1 / 11

The World Bank

The World Bank. Financial institutions in the agricultural sector : The Case of Aiyl Bank, Kyrgyzstan Ajai Nair, Consultant, The World Bank Expert Meeting on Managing Risk in Financing Agriculture Johannesburg, 1-3 April, 2009. Presentation Outline. Institutional Overview

sally
Download Presentation

The World Bank

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The World Bank Financial institutions in the agricultural sector:The Case of Aiyl Bank,KyrgyzstanAjai Nair, Consultant, The World BankExpert Meeting on Managing Risk in Financing AgricultureJohannesburg,1-3 April, 2009

  2. Presentation Outline • Institutional Overview • Lending technology and process • Credit risk assessment • Credit risk management • Delinquency management Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  3. Institutional Overview: Ownership and legal character • Fully government owned • Set up through a World Bank funded rural finance project in 2006 • Obtained limited banking license in 2006 • Network of 18 branches, 50 regional offices, and 33 village offices • In the process of being privatized; parliament has approved sale of 67% of shares to strategic investor with rural financing experience Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  4. Institutional Overview: Financials • US$67 million in loans • Over 43,000 borrowers • 87% of portfolio in agriculture • Over 90% of agricultural loans for livestock • Over 3/4th loans less than $3000 • PAR (90) <1% Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  5. Lending Technology • 87% loans to individuals; joint liability groups, and legal entities • Most loans have physical collateral – buildings, equipments, but not land • Most loans have terms of 1 to 2.5 years • Interest rates (on reducing balance) 22% on agriculture and 27% on non-agriculture Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  6. Lending Process • Individuals desiring loans register in bank’s local office and obtain checklist of documents • Visit by loan officer scheduled; loan officer does preliminary assessment of creditworthiness and provides estimate of loan eligibility • Client submits loan application with all required documents • Further assessment by loan officer and recommendation to loan committee • Verification of documents by bank lawyer • Decision by committee. • Loan application to decision in around 2-3 weeks. Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  7. Credit risk Assessment • Four credit risk categories: • Level 1: Loans below $425 • Level 2: Loans between $425 and 3000 • Level 3: Loans between $3000 and $15,000 • Level 4: Loans above $15,000 • Loans less than $425 are collateral free; provided on village council recommendation • Increasingly intensive credit risk assessment for higher levels • Level 2: minimum amounts of information on assets and liabilities of the borrower, a simple business plan, and information on collateral. • Level 3: Additional details on assets/liabilities and business plan; information on income and expenditure • Level 4: Multi-year information on income and expenditure; formalized financial statements Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  8. Credit risk management • Documents required for all loans that require collateral: • copy of land tax receipt • certificate from village administration to prove local residency • original title deed of asset submitted as collateral • no-lien certificate from the asset registry • notarized collateral agreement • Insurance of assets financed not required. • Tiered loan approval policy • Loans below $425 in village offices • Loans up to $15,000 in branches • Loans above $15,000 in head-office Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  9. Credit risk management • In person loan monitoring based on loan classification • Standard loans - at least once in 6 months • Loans in watch category - visit at least once every 4 months • Loans in sub-standard category: visit at least once every 3 months • Loans in doubtful category: visit once or more in every 2 months • Provisioning policy • Standard loans: 2% • Watch loans (defaults <30 days): 5% • Sub-standard loans (defaults 30-60 days): 25% • Doubtful loans (defaults 60-90 days): 50% • Losses (defaults over 90 days): 100% Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  10. Credit risk management • Delinquency management • Penal interest of 3% on delinquent loans • If delinquent for 30 days, notice issued • If delinquent for 60 days, recorded in credit registry • Request submitted to credit committee to file claim in court • Court process around 4 months and after decision, 4-6 months to liquidate collateral • Less than 1% loans require court processes and dues recovered fully in around 50 % of the cases. • Availability of good veterinary services reported as key non-financial factor in credit risk management • Plan to increase non-agricultural portfolio to 30% by 2012. Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

  11. Conclusions • A new generation agricultural development bank in a low income country • Basic banking tools and processes continues to be relevant for agricultural finance • Market facilitating institutions have a key role to play in agricultural finance Expert Meeting on Managing Risk in Financing Agriculture, 1-3 April 2009, Johannesburg

More Related