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Enhancing Agricultural Micro Lending Efficiency in Universal Banks

This report by Michael Kortenbusch discusses strategies to improve efficiency in agricultural micro lending at universal banks, particularly in the Caucasus region. It identifies challenges such as low client density and transaction sizes. The report outlines three key strategies: clustering clients to enhance accessibility, optimizing business processes to reduce administrative costs, and customizing lending products to better meet client needs. Successful case studies from banks in Georgia and Azerbaijan demonstrate the effectiveness of these approaches, leading to more productive and flexible lending solutions.

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Enhancing Agricultural Micro Lending Efficiency in Universal Banks

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  1. Improving Efficiencyin Agricultural Micro Lendingat Universal Banksby Michael KortenbuschBusiness and Finance Consulting (BFC)BerlinMay 5, 2006 The Development Finance Experts

  2. Efficiency is the key factor for successful agricultural lending operations Challenges for Banks: • Low Client Density • Client Accessibility • Uniform Products

  3. Agriculture in the Caucasus Low transaction sizes and large distances to banks are the key challenges

  4. Three steps to improve staff productivity 1. Clustering 3. Product 2. Business Process Optimization Customizing the approach reduces administrative costs

  5. 1. Clustering Case One: United Georgian Bank, GeorgiaImplementer: Bankakademie, BFC Selection of one subsegment in target villages to increase the concentration of customers

  6. 1. Clustering Case Two: Parabank, Azerbaijan Selection of two subsegments in target villages

  7. 2. Business Process Organization Case One:United Georgian BankImplementer: Bankakademie, BFC • Creditomobile • Joint processing • Streamlined risk assessment • Collateral + peer pressure • “Universal” lending staff Average loan processing time is 3 (express loan) and 10 (standard loan) days

  8. 2. Business Process Organization • Case Two:Parabank, Azerbaijan • Group lending • Social screening • No collateral for group lending • “Universal lending” staff Loan processing time: 25 days

  9. Express Agro Loan USD 200 – 3,300 30 - 36% p.a. Up to 14 months No registered collateral Third party guarantee Flexible repayment schedule No prepayment fee 3. Products • Case One: United Georgian BankImplementer: Bankakademie, BFC Loans are disbursed and repaid in local currency only Flexibility in collateral requirements and repayment modus are key factors

  10. 3. Products • Case Two:Parabank, Azerbaijan Loans are disbursed and repaid in local and foreign currency Group Agro Loan • USD 100 – 1,500 • 30 – 36% p.a. • Up to 24 months • No collateral • Group solidarity principle • Flexible repayment schedule Flexibility in collateral requirements and repayment modus are key factors

  11. Results Microlending to agriculture can be as productive as microlending to urban enterprises

  12. Results Conclusions • Clustering compensates for larger distances • Business Process Organization means:- Streamlining the credit cycle- Serving a group, instead of an individual • Product: flexible and easy to get

  13. Thank you! Business and Finance Consulting (BFC) Microfinance Research and Implementation Active in 9 countries: Clients: EBRD, KfW, World Bank, EED Address: Zur Geest 7, 59399 Olfen, Germany Tel./Fax: (+49 2595) 385365 E-mail: info@bfconsulting.org Website: www.bfconsulting.org

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