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MABS APPROACH TO AGRICULTURAL MICROFINANCE

MABS APPROACH TO AGRICULTURAL MICROFINANCE. Module 5, Session 1 MAP 60/40 Cash Flow. Introduction. The results of MABS’ survey in 2006 revealed that there remains a high demand for lump sum mode of payment among farmers.

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MABS APPROACH TO AGRICULTURAL MICROFINANCE

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  1. MABS APPROACH TO AGRICULTURAL MICROFINANCE Module 5, Session 1 MAP 60/40 Cash Flow

  2. Introduction • The results of MABS’ survey in 2006 revealed that there remains a high demand for lump sum mode of payment among farmers. • To address this concern, a partial lump sum repayment scheme called 60/40 was introduced. • Compared to full lump sum, the 60/40 mode of payment will mitigate the risks of total non-payment in case something happens to agricultural production.

  3. Session ObjectivesBy the end of the session, the participants will be able to: • Understand the rationale behind the 60/40 mode of payment • Pilot the 60/40 mode of payment • Use the MAP 60/40 Cash flow

  4. What is 60/40 Mode of Payment? • 60% of the total loan amount (P+I) is amortized while 40% (P+I) is paid lump sum. • Only clients with seasonal/term agricultural activities are qualified to avail. Example: • Rice, Corn, Coconut, Mango, Sugarcane, Hog fattening, Other livestock

  5. Benefits of 60/40 to Clients • Higher loan amount: • Where repayment comes from non-farm sources + Production Example: Business loanable amount is P10,000 Agriculture loanable amount is P4,000 Total loanable amount is P14,000 • Smaller loan amortization Example: P14,000 loan, 6 months, monthly installment Amortization for P8,400 (60%) – P1,400/mo. for 6 months Amortization for P14,000 (100%) – P2,333/mo. for 6 months

  6. Amortized PortionNOT LESS THAN 60% • Collected on regular basis(amortized Principal) • Interest rate is spread over the entire term of the loan and collected regularly(amortized Interest). • Amortized portion may be more than 60% but not less. Example: 10,000 Loan (Principal + Interest) • Amortized portion = P 7,000 (70% of total) • Amortized portion = P 5,000 (50% of total)

  7. Lump Sum PortionNOT MORE THAN 40% • Principal and interest are collected at the end of the loan term • The Lump sum portion should not be over 40%. Example: P10,000 loan (Principal + Interest) • Lump sum portion = P3,500 (35%) • Lump sum portion = P5,000 (50%)

  8. CLIENT QUALIFICATION • Only clients with seasonal/term agricultural activities are offered this option. • Rice, Corn, Coconut, Mango, Sugarcane, Hog fattening, Other livestock

  9. DIFFERENT CASH FLOW SCENARIOS

  10. DEBT CAPACITY ANALYSIS GIVEN: LOAN TERM - 5 M os. (10 semi-mo. installments) LOAN INTEREST - 2.00% (Business Amortized) REQUESTED LOAN AMOUNT - P 10,000.00

  11. DEBT CAPACITY ANALYSIS * Round-off to P6,000

  12. SCENARIO 1Loan payment comes from non-farm source only Non-Farm : Bi-Monthly Net income P 2,000.00 (or amount available for debt service) Adjusted Repayment Capacity @ 35% ARCR 700.00 Loan Entitlement (ARC x 10 installments) 7,000.00 Maximum Loanable Amount 6,364.00 (Loan Entitlement / (1+(2%x5mos)) Agriculture : None

  13. Amortization ScheduleStraight amortization, no lump sum component. Total Payment at the end of the loan term is P6,600 Principal - P6,000.00 Interest - 600.00

  14. SCENARIO 2Sources of payment from non-farm and agriculture. Income from agriculture is P6,000. Non-Farm : Bi-Monthly Net income P 2,000.00 (or amount available for debt service) Adjusted Repayment Capacity @ 35% ARCR 700.00 Loan Entitlement (ARC x 10 installments) 7,000.00 Maximum Loanable Amount 6,364.00 (Loan Entitlement / (1+(2%x5 mos.)) Agriculture : Net Income P 6,000.00 Adjusted Repayment Capacity @ 35% ARCR 2,100.00 Maximum Loanable Amount 1,909.09 (ARC / (1+(2%x 5 mos.))

  15. Scenario 2: Amortization Schedule Lump sum Payment: Last amortization P 660 + Agri lump sum payment 2,200 Total payment, end of term 2,860 60/40 Ratio: End of term payment P 2,860 / Total loan payment 8,800 Lump sum rate to total 33%

  16. SCENARIO 3Sources of payment from non-farm and agriculture. Income from agriculture is P15,000. Non-Farm : Bi-Monthly Net income P 2,000.00 (or amount available for debt service) Adjusted Repayment Capacity @ 35% ARCR 700.00 Loan Entitlement (ARC x 10 installments) 7,000.00 Maximum Loanable Amount 6,364.00 (Loan Entitlement / (1+(2%x5 mos.)) Agriculture : Net Income P15,000.00 Adjusted Repayment Capacity @ 35% ARCR 5,250.00 Maximum Loanable Amount 4,772.73 (ARC / (1+(2%x 5 mos.))

  17. Scenario 3: Amortization Schedule Lump sum Payment: Last amortization P 660 + Agri lump sum payment 4,950 Total payment, end of term 5,610 60/40 Ratio: End of term payment P 5,610 / Total loan payment 11,550 Lump sum rate to total 49%

  18. In order to maintain the 60/40 ratio between Amortized and Lump Sum payments, the Agri portion of the loan must be adjusted.

  19. Scenario 3-ASources of payment from non-farm & agriculture. Loanable Amount from Agriculture is adjusted to meet the 60/40 policy Non-Farm : Bi-Monthly Net income P 2,000.00 (or amount available for debt service) Adjusted Repayment Capacity @ 35% ARCR 700.00 Loan Entitlement (ARC x 10 installments) 7,000.00 Maximum Loanable Amount 6,364.00 (Loan Entitlement / (1+(2%x5 mos.)) Agriculture: Net Income P15,000.00 Adjusted Repayment Capacity @ 35% ARCR 5,250.00 Maximum Loanable Amount 4,772.73 (Loan Entitlement / (1+(2%x 5 mos.)) Adjusted Maximum Loanable Amount 2,800.00

  20. Scenario 3-a:Amortization Schedule Lump sum Payment: Last amortization P 660 + Agri lump sum payment 3,220 Total payment, end of term 3,880 60/40 Ratio: End of term payment P 3,880 / Total loan payment 9,820 Lump sum rate to total 40%

  21. Thankyou

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