Understanding Rural Finance Issues and the Macro and Micro Operating Environment. Module 2 Rural Finance & Microfinance Actors and approaches

Transcription

1 Understanding Rural Finance Issues and the Macro and Micro Operating Environment Module 2 Rural Finance & Microfinance Actors and approaches

2 Rural and Agricultural Finance Module 2 Agenda Block 1 Introductions New view in rural and agricultural finance Block 2 Rural finance: approaches and actors involved Coffee Break Block 3 The critical Microfinance triangle Microfinance and BDS Block 4 Products offered Block 5 Review of the day by a participant volunteer Daily evaluation Readings for next day

3 Rural and Agricultural Finance Module 2 Block 1 Introduction New view in rural and agricultural finance Block 2 Rural finance: approaches and actors involved Coffee Break Block 3 The critical Microfinance triangle Microfinance and BDS Block 4 Products offered Block 5 Review of the day by a participant volunteer Daily evaluation Readings for next day

4 Features Primary Features of Old and New Paradigms Directed Credit Financial Market Problem definition Role of financial markets View of users Subsidies Sources of funds Associated information systems Sustainability Evaluations Overcome market imperfections Promote new technology Stimulate production Implement state plans Help the poor Borrowers as beneficiaries selected by targeting Large subsidies through interest rates and loan default Create subsidy dependence Governments and donors Designed for governments and donors Largely ignored Credit impact on beneficiaries Lower risks and transaction costs Information Intermediate resources more efficiently Special challenge of serving the poor Borrowers and depositors as clients choosing products Fewer subsidies Market rates Create independent institutions Obligatory and voluntary deposits Designed for management A major concern Performance of financial institutions

5 THE FARMERS: New View in Rural and Agricultural Finance: Challenges High financial transaction costs of serving dispersed and small farm households => high cost of services Heterogeneity, seasonality, and duration of farming and non-farming needs for financial services Lower profitability and higher risk of on-farm investments Lack of bankable investments beyond trade

6 THE PORTFOLIO RISK New View in Rural and Agricultural Finance: Challenges Over-indebtedness of some clients High rate of agricultural finance default and default history in some countries Lack of loan collateral Low loan repayment discipline THE ENVIRONMENT Lack of training/information of bank staff and farmers Politically sensitive environment

7 Enhancing the Rural Finance Environment Rural Income and Investment Capacity building on risk analysis and mitigation Reform strategies to support competitive production and marketing, with emphasis on the impact of the poor Impact assessment of interventions on gender and highly vulnerable populations Business and production capacity building and training for improved farm and rural entrepreneur income opportunities

8 Enhancing the Enabling Environment Free-market interest rates and competition among financial service providers, both institutional and non-institutional An appropriate legal and regulatory framework with prudential norms Adherence to international norms for reporting and supervision Effective external supervision at all levels

9 Enhancing the Institutions Financial needs vs. financial demand Innovation and diversity of demand-driven, commercially-focused products and services Effective internal control and external supervision at all levels

10 Basic Financial Management Principles Remain a Key Issue Credit is important, but so are savings and other services Transaction costs are high and should be handled Risk management is critical portfolio, financial and systemic Prompt and strict delinquency management is required Good governance is a key to sustainability Financial systems and good MIS are critical

11 Rural Finance Module 2 Agenda Block 1 Introductions New view in rural and agricultural finance Block 2 Rural finance: approaches and actors involved Coffee Break Block 3 The critical Microfinance triangle Microfinance and BDS Block 4 Products offered Block 5 Review of the day by a participant volunteer Daily evaluation Readings for next day

12 Financial System Actors and Institutions Households, Producers, Processors Traders, processors, suppliers / banks, MFIs, insurers

13 Beyond Agricultural Credit: RURAL FINANCE IN PERSPECTIVE Financial Services Rural Finance Agricultural Finance Microfinance Financial Services Agricultural Credit

14 Approaches and actors Approaches: Institutional perspective ( istitutionalist school) Social perspective ( welfariste school)

15 ACTORS: SUPPLY SIDE

16 Rural Finance Module 2 Agenda Block 1 Introductions New view in rural and agricultural finance Block 2 Rural finance: approaches and actors involved Coffee Break Block 3 The critical Microfinance triangle Microfinance and BDS Block 4 Products offered Block 5 Review of the day by a participant volunteer Daily evaluation Readings for next day

17 The Critical Microfinance Triangle Sustainability Institutional innovation outreach environment impact

18 Who is being reached by MF? The extreme poor are rarely reached by microfinance Social safety net programs are often more appropriate for the destitute and extreme poor Source: Monique Cohen/CGAP Presentation

19 Lessons From Microfinance Microfinance has been successful in: high volume, low value, unsecured loans to the working poor sustainable operations in higherdensity areas proving the poor will repay Most microfinance clients today fall in a band around the poverty line ( active poor )

20 Lessons From Microfinance Microfinance has not been effective in: providing agricultural and term lending cutting operating costs providing a multiple array of demanddriven products is improving through linkages

21 BDS and Microfinance Role of BDS and microfinance management capacity Minimalist approach: financial services only Maximalist approach: financial and non financial services

22 BDS and Microfinance Microfinance has to provide business and development services (BDS)? How services could be affordable and sustainable What strategies could be used to develop BDS market

23 Need for a Holistic Intervention Approach 1: Promoting sustainable MFIs 2: Quality technical assistance 3: Enabling legal environment to achieve a: Significant increase in the income and economic security of the poor and their households

24 Rural Finance Module 2 Agenda Block 1 Introductions New view in rural and agricultural finance Block 2 Rural finance: approaches and actors involved Coffee Break Block 3 The critical Microfinance triangle Microfinance and BDS Block 4 Products offered Block 5 Review of the day by a participant volunteer Daily evaluation Readings for next day

25 Products offered: Supply perspective Financial Institution Suppliers Commercial Banks Value Chain Suppliers Medium and Large Exporters and Processors Local Traders and Processors Many rural enterprises are demanders AND suppliers of financial services!! MFIs, Cooperatives, NGOs Producer Producer groups groups Farmers Input Suppliers

26 Financial Institutions and Potential Financial Flows Financial Institution Suppliers Commercial Banks Commercial Banks Typical Clients Large enterprises Typical Products Short and mediumterm loans, depository Potential Market Niche Medium, long-term lending to med-large processors, exporters, producer groups; lending to MFIs, term deposits MFIs, Cooperatives, Non-Bank Financial Institutions Micro & small enterprises Short and mediumterm loans Lending to small farmers & groups; remittances, insurance NGOs Community- Level MFIs Microenterprises, poor households Short term loans Lending to microproducers & MSEs, savings Credit Unions and Ag Coops Rural households, micro & small producers Short to medium-term loans, savings Lending to micro, small producers, savings

27 Product Offered: Demand Perspective Financial Institution Suppliers Commercial Banks Value Chain Suppliers Medium and Large Exporters and Processors Local Traders and Processors Many rural enterprises are demanders AND suppliers of financial services!! MFIs, Cooperatives, NGOs Producer Producer groups groups Farmers Input Suppliers

28 Supply Chain Finance Multiple Links Medium & Large Exporters & Processors Commercial Banks MFIs, Cooperatives, NGOs Local Traders & Processors Producer Producer groups groups Input Suppliers Farmers

29 Rural Finance Achieving diversification while maintaining focus Focus (a) Rural clients Poverty Level Clients Agriculture Products (a) Working Capital Loans Lines of Credit Individual Loans Passbook Savings Remittances Focus (b) Urban/peri-urban clients Middle income clients Non-agriculture Products (b) Term loans Mortgage loans Groups & Com. Orgs. Fixed Deposits Other Services

30 Product Development - Rural Loan - Case study module 2: AFSAR - Microfinance institution based in Russia

31 Rural Finance Module 2 Agenda Block 1 Introductions New view in rural and agricultural finance Block 2 Rural finance: approaches and actors involved Coffee Break Block 3 The critical Microfinance triangle Microfinance and BDS Block 4 Products offered Block 5 Review of the day by a participant volunteer Daily evaluation Readings for next day

32 Module 2 Rural Finance & Microfinance Actors and approaches Thanks for the attention!!