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Warehouse Receipt Financing & Collateral Control Solution for Agri Commodities

This proposal introduces Warehouse Receipt Financing (WHR) as a solution to the challenges faced in the physical trade of agri commodities. WHR provides secured financing by using approved storage facilities and collateral control. This pilot aims to encourage banks to adopt WHR financing and create awareness among farmers about the benefits of formal credit and storage.

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Warehouse Receipt Financing & Collateral Control Solution for Agri Commodities

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  1. Agri Commodities Physical Trade, Market Development, Warehouse Receipt Financing & Collateral Control FICF WHR PILOT April 29, 2015 www.ace-group.net

  2. Today’s Challenge Grain production exceed 30MMT p/a and 13 MM bales Cotton Ranking • Another circular debt PKR 400bn; • Crowding out of lending to agri sector only 1% of GDP / 6% of Bank lending – implications on economic growth? • Inadequate, substandard warehousing and non existent collateral management implies pilferage, stock losses (as high as 15%); • Small farmer financing limitation due to pass book • NPL high at 12.5% 4 7 13 6 18 9.5% GDP contribution

  3. Solution: Warehouse Receipt (WHR) Financing • WHR is a form of secured funding • WHR is defined as an acknowledgement by ACE Global to the Bank that goods have been safely received for storage and will be delivered on demand in accordance with the terms and conditions. • WHR Financing provides the Lender with the capability to finance related commodities in storage facilities. • The commodity must be stored in approved storage facility, under the control of ACE Global for & on behalf of the Bank. • Secondary market of WHR through Commodity Exchange. • Owner of WHRs can ‘execute’ Instrument for physical delivery. • Secured • Storage: • Existing stocks • on paper only; • Grading and quality • control; • WHRs become a • negotiable instrument. • Cheaper & inclusive financing: Enhance formal credit & liquidity; • Secured collateral = cheaper financing; • Reduce GOV borrowing for wheat procurement. • Strong price signals: • Discourage hoarding &  regional disparities; • Regular wholesale prices will discipline market & expectations; • Will  price volatility & enhance risk management;

  4. Pilot Objectives • Encourage Banks to adopt new and innovative agri financing products. • Develop Bank capacity towards WHR financing • Create awareness amongst farmers on benefits of storage and formal credit • Allow farmers to avail credit at cheaper cost • Allow farmers to get higher crop price • Develop a larger platform based on the Pilot learning Video

  5. Contractual Flow

  6. WHR Issued • - 100 Cotton Bales • - 13 Depositors Progress • Rural Awareness • - Finalisation of marketing material • - Activities conducted in Kasur / Okara (Punjab) areas , Khairpur & Tandollahyar (Sind) • - Soft launch • Location Identification • - 15 Location inspections completed • - 4 locations available: 5,000 MT silo, 100 cotton bale gowdown, 14,000 bags wheat • Partnerships • - Commercial / Islamic Banks, MFB • - Activation Agency • - Insurance • - Infrastructure • CapacityBuilding • CMA converted to Islamic format • 4 CMAs signed • 3 Service & Lease Agreements signed • CapacityBuilding • - Documents & Product Development • - Bank training • - Bank queries addressed • - CMA reviewed by external lawyer

  7. Learnings & Challenges • Identification of suitable storage in a timely manner • Develop pricing mechanism for finalizing collateral & sale proceed • Develop loan ‘top-up’ mechanism • What is a suitable financing amount per depositor • How much margin to be maintained to cover 6 month price fluctuations (SBP offering 40% loss guarantee in Pilot) • Product delivery in a timely manner – short harvest cycles • Joint Rural Awareness efforts • Encourage an open and innovative mind set to adopt new products

  8. Images (Locations + Marketing)

  9. Thank YouWWW.ACEGLOBALDEPOSITORY.COMfahad.khan@aceglobaldepository.com

  10. The Participants

  11. Contractual Flow

  12. 1. Warehouse inspection & accreditation. 2. Awareness and Marketing by the Agency. FARMER 12. ACE releases the stocks to Local Trader 3. Farmer brings his agri produce at accredited Warehouse. MARKETING AGENCY 4. The Commodity is inspected by ACE for Quality/Quantity and Weight WHR WHR 11. Bank issues Release Orders to ACE EFU INSURANCE WAREHOUSE OWNER - FOOD DEPTT. 10. Local trader pays into farmers designated bank account. 5. ACE issues WHR to Farmer ACE GLOBAL 9. Farmer sells the produce to Local trader 6. Farmer presents WHR to designated Bank for agri input finance LOCAL TRADERS 8. Stocks stored under ACE control 7. Upon approval, Bank disburses finance to farmer. BANK

  13. Table of Contents • Today’s Challenge • The Proposal • Pilot Objectives • Documentary • Our Progress • Learnings

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