LENDING TO CO-OPERATIVES Presentation by: Edward Mutuaruhiu Head Sacco Banking Department, Co-operative Bank Wednesday, 4th July 2018

Presentation Agenda Brief on Co-operative Bank of Kenya Co-operatives sector Overview Why Lend to Co-operatives Lending regulations How we lend to Co-operatives Facilities lend to Co-operatives Lending process flow Credit management Bank lending requirement Q and A

Co-operative Bank Established in 1968 by farmers coops Third largest bank in Kenya Asset base Kes.386 Billion as at 2017 Deposits 287 Billion Loans over 30 Billion to Co-operative sector Business divisions – Corporate, Retail and Co-operatives Owned 64.5% by co-operatives South Sudan Subsidiary with GoSS ,CCIA,Co-Op Trust Invest.

Cooperative Sector Overview Kenya’s Co-operative movement leads in Africa and no.7 globally 22,000 registered co-ops, 15 million members 2 categories of legislation; Sasra Act(2008) for DT-Saccos(176) and Co-operative Societies Act Cap 490 As at 2016 DT-Saccos had an asset base of over 393 Billion, Deposits 272 Billion Contributes to over 30% of the national savings Co-operatives model is identified as key economic driver in achieving vision 2030

Why Lend to Co-operatives Main business is mobilising deposits and lending to members. Lend a multiplier of 3 to the members deposit. The loans demand sometimes exceeds the available deposit hence the need borrow for on lending. Investment and Housing – lend to finance their projects Agrico-operatives – lend to bridge the gap on timing difference e.g dairy societies pay farmers in advance awaiting processors to pay; Coffee- Farm inputs

Lending regulations By laws of the society- Supreme authority AGM/ADM approval via borrowing powers – Must be further approved and registered by commissioner of Co-operatives Board resolutions External borrowing must be less than 25% of total asset.

How we lend to Co-operatives The bank uses a hybrid of assessment tools viz CAMELS,CAMPARI and the 5Cs Mainly based on historical and future cash flows Analysis of the books of accounts- Grading Matrix Relationship based Demonstrated ability to pay Matching the facility to client’s lending structure

Facilities Lend to Co-ops Overdraft- from 1 Month to 1 Year Working Capital- Upto 72 Months Asset Finance- Upto 60 Months Collateral based facilities- MJL, ESS Mortgage- Upto 15 years Land purchase loan- Upto 10 years Construction/project facilities- Farm input loan- season Farmer Advances- season Agri value chain Guarantees, LC’s

Lending Process flow Loan origination Disbursement/Marking limit Monitoring Credit Appraisal Credit analysis and Approval Contracting

Credit Management It is a life time process from client on-boarding Involves training clients on banking's Prudent record keeping Risk management in the co-operative operations Facility application process from the bank Facility management-adherence to policy Recovery of loans from members Servicing of bank loan Monitoring of the loan portfolio Managing PAR-early/late alert

Bank Lending Requirements Board resolutions 3 years audited books of account Cash flow projections Statements of accounts Approved borrowing powers Security - Letter of undertaking/Irrevocable instructions/Collaterals/Tangible Facility contract

Q & A