Transcript Improving Efficiency in Agricultural Micro Lending at Universal Banks by Michael Kortenbusch Business and Finance Consulting (BFC) Berlin May 5, 2006 The Development Finance Experts.

Improving Efficiency
in Agricultural Micro Lending
at Universal Banks
by
Michael Kortenbusch
Business and Finance Consulting (BFC)
Berlin
May 5, 2006
The Development Finance Experts
Efficiency is the key factor for successful
agricultural lending operations
Challenges for Banks:
• Low Client Density
• Client Accessibility
• Uniform Products
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Agriculture in the Caucasus
Number of villages
Average farm size (ha)
Distance to next bank (km)
Supply with formal credit
Azerbaijan (Beylagan)
Georgia (Shida Kartli)
250
313
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1.25
30
35
10%
25%
Low transaction sizes and large distances to banks are the key challenges
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Three steps to improve staff productivity
1. Clustering
2. Business Process Optimization
3. Product
Customizing the approach reduces administrative costs
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1. Clustering
Case One:
United Georgian Bank, Georgia
Implementer: Bankakademie, BFC
Selection of one subsegment in target villages to increase the concentration of customers
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1. Clustering
Case Two:
Parabank, Azerbaijan
Selection of two subsegments in target villages
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2. Business Process
Organization
Case One:
United Georgian Bank
Implementer: Bankakademie, BFC
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Creditomobile
Joint processing
Streamlined risk assessment
Collateral + peer pressure
“Universal” lending staff
Average loan processing time is 3 (express loan) and 10 (standard loan) days
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2. Business Process
Organization
• Case Two:
Parabank, Azerbaijan
– Group lending
– Social screening
– No collateral for group lending
– “Universal lending” staff
Loan processing time: 25 days
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3. Products
• Case One:
United Georgian Bank
Implementer: Bankakademie, BFC
Express Agro Loan
– USD 200 – 3,300
– 30 - 36% p.a.
– Up to 14 months
– No registered collateral
– Third party guarantee
– Flexible repayment
schedule
– No prepayment fee
Loans are disbursed and repaid in local currency only
Flexibility in collateral requirements and repayment modus are key factors
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3. Products
• Case Two:
Parabank, Azerbaijan
Group Agro Loan
– USD 100 – 1,500
– 30 – 36% p.a.
– Up to 24 months
– No collateral
– Group solidarity principle
– Flexible repayment
schedule
Loans are disbursed and repaid in local and foreign currency
Flexibility in collateral requirements and repayment modus are key factors
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Results
UGB Georgia
Parabank Azerbaijan
Agro Loan Officer productivity
(#, USD)
22 – 35,000
16 – 20,000
Micro Loan Officer productivity
(#, USD)
15 – 26,000
12 – 22,000
Outstanding Loan Portfolio
(#, USD)
316 – USD 455,000
1,143 – USD 1,025,000
Portfolio at risk (%): + 1 day
3.5%
3.6%
(0% for Group Loans)
Microlending to agriculture can be as productive as microlending to urban enterprises
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Results
Conclusions
1. Clustering compensates for larger distances
2. Business Process Organization means:
- Streamlining the credit cycle
- Serving a group, instead of an individual
3. Product: flexible and easy to get
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Thank you!
Business and Finance Consulting (BFC)
Microfinance Research and Implementation
Active in 9 countries:
Clients: EBRD, KfW, World Bank, EED
Address:
Zur Geest 7, 59399 Olfen, Germany
Tel./Fax: (+49 2595) 385365
E-mail: [email protected]
Website: www.bfconsulting.org
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