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Rabobank - AFRACA

Rabobank - AFRACA. Commercial Approach to Addressing Risk and Cost in Rural Service Delivery in Africa Kampala, 7th June 2005. NFX or Netherlands Financial Exchange.

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Rabobank - AFRACA

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  1. Rabobank - AFRACA Commercial Approach to Addressing Risk and Cost in Rural Service Delivery in Africa Kampala, 7th June 2005

  2. NFX or Netherlands Financial Exchange • Association of Netherlands Commercial Banks for support to financial sector development in South and East: focus on Technical Assistance in pre-competitive phase • Matchmaking and fostering partnerships between The South and The Netherlands

  3. Cooperative Rabobank (1) • Largest bank in the Dutch market; largest share in SME, farms and retail clients • Only private commercial bank with triple AAA status in the world • Cooperative in structure and philosophy with members' liability • Origins in agriculture and rural enterprises, but

  4. Cooperative Rabobank (2) • Now largest agribusiness bank in the world with over 200 international branches, largely in developed economies and NICs (none in Africa !) • Total assets Euro 475 billion; net profit Euro 1.5 billion

  5. Rabobank Development Programme • Rabo Financial Institutions Development BV: participations (e.g. Tanzania National Microfinance Bank), with country and FI focus • RIAS: consultancy arm, emerging markets • Rabobank Foundation with grants, sub-commercial credit facilities, technical assistance, small participations, co-operative focus, operating in South and former socialist states

  6. Vision and mission of (rural) MFI • Clearly defined with focus on institutional sustainability: national/regional economic goals (like poverty alleviating) should be secondary • Shared by the stakeholders in MFI (co-operative structure = supportive) • Customer relationship as central

  7. Credit methodology (1) • Select (potentially) viable business customers only • Adopt individual approach, but optimise scale • Standardisation in products, in procedures by sub-sector / line of production • Match loan conditions to (business) cash flow, but do not forget family upkeep expenditure

  8. Credit methodology (2) • Pro-active borrower monitoring; field inspections • Terms and conditions reflect market approach • Transparent and quick decision taking and easy disbursement procedures Regulation and supervision can support but may also obstruct

  9. Vocational Training, Business Development and Administration • Should be available and accessible for entrepreneurs at acceptable conditions, but • Should not be dependable on MFI service • Strive for strategic alliances with service suppliers (NGOs, Government agencies, private corporations, training institutes)

  10. Risk mitigation (1) • Selection of customers on basis of years in business, quality of (business) management, quality of keeping accounts / presentation of financial information, standing in community, profitability of business • Build on local solidarity, peer pressure • From loan protection to family insurance • Design MIS with very recent information and immediate signalling • Know your customer and know your customer's profitability for the FI

  11. Risk mitigation (2) • Involve local expertise through member-bases and local advisory committees • Build on supply chains, contract production, quality controls • Collateral is a last-resort mechanism (the more so due to many impediments in legality, enforceability, weak and slow judiciary system, bureaucracy etc.) Regulation and supervision can support but may also obstruct

  12. Costs efficiency • Local deposits as prime source of low-cost funding • Seek long term funding. • Standardise products with simple terms and conditions • Apply up-to-date front and back-office technology • Ensure volume in transactions to reduce transaction costs • Expand product range through cross selling (insurance) • Use knowledge and insights in local situation through client advisory committees

  13. Conclusions • Aim at full-fledged financial institutions (or strategic alliances) - no specialised agricultural banks ! • Aim at broad customer base - no single focus on low-income clients; widening outreach • Aim at larger customer base: deepening penetration as well as serving large clients

  14. Rabobank - AFRACA Commercial Approach to Addressing Risk and Cost in Rural Service Delivery in Africa Kampala, 7th June 2005

  15. It is time for the

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