers) and agricultural cooperatives.
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Branch Network
• BAAC has a large network of
908 branches and 945 field
offices.
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Traditional Standard Structure of BAAC’s
Branch
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Outreach
1. Individual farmers
4.13 MFH
2. Agricultural cooperatives
940
Number of membership
1.55 MFH
Total number of clients
5.68 MFH
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BAAC is accepted to be the
largest formal Agri/Rural
Financial Institution in
Thailand with an outreach
of 5.68 million farm
households (98.1% of the
total farm households)
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Outstanding Loans
as on 31-12-2007
12,245 Million US$
(1 US$ = 35 Baht)
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Sustainability
Sources of Fund (31 Mar 07)
Category
Deposits from general
public
Shareholders
Borrowings
Other liabilities
Total Operating
Funds
Amount
(in million
US$)
Percent
Share
14,189.17
1,396.31
262.20
326.20
87.73%
8.63%
1.62%
2.02%
16,173.94
100%
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Sources of Fund
Borrowings (1.62%)
Other Liabilities
(2.02%)
Shareholders
(8.63%)
Deposits
(87.73%)
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Financing
Policy
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Who can borrow?
Since its establishment in 1966 and up to
2005, BAAC was allowed to provide loans
only to Agricultural Sector – individual
farmers or agricultural cooperatives for
onward lending to their members
From 2006 onwards, BAAC has also been
allowed to provide loan to nonagricultural sector as well, but the
volume of loan to non-farming borrowers
must not exceed 20% of the total loan
volume at any point of time
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Directions For Credit
• BAAC will not provide loan for any
activity that have negative effect to
natural resources and environment.
• Promote clean farming technology to
farmers
• GAP, GMP
• Food Safety
• BAAC advises (give signal to)
farmers about the sunset and
sunrise farm products
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Credit
Services
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“Our Service is Beyond Savings and Loan”
“Develop First Then Follow By
Loan”
How to reduce cost of production,
Living expenses,
Farming tools & techniques,
How to improve farming productivity
Etc.
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1. Credit Services to Agricultural
Sector
A. Retail credit to individual farmers
mainly organized in joint liability
groups (accounting for 85% of the
portfolio)
B. Wholesale credit to farmer’s
institutions such as agricultural
cooperatives, community
enterprises (accounting for 15%
of portfolio)
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A. Credit Services to Individual
Farmers
Short-term loan - 12 to 18 months
for working capital for the purposes of
- purchase of agricultural inputs
- postponement of sales of farm products
- purchase of labor & farm production
- other farm related activities
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A. Credit Services to Individual
Farmers (continued)
Long-term loan - 15 to 20 years
for investment in
- agricultural working tools or machinery
- livestock
- fixed agricultural assets
and for refinancing/ repayment of old debts
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B. Wholesale Credit to Farmers’
Institutions
Agricultural cooperatives, farmers’ associations,
or community enterprises can also borrow from
BAAC for purposes of;
• Re-lending to members
• Procurement of farm inputs and equipments
• Collection of farm products from members
Presently, credit to such institutions/ cooperatives
accounts for 15% of the total portfolio of the bank.
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2. Credit Services to NonAgricultural Sector
Since 2006, BAAC has also been allowed
to finance non-agricultural sector
including Medium, Small & Micro
Enterprises (MSMEs) subject to the
condition that the volume of loan to nonfarming borrowers must not exceed 20%
of the total loan volume at any point of
time. The facility is available for all
economic activities in the country.
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INTEREST RATE
BAAC has market based interest rate
system on deposits as well as on
advances. The present applicable
rates are as under:
• Minimum retail rate (MRR) = 7.5% for
lending to individuals farmers and MSMEs.
• Minimum lending rate (MLR) = 5.5% for
wholesale lending to cooperatives for
onward lending to their members.
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SECURITY
REQUIREMENTS
• JOINT LIABILITY GROUP (JLG): Under this
system, borrowers have to form a group of
minimum 5 farmers This group stands as
substitute for land collateral for small and short
term loans. Under joint liability system, the
farmers can borrow up to Thai Baht (THB)
150,000 (US$ 4,200) each.
• Two Guarantors: At least 2 branch clients or
other people approved by BAAC can perform as
guarantors. The amount of loan must not exceed
THB 150,000 (US$ 4,200).
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SECURITY
REQUIREMENTS
• Having immovable assets (land with
title) which are not mortgaged to other
creditors. The amount of loan must not
exceed 50% of the land value.
• Having Thai government securities or
deposit with BAAC as collateral. The
amount of loan must not exceed 50% of
the value of securities.
• Having other collateral specified by the
president with the approval from the
Board of Directors.
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Joint Liability Group
(JLG)
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Joint Liability Group (JLG)
Characteristics
• group of minimum 5 farmers
• membership decided by farmers (not the bank)
• mutual guarantees (know & trust each other)
• substitute for land collateral
• individual lending, group guarantee
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Joint Liability Group (JLG)
Individual Lending, Group Guarantee
A
F
B
E
C
D
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Benefits of JLG
• By using JLG, each farmer can borrow 4,200
US$ (150,000 Baht) for major crops.
• By using 2 guarantors within the group, each
farmer can borrow another 4,200 US$ (150,000
Baht) for other farming activity.
Thus, a farmer can avail up to US$ 8,400
with no collateral or fixed security.
Presently, 70% of the bank’s credit
portfolio is collateral free. The average loan
size is 90,000 THB per person.
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Other Services
& Measures by
BAAC
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Credit Services under
Government Security
Under a cabinet resolution, credit extension to
farmers for:
•
•
•
•
Occupational promotion and development
Help improve standard of living of farmers
Assist farmers facing occupational problems.
Cover damages from disaster or natural calamities
which affect production levels or quality of farmers’
product or lead to falling prices
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Measures for Past Due Loan
Recovery
1.
2.
3.
4.
5.
6.
Postponement of repayment
Debt restructuring
Loan recall
Acceleration of repayment from guarantor
Litigation
Write off
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Measures to aid clients hurt by
the natural disaster
1. Measure for clients who passes away:
–
Write off the debts in principal and interest of the
dead or missing farmers. BAAC accepts takes
responsibility for write off amount.
2. Measure for clients who suffered extensive loss:
–
–
–
Extend the repayment deadlines by 3 years for debts
of farmers who suffer extensive losses.
Farmers are exempted from interest payment for 3
years
Provide rehabilitation loans (if required) with
interest rate of 2 % per annum. The loan to be repaid
within 3 years.
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Islamic Banking Window
• BAAC has also started Islamic Banking
Window for clients who wish to avail credit
facility under Islamic modes of financing.
• It has appointed a Sharia Advisor for the
purpose.
• This product is available to everyone
irrespective of their faith or religion.
It is pertinent to mention that Muslims
are only 3.8% of the population of
Thailand.
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Farmers’ Coaching and
Training
• BAAC provides technological advices to
farmers as to how they can :
– reduce cost of living & cost of farming and
– improve the productivity
• Loans are not provided for activities which
have negative effect on natural resources
and environment.
• BAAC also advises (give signal to) the
farmers about sunset and sunrise crops.
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Moral Suasion
•BAAC inculcates in its clients a
respect for moral values
•It motivates the borrowers to abstain
from indulging in bad habits or
unhealthy activities like gambling,
drinking, etc.
•It also obtains the services of Monks
to persuade people to adopt good
habits.
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Crop Insurance
BAAC has recently initiated crop
insurance (for maize) under a World Bank
project in collaboration with government
agencies and insurance companies.
The “weather derivative indexed crop
insurance scheme” enables farmers to
cover their production risk. It covers risks
of losses in case the rainfall exceeds or
falls short of a certain predetermined
level in respective areas.
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Risk Management
Strategy
BAAC is able to maintain non-performing
loan ratio within manageable level.
Starting 1999, BAAC has also began to
rationalize its interest rate policy adopting
a risk-based loan pricing - pricing
interest rates based on repayment
performance.
BAAC has also initiated a unique
“unconventional” risk contingency system
to address loan delinquency. The system
allows re-structuring of accounts not
paid due to force majeure, up to three
times.
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Recovery
Recovery rate of the bank is very high (95%
of the total disbursement). The main reason
for high recovery rate is its tight monitoring
and good risk management systems
Field officers of the bank pay frequent visits
to clients/ borrowers and monitor their
activities & cash flows which help them
receive/ get repayment in time.
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Lessons
Learnt from
BAAC
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• Comprehensive Agri/ Rural Loan
Policy
• Linkages with Stakeholders
• Close Liaison with Farming
Community
• Incentives for Regular Borrowers
• Help Formulation of Agricultural
Marketing Cooperatives by Farmers
• Guidance to the Farmers/ Borrowers
• Training & Awareness
• Rural Deposit Mobilization and Fund
Based Services
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Thank you for your kind
attention.
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