Attended By

1. Presentation on Study Visit/ Attachment ProgramBank for Agriculture and Agricultural Cooperatives (BAAC) Bangkok, ThailandFrom 18th February to 29th February 2008

2. Attended By Kamran Akram Bakhshi Joint Director Sardar Muhammad Ejaz Junior Joint Director Muhammad Nadeem Khanzada Junior Joint Director Abdus Saboor Assistant Director

3. Country Data • Country area : 513,115 sq.km. • Population : 65.7 million • Population growth : 1.5 % • Religions : • Buddhism 95 % • Muslim 3.8 % • Christianity 0.5 % • Others 0.7 % • Administrative divisions : 76 provinces • Capital city : Bangkok

4. Economic Structure • Agriculture (10%) • Manufacturing (44%) • Trade (15%) • Service (28%) • Real estate (3%) • Agriculture accounts for 10% of GDP and 16% of total export value. • 42 million People or 69% of the population live in rural areas and their major occupation is farming.

5. Bank for Agriculture and Agricultural Cooperatives(BAAC)

6. HEAD OFFICE

7. BAAC VISION “ To be a secured rural development bank with modern management focusing on theuplift of the small-scale farmers’ quality of life”

8. Legal Framework • BAAC was established under the “Bank for Agriculture and Agricultural Cooperatives Act” in 1966as a government – owned bank. • BAAC is supervised by the Ministry of Finance but in practice, MOF asks BOT to supervise BAAC. • BAAC’s mandate has been to provide credit to farm households (individual farmers) and agricultural cooperatives.

9. Branch Network • BAAC has a large network of 908 branches and 945 field offices.

10. Traditional Standard Structure of BAAC’s Branch

11. Outreach • Individual farmers 4.13 MFH • Agricultural cooperatives 940 • Number of membership 1.55 MFH • Total number of clients 5.68 MFH

12. BAAC is accepted to be the largest formal Agri/Rural Financial Institution in Thailand with an outreach of 5.68 million farm households (98.1% of the total farm households)

13. Outstanding Loans as on 31-12-2007 • 12,245 Million US$ • (1 US$ = 35 Baht)

14. Sustainability Sources of Fund (31Mar 07)

15. Sources of Fund Borrowings(1.62%) Shareholders (8.63%) Deposits(87.73%) Other Liabilities (2.02%)

16. Financing Policy

17. Who can borrow? Since its establishment in 1966and up to 2005, BAAC was allowed to provide loans only to Agricultural Sector – individual farmers or agricultural cooperatives for onward lending to their membersFrom 2006 onwards, BAAC has also been allowed to provide loan to non-agricultural sector as well, but the volume of loan to non-farming borrowers must not exceed 20% of the total loan volume at any point of time

18. Directions For Credit • BAAC will not provide loan for any activity that have negative effect to natural resources and environment. • Promote clean farming technology to farmers • GAP, GMP • Food Safety • BAAC advises (give signal to) farmers about the sunset and sunrise farm products

19. Credit Services

20. “Our Service is Beyond Savings and Loan” “Develop First Then Follow By Loan” How to reduce cost of production, Living expenses, Farming tools & techniques, How to improve farming productivity Etc.

21. 1. Credit Services to Agricultural Sector • Retail credit to individual farmers mainly organized in joint liability groups (accounting for 85% of the portfolio) • Wholesale credit to farmer’s institutions such as agricultural cooperatives, community enterprises (accounting for 15% of portfolio)

22. A. Credit Services to Individual Farmers • Short-term loan - 12 to 18 months • for working capital for the purposes of • - purchase of agricultural inputs • - postponement of sales of farm products • - purchase of labor & farm production • - other farm related activities

23. A. Credit Services to Individual Farmers (continued) • Long-term loan - 15 to 20 years • for investment in • - agricultural working tools or machinery - livestock - fixed agricultural assets • and for refinancing/ repayment of old debts

24. B. WholesaleCredit to Farmers’ Institutions • Agricultural cooperatives, farmers’ associations, or community enterprises can also borrow from BAAC for purposes of; • Re-lending to members • Procurement of farm inputs and equipments • Collection of farm products from members • Presently, credit to such institutions/ cooperatives accounts for 15% of the total portfolio of the bank.

25. 2. Credit Services to Non-Agricultural Sector Since 2006, BAAC has also been allowed to finance non-agricultural sector including Medium, Small & Micro Enterprises (MSMEs) subject to the condition that the volume of loan to non-farming borrowers must not exceed 20% of the total loan volume at any point of time. The facility is available for all economic activities in the country.

26. INTERESTRATE BAAC has market based interest rate system on deposits as well as on advances. The present applicable rates are as under: • Minimum retail rate (MRR) = 7.5% for lending to individuals farmers and MSMEs. • Minimum lending rate (MLR) = 5.5% for wholesale lending to cooperatives for onward lending to their members.

27. SECURITY REQUIREMENTS • JOINT LIABILITY GROUP (JLG): Under this system, borrowers have to form a group of minimum 5 farmers This group stands as substitute for land collateral for small and short term loans. Under joint liability system, the farmers can borrow up to Thai Baht (THB) 150,000 (US$ 4,200) each. • Two Guarantors: At least 2 branch clients or other people approved by BAAC can perform as guarantors. The amount of loan must not exceed THB 150,000 (US$ 4,200).

28. SECURITY REQUIREMENTS • Having immovable assets (land with title) which are not mortgaged to other creditors. The amount of loan must not exceed 50% of the land value. • Having Thai government securities or deposit with BAAC as collateral. The amount of loan must not exceed 50% of the value of securities. • Having other collateral specified by the president with the approval from the Board of Directors.

29. Joint Liability Group (JLG)

30. Joint Liability Group (JLG) • Characteristics • group of minimum 5 farmers • membership decided by farmers (not the bank) • mutual guarantees (know & trust each other) • substitute for land collateral • individual lending, group guarantee

31. A F B E C D Joint Liability Group (JLG) Individual Lending, Group Guarantee

32. Benefits of JLG • By using JLG, each farmer can borrow 4,200 US$ (150,000 Baht) for major crops. • By using 2 guarantors within the group, each farmer can borrow another 4,200 US$ (150,000 Baht) for other farming activity. Thus, a farmer can avail up to US$ 8,400 with no collateral or fixedsecurity. Presently, 70% of the bank’s credit portfolio is collateral free. The average loan size is 90,000 THB per person.

33. Other Services & Measures by BAAC

34. Credit Services underGovernment Security • Occupational promotion and development • Help improve standard of living of farmers • Assist farmers facing occupational problems. • Cover damages from disaster or natural calamities which affect production levels or quality of farmers’ product or lead to falling prices Under a cabinet resolution, credit extensionto farmers for:

35. Measures for Past Due Loan Recovery • Postponement of repayment • Debt restructuring • Loan recall • Acceleration of repayment from guarantor • Litigation • Write off

36. Measures to aid clients hurt by the natural disaster 1. Measure for clients who passes away: • Write off the debts in principal and interest of the dead or missing farmers. BAAC accepts takes responsibility for write off amount. 2. Measure for clients who suffered extensive loss: • Extend the repayment deadlines by 3 years for debts of farmers who suffer extensive losses. • Farmers are exempted from interest payment for 3 years • Provide rehabilitation loans (if required) with interest rate of 2 % per annum. The loan to be repaid within 3 years.

37. Islamic Banking Window • BAAC has also started Islamic Banking Window for clients who wish to avail credit facility under Islamic modes of financing. • It has appointed a Sharia Advisor for the purpose. • This product is available to everyone irrespective of their faith or religion. It is pertinent to mention that Muslims are only 3.8% of the population of Thailand.

38. Farmers’ Coaching and Training • BAAC provides technological advices to farmers as to how they can : • reduce cost of living & cost of farming and • improve the productivity • Loans are not provided for activities which have negative effect on natural resources and environment. • BAAC also advises (give signal to) the farmers about sunset and sunrise crops.

39. Moral Suasion • BAAC inculcates in its clients a respect for moral values • It motivates the borrowers to abstain from indulging in bad habits or unhealthy activities like gambling, drinking, etc. • It also obtains the services of Monks to persuade people to adopt good habits.

40. Crop Insurance BAAC has recently initiated crop insurance (for maize) under a World Bank project in collaboration with government agencies and insurance companies. The “weather derivative indexed crop insurance scheme” enables farmers to cover their production risk. It covers risks of losses in case the rainfall exceeds or falls short of a certain predetermined level in respective areas.

41. Risk Management Strategy BAAC is able to maintain non-performing loan ratio within manageable level. Starting 1999, BAAC has also began to rationalize its interest rate policy adopting a risk-based loan pricing - pricing interest rates based on repayment performance. BAAC has also initiated a unique “unconventional” risk contingency system to address loan delinquency. The system allows re-structuring of accounts not paid due to force majeure, up to three times.

42. Recovery Recovery rate of the bank is very high (95% of the total disbursement). The main reason for high recovery rate is its tight monitoring and good risk management systems Field officers of the bank pay frequent visits to clients/ borrowers and monitor their activities & cash flows which help them receive/ get repayment in time.

43. Lessons Learnt from BAAC

44. Comprehensive Agri/ Rural Loan Policy • Linkages with Stakeholders • Close Liaison with Farming Community • Incentives for Regular Borrowers • Help Formulation ofAgricultural Marketing Cooperatives by Farmers • Guidance to the Farmers/ Borrowers • Training & Awareness • Rural Deposit Mobilization and Fund Based Services

45. Thank you for your kind attention.