Reducing Borrower and Lender Risk in Tajikistan International Conference on Rural Finance Research FAO, Rome, March 19-21 2007 Linda Jones Technical Director MEDA

Long Title for Paper Reducing borrow and lender risk through context sensitive product and portfolio design: the case of integrating microfinance with agricultural development in Tajikistan.

MEDA Approach to RAF Partnerships Local ownership and management Capacity building Long-term commitment Flexible, context-sensitive programming

Objectives: Rural loan fund To create a context-sensitive rural loan fund To develop products that meet the needs of lender and borrower To build a healthy and balanced portfolio

Program Description Partner – NABWT/IMON CIDA - CDN $5.3 million contribution 4 years, ca. 35 staff (04/04 – 03/08) Subsector development Rural credit ($1m loan fund) Agricultural extension Association / group formation SME development – business, marketing, technology / facilities, loan fund ($550k), matching grants ($300k) Linkages between farmers and SMEs Cross-cutting issues – especially gender

Program Challenges / Questions Local partner and capacity? Clients and context? Complementary programming?

Local partner and capacity? Experience Willingness to adapt Knowledge of regions Reputation in communities Technical knowledge

Clients and context? Attitudes to credit Population density / physical access Literacies Repayment ‘culture’ Risks and risk mitigation

Complementary programming? Integration into broader program Feedback loop Connection to agricultural extension and market development activities Linkages between staff of different program components

Methodology - General Group and individual loans Interest set at market rates Non-traditional forms of collateral Streamlined application procedures Short loan terms with frequent repayments Training of borrowers

Portfolio Balance Agricultural loans Strong focus on horticulture (80%) Agribusiness and support services included Only one loan per household Few individual loans performance based

Product Specifics 3 to 12 month terms Biweekly or monthly payments Longer grace period Declining balance interest $300 - $1500

Application Process Extensive application process Participation of entire group in each application Training includes management of repayment Credit committees reviewed all applications with loan officer present to start

Results – October 2006 3557 rural loans disbursed $1.4 million total Average outstanding loan $1055 Portfolio at risk > 1 day 0.10% Operating expense ratio 15.23% Creation of microfinance foundation ($7 m under management) Expansion to other regions

Major Findings & Conclusions Overall capacity of institution Upfront investment Understanding of clients / context Integration into larger program or linkages Slow growth recommended Diversification of portfolio Issues of commodity markets Supply and value chain finance

DISCUSSION