ALES Agricultual Loan Evaluation System

Transcription

1 ALES Agricultual Loan Evaluation System Credit Scoring for Agriculture Lending 20 August 2013 F r a n k f u r t S c h o o l. d e

2 About Frankfurt School of Finance & Management Frankfurt School - Advisory International Advisory Services (IAS): Bachelor, Master and Doctorate Programmes Executive Education Research Subsidiaries: FS Verlag, efiport AG, ConCap IAS structures and implements consulting and training projects in emerging markets and developing countries. Clients include international donor organisations, non-governmental organisations, international financial institutions, microfinance institutions, banks and other financial institutions. IAS has successfully implemented over 500 projects in more than 50 countries! The team consists of more than 90 multicultural professionals globally F r a n k f u r t S c h o o l. d e 2

3 About EBRD The EBRD ( is established in 1991 The reason for establishment was to provide funding for the reconstruction and development of the eastern and central European countries after the collapse of communism EBRD is owned by 60 countries and two intergovernmental institutions (the European Union and the European Investment Bank) EBRD invests in projects, engage in policy dialogue and provide advisory services to enterprises. Currently EBRD works in 34 countries across central and eastern Europe, central Asia and the southern and eastern Mediterranean. ALES has been developed and implemented in EBRD funded projects in Tajikistan and Turkey. Operations Leader at EBRD responsible for ALES implementation: Ms. Oksana Pak F r a n k f u r t S c h o o l. d e 3

4 ALES Implementation Experiences Tajikistan Turkey EBRD s TAFF programme ( in Tajikistan. ALES Partner Institutions: Agroinvestbank (AIB), Amonatbank (AB), Bank Eskhata (BE) and Tojiksodirotbonk (TSOB). Also microfinance organisation OXUS, micro lending foundation HUMO and Partners and microcredit deposit-taking organisation "Arvand" and microlending organisation IMON INTERNATIONAL EBRD s MSME Lending Programme ( in Turkey. ALES Partner Institutions: Akbank, Isbank, Vakifbank, Yapi Kredi Bank Apart from Tajikistan and Turkey, ALES is currently being developed for Senegal and Ukraine. F r a n k f u r t S c h o o l. d e

5 Main Concerns in Agricultural Lending & Motivation for ALES Access to food vs. Access to finance: Support for the agriculte sector through farmers increased access to finance enables access to food. Agricultural lending is risky: Agricultural lending could be a profitable business line for financial institutions if managed professionally and risks are put under control. Lack of know-how and staff with sufficient knowledge on agriculture: Through an efficient and standardized scoring tool, loan officers with little or no knowledge on agriculture could easily disburse agricultural loans. One days saves whole season in agriculture: Loan disbursement time is even more important in agriculture sector. Financial institutions need a tool to assess loan applications of farmers and determine the credit risk of farmers quickly. Access to finance does not mean access to more than what you need : An agricultural loan should not exceed the real need of farmers and their repayment capacity. F r a n k f u r t S c h o o l. d e 5

6 Financial Institutions (Banks, MFIs, etc.) Agricultural Enterprises, Farmers ALES establishes the necessary link between financial institutions and agricultural enterprises, farmers. F r a n k f u r t S c h o o l. d e 6

7 ALES ALES in a Nutshell ALES is an innovative scoring model for the assessment of loan application of agricultural enterprises; ALES is based on gross margin projections, agricultural production parameters and a risk analysis of the farming enterprise; ALES supports financial institutions staff with little or no agricultural knowledge in the decision making process and in processing loan applications of farmers / producers; ALES allows for effective time and risk management for agricultural lending; ALES is a comprehensive risk assessment tool combining lending expertise with a strong agricultural component. ALES is a tailor-made solution specific for the region and the financial institution concerned. F r a n k f u r t S c h o o l. d e

8 ALES Development: 3 Pillars of ALES Establishment of Scoring System Development of Tech-cards & Regional Data Collection Loan Appraisal & Loan Decision F r a n k f u r t S c h o o l. d e

9 ALES Development: Establishment of Scoring System The first step in developing ALES is the establishment of a scoring system in line with the targeted financial institution s risk appettite and risk policy. The respective financial institution has to decide on a number of parameters such as: - Lending decision based on gross profit or net profit; - Lending up to XX% of working capital need; - Collecting data on past yields and comparison with regional averages; - Amount of living expenses (min. max. amounts; XX% of net income); - Importance of qualitative analysis related with production & productivity and minimum score to proceed. The scoring system will be tailored for the financial institution (Bank or MFI), depending on its risk appetite and lending strategy. F r a n k f u r t S c h o o l. d e

10 ALES Development: Establishment of Scoring System Qualitative analysis (background & agronomy): Bad vs. Good farmer; minimum qualitative score to proceed F r a n k f u r t S c h o o l. d e

11 ALES Development: Establishment of Scoring System Productivity Questions: Change in yield (+/-) based on answers F r a n k f u r t S c h o o l. d e

12 ALES Development: Development of Tech-cards & Regional Data Collection Tech cards are the core element of ALES. The main purpose of developing tech-cards and regional data collection is to come up with an overall average expense and income figure for each specific crop in each sub-region. Together with Frankfurt School, the financial institution defines the priority crops and agricultural activity and develops the tech-cards to feed the tool. The country concerned is grouped in sub-regions according to geographical location, regional development plans, climate, crop diversity and flora. Local Frankfurt School agronomists travel extensively to these sub-regions to collect agricultural data (i.e. average yield, selling price, working capital requirement, production processes and related costs etc.) to be embedded into the tool. F r a n k f u r t S c h o o l. d e 12

13 ALES Development: Development of Tech-cards & Regional Data Collection Tech cards include the working capital need for cultivating one decare (1000 m²) of land for the crop concerned, sales price (per kg) and yield (per decare). They calculate gross margins of different agricultural productions and are essential to conduct the quantitative analysis. While collecting data from the field, Frankfurt School pays special attention to estimate future selling prices and future income and expenses. The data is regularly updated in line with the changes and expectations in the local and international markets. F r a n k f u r t S c h o o l. d e 13

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15 ALES Development: Loan Appraisal & Loan Decision Upon the entry of the loan application details into ALES (e.g. loan amount, maturity, purpose, nonfarming income & expenses, current bank indebtedness, answers to qualitative questions, production area for each crop), ALES automatically calculates the working capital need and the most likely yield/income based on the qualitative and quantitative information provided. F r a n k f u r t S c h o o l. d e

16 ALES Development: Loan Appraisal & Loan Decision Based on the calculations, ALES provides a summary report which includes: Summary of the applicant s income-expense projections; F r a n k f u r t S c h o o l. d e

17 ALES Development: Loan Appraisal & Loan Decision Based on the calculations, ALES provides a summary report which includes: A qualitative analysis and score of the producer for each agricultural activity; F r a n k f u r t S c h o o l. d e

18 ALES Development: Loan Appraisal & Loan Decision Based on the calculations, ALES provides a summary report which includes: Suggested loan limits for each type of loan product requested, as well as an overall limit. F r a n k f u r t S c h o o l. d e

19 In summary: ALES Benefits & Challenges Benefits: o The tool can assess the various loan requests on working capital, investment and machinery as well as equipment for various activities e.g. crop production, animal husbandry (meat or dairy production), aquaculture, chicken farming, apiculture. o o o o o o o o o Quick solution for agricultural loan assessment, reduces the time spent on loan evaluation Ideal for farmers and / or agricultural enterprises involved in various agricultural activities to help structure their payment schedule and for a better evaluation of their repayment capacity Provides a separate loan decision for each loan product and sets a general limit for the applicant. Filters and eliminates non-profitable agricultural activities (reducing costs & risks) Provides recommendations on maturity and loan repayment schedule for each crop or activity In line with the banking system and risk approach of financial institutions (Banks & MFIs). The tool does not only assess the agronomic risk but also the bank indebtedness (consumer & commercial). Loan decision is based on various criteria: working capital, income, loan request and guarantor Provides the chance to react immediately to any changes or events in the respective market Tailor-made for each financial institution and it can easily be incorporated into the financial institution s internal scoring system. F r a n k f u r t S c h o o l. d e 19

20 In summary: ALES Benefits & Challenges Challenges: Requires human resources and investments for regional data collection Need for expansion on functions, such as to check and control the collateral provided and to include cash flow projections (FS experts are working on it) Need for a professional IT partner if it needs to be integrated into the bank s internal IT system. F r a n k f u r t S c h o o l. d e 20

21 ALES Implementation Results Tajikistan ALES has provided access to finance for more than 24,500 farms; more than USD 72 million have been disbursed since November The tool has substantially contributed to promoting inclusive finance in Tajikistan: the average loan amount disbursed to primary agriculture is below USD 3,000. By making use of the lending methodology governance has been strengthened: PAR30 stands at 1.8 % Other international financial institutions recognize the methodology: partner financial institutions get interest rate discounts if they use ALES for their client analysis Turkey Akbank: ALES is tested in pilot regions and the bank launched the excel version of the tool in 28 provinces of Turkey in Isbank: ALES is tested in pilot regions and started to be used as a decision mechanism to assign limits for the bank s Imece Card, an agricultural credit card. Yapi Kredi Bank: ALES has been used in 250 branches of the bank since January USD 350 million credits for more than 35,000 farmers only in Vakifbank: ALES is currently being developed in line with the specifications of the bank and will be launched in September F r a n k f u r t S c h o o l. d e 21

22 ALES: Cost of Implementation 1. Data Collection 2. Data evaluation & entry 3. Creation of ALES on Excel (lending decisions for the scoring part of ALES) 4. Establishment of ALES Web-based Version (upon preference) 5. Technical Assistance services (varies depending on the needs of the institution) F r a n k f u r t S c h o o l. d e 22

23 Technical Assistance Services Consultancy in development of a fully functional internal training programme Consultancy in development of appropriate loan products & lending procedures Trainings on Agricultural Lending Monitoring and Reporting Lending Performance Technical Assistance Services Trainings on risk analysis & agricultural portfolio management Provision of HR support in developing agri-lending expert base Trainings and consultancy in agricultural marketing & sales On-the-job trainings for loan assessment & use of CAP tool F r a n k f u r t S c h o o l. d e 23

24 THANK YOU! Frankfurt School of Finance & Management Sonnemannstrasse Frankfurt am Main Germany Fatma Dirkes Head of IAS Tel: Erdal Kocoglu Project Manager Tel: F r a n k f u r t S c h o o l. d e 24