Mapping of Rural Finance Products, Delivery Models and

Linkages

SEEP Rural Finance Pre-Event WorkshopWashington D.C. – October 26, 2004

Maria Pagura, FAO Rural Finance Group

Presentation Overview

Rural Finance Demand and Supply Innovative Products and Services Mapping of Delivery Models and Linkages Moving towards Design and Choosing the

Right Mix

Demand and Supply of Rural Financial Services

Demand for Rural Finance

Agriculture production – medium and long-term loans, leasing arrangements, lines of credit, crop insurance

Agriculture based industry – investment and working capital loans, lines of credit

Non-farm enterprise and trade – investment loans, short-term working capital loans,

Household consumer finance - emergency loans, health insurance, savings, remittances, housing

Supply of Rural Finance

Informal: Moneylenders and Traders Semiformal: Village Banks, NGOs, MFIs

Cooperatives, Credit Unions, Input Suppliers, Agribusiness Companies, Marketing Companies

Formal: Agricultural State Banks, Commercial Banks, Community and Rural Banks, Postal Banks

Innovative Rural Financial Delivery Models, Linkages and Products

Innovative because they......

expand access to new segments of the rural population not traditionally served

create quality increases in terms and condition of current products already being offered

broaden the variety to offering new products and services

Innovative Rural Finance Products

Loan Products

Working capital loans Lines of credit Emergency loans Term finance loans Warehouse receipts Leasing arrangements

Savings Products

Mobile Banking – flexible savings products Improved ROSCA open access savings Certificate of Deposits

Insurance

Agriculture – indexed weather based instruments

Health Life

Other Services

Payment services Remittances

Mapping of Delivery Models

Traditional Delivery Channels

MONEYLENDERS/TRADERS CLIENTS

COMMERCIAL BANKS CLIENTS (Private and State Development)

MFOs and NGOs CLIENTS

MEMBERSHIP-BASED ORGANIZATIONS CLIENTS(Self Help Groups, Village Banks, Co-ops, Credit Unions)

Multi-Partner Delivery Channels

Private BanksState Banks Postal Banks

Insurance Cos.

MFOs

NGOs

Credit Unions

Village Banks

Agro-processors

Input Suppliers

Marketing Companies

Leasing Companies

Warehouse Operators

Supermarket Chains

Clients

Non-bankFinancial

Institutions(APEX,

InvestmentFunds)

Using Agribusiness as a Delivery Channel

ClientsTraderBank or FI

MarketingCo.

FarmerAssoc.Private

Investors

Producer Business

Models

New Delivery

Channels

Innovative Linkages and Delivery Channels

Other Business Service Models

Bank - MFI Wholesale

Models

Producer Business Models

Banks and Ag Processing Firms

Land Bank of South Africa and Cotton Processing Firms - providing credit to farmers

Commercial Banks and Ag Processing Firms in Kenya, Zambia, Mozambique – providing credit to farmers

Role of mills in facilitating finance to small and medium scale farmers.

Banks and Supermarkets

Farmers access to loans due to purchasing arrangements with supermarkets – HortiFruiti in Costa Rica

Banks use supermarkets as delivery channels for range of services, including deposit mobilization - Nedbank and PicknPay Chains in S. Africa

Banks and Inputs Suppliers

Teba Bank (S. Africa) using point of sales terminals to provide banking services through rural trader shops and MFIs

Drumnet-Pride Africa linking farmers to financial service, primarily lines of credit through the use of smart cards with input suppliers coupled with access to market information

Bank – MFI Models

New Wholesale Models

Portfolio buyouts– One time purchase of MFI portfolio

Partnerships – Bank holds loans, MFIs monitor and collect

payments

On tap Securitization – Continuous buyout of MFI portfolio

Systems based on incentives and risk sharing arrangements – default limits and guarantees

New Wholesale Models

Investment funds - debt and equity instruments for MFIs

Bank – MFI Linked Services

Banks – MFI Linkage for deposit mobilization services

Post Office Bank in S. Africa acts as payment backbone for a range of MFIs and credit unions

Other Business Service Models

Linkages and Delivery Channels

Life insurance firms using post office banks as payment facility for rural clients – S. Africa and Kenya

Social pensions paid out in rural areas through commercial bank mobile units – S. Africa

Moving towards Design and Choosing the Right Mix

The A.C.T. Principle

A nalyze and understand the key constraints and challenges of provisioning rural finance

C omprehend the different products and delivery models available

T ake the best mix of products and delivery models to effectively deal with the constraints in your area of intervention

“Creativity is thinking up new things. Innovation is doing new things.”

Theodore Levitt

Professor Emeritus,

Harvard Business School