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Expert Meeting on Managing Risks in Financing Agriculture

Expert Meeting on Managing Risks in Financing Agriculture. Overview of General Risks for Financial Institutions. Renate Kloeppinger-Todd Rural Finance Advisor The World Bank Johannesburg, South Africa, April 1-3 2009. Many Risks in Banking. Government policies

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Expert Meeting on Managing Risks in Financing Agriculture

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  1. Expert Meeting on Managing Risks in Financing Agriculture Overview of General Risks for Financial Institutions Renate Kloeppinger-Todd Rural Finance Advisor The World Bank Johannesburg, South Africa, April 1-3 2009

  2. Many Risks in Banking • Government policies • Macro-economic policies leading to high inflation • Interest rate caps • Interest rate subsidies • Forced directed credit for specific sectors or individuals • Too high (or low) reserve requirements • Political influence on credit decisions • Corrupt officials • ……..

  3. Many Risks in Banking • Governance risks • Insider lending • Untrustworthy management and staff • Inappropriate oversight • Lack of guidelines and appropriate systems • ………

  4. Many Risks in Banking • Individual client risks • Inability to repay loans • Unwillingness to repay loans • Due to unsuitable loan products • Lack of ability to properly evaluate clients and their ventures • Lack of appropriate monitoring systems and follow up • Risky projects being financed

  5. Many Risks in Banking • Portfolio risks • Portfolio too concentrated in 1-2 sectors • Too concentrated in 1-2 geographical areas • Too concentrated in 1-2 products (only short-term, long-term)

  6. Many Risks in Banking • Assets / liabilities mismatch • Finance longer-term longs with short-term deposits • Finance short-term loans with longer-term liabilities • Leverage too high • Low reserves in case of crisis • Inability to obtain further funds • High costs of funding

  7. Many Risks in Banking • Risks from management and staff • Management not properly trained • Staff not properly trained • Lack of support • Lack of good supervision • Lack of functioning systems and procedures • Bad staff morale • “Overworked and underpaid” • …….

  8. Many Risks in Banking • High transaction costs • Small loan sizes • Inappropriate procedures • Insufficient tools and outdated technologies • …….

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