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Reducing Borrower and Lender Risk in Tajikistan

Reducing Borrower and Lender Risk in Tajikistan. International Conference on Rural Finance Research FAO, Rome, March 19-21 2007. Linda Jones Technical Director MEDA. Long Title for Paper.

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Reducing Borrower and Lender Risk in Tajikistan

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  1. Reducing Borrower and Lender Risk in Tajikistan International Conference on Rural Finance Research FAO, Rome, March 19-21 2007 Linda Jones Technical Director MEDA

  2. Long Title for Paper Reducing borrow and lender risk through context sensitive product and portfolio design: the case of integrating microfinance with agricultural development in Tajikistan.

  3. MEDA Approach to RAF • Partnerships • Local ownership and management • Capacity building • Long-term commitment • Flexible, context-sensitive programming

  4. Objectives: Rural loan fund • To create a context-sensitive rural loan fund • To develop products that meet the needs of lender and borrower • To build a healthy and balanced portfolio

  5. Program Description • Partner – NABWT/IMON • CIDA - CDN $5.3 million contribution • 4 years, ca. 35 staff (04/04 – 03/08) • Subsector development • Rural credit ($1m loan fund) • Agricultural extension • Association / group formation • SME development – business, marketing, technology / facilities, loan fund ($550k), matching grants ($300k) • Linkages between farmers and SMEs • Cross-cutting issues – especially gender

  6. Program Challenges / Questions • Local partner and capacity? • Clients and context? • Complementary programming?

  7. Local partner and capacity? • Capacity • Experience • Willingness to adapt • Knowledge of regions • Reputation in communities • Technical knowledge

  8. Clients and context? • Attitudes to credit • Population density / physical access • Literacies • Repayment ‘culture’ • Risks and risk mitigation

  9. Complementary programming? • Integration into broader program • Feedback loop • Connection to agricultural extension and market development activities • Linkages between staff of different program components

  10. Methodology - General • Group and individual loans • Interest set at market rates • Non-traditional forms of collateral • Streamlined application procedures • Short loan terms with frequent repayments • Training of borrowers

  11. Portfolio Balance • Agricultural loans • Strong focus on horticulture (80%) • Agribusiness and support services included • Only one loan per household • Few individual loans performance based

  12. Product Specifics • 3 to 12 month terms • Biweekly or monthly payments • Longer grace period • Declining balance interest • $300 - $1500

  13. Application Process • Extensive application process • Participation of entire group in each application • Training includes management of repayment • Credit committees reviewed all applications with loan officer present to start

  14. Results – October 2006 • 3557 rural loans disbursed • $1.4 million total • Average outstanding loan $1055 • Portfolio at risk > 1 day 0.10% • Operating expense ratio 15.23% • Creation of microfinance foundation ($7 m under management) • Expansion to other regions

  15. Major Findings & Conclusions • Overall capacity of institution • Upfront investment • Understanding of clients / context • Integration into larger program or linkages • Slow growth recommended • Diversification of portfolio • Issues of commodity markets • Supply and value chain finance

  16. DISCUSSION

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