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