Rural and Agricultural Lending Bob Price FINCA International Microfinance is a powerful tool to fight poverty. When poor people have access to financial services, they can earn more, build their assets, and cushion themselves against external shocks. Poor households use microfinance to move from everyday survival to planning for the future: they invest in better nutrition, housing, health, and education.

Overview of Microfinance FINCA: Village Banking and Rural Applications Case Studies: Rural Microfinance The Frontier: New Directions & Products

Why Microfinance? 4.0B people $2.6T income The traditional financial service market 4.0B people $2.6T income Sub-tier 1 “$2-$4/day” 1.3B - $730-$1500 income - $1T Sub-tier 2 “$1-$2/day” 1.6B - $360-$730 income - $890B Sub-tier 3 “<$1/dy” 1.1B - <$360 income - $198B 1.7B people $6.8T income $1,500-$20,000/year 100M people >$20,000/year Rural Problem 70-75% of poor live in rural areas; most depend on agriculture for livelihoods. Limited access to financial services “The poor stay poor, not because they’re lazy, but because they have no access to capital.” Milton Friedman, Economist & Nobel Laureate Click Once to Highlight Traditional Market (top of pyramid) Click Again to Demonstrate Gap (in bottom) Sources: World Bank, CK Prahalad, The Fortune at the Bottom of the Pyramid; Visa estimates

How Finance Helps Access to financial services Increases & diversifies income Builds assets & security EMPOWERS WOMEN Microfinance is a powerful tool to fight poverty. When poor people have access to financial services, they can earn more, build their assets, and cushion themselves against external shocks. Poor households use microfinance to move from everyday survival to planning for the future: they invest in better nutrition, housing, health, and education. Household income Financial services can improve poor people’s lives by providing needed financing for business activities, which can increase their household incomes. While increased earnings are by no means automatic, reliable sources of credit provide a fundamental basis for planning and expanding business activities, which can enable clients to save, manage cash flows, and reduce the need to sell assets to in times of crisis. Asset building Due to increased income, and the ability to save and take on credit, microfinance can provide the means for poor people to acquire land, construct or improve their home, purchase animals and consumer durables, or create or expand their businesses. Studies show that clients who take part in microfinance acquire more productive assets over time than those who do not. Empowering women Many microfinance programs target poor women. For women, money management, greater control over resources, and access to knowledge leads to more choices and a voice in family and community matters. Economic empowerment is accompanied by growth in self-esteem, self-confidence, and new opportunities. Many qualitative and quantitative studies have documented how access to financial services has improved the status of women within the family and the community. Women often become more assertive and confident. In regions where women's mobility is strictly regulated, women have often become more visible and are better able to negotiate the public sphere. Women involved in microfinance may also own assets, including land and housing, and play a stronger role in decision making. In some programs that have been active over many years, there are even reports of declining levels of violence against women. Reducing vulnerability By increasing earnings and savings, financial services allow poor households to make the transformation from every-day survival to planning for the future. Households are able to send more children to school for longer periods and to make greater investments in their children's education. Increased earnings can lead to better nutrition and better living conditions, which translates into a lower incidence of illness. Increased earnings and access to microinsurance also mean that clients may seek out and pay for health care services when needed, rather than go without or wait until their health seriously deteriorates. Builds confidence in the future and willingness to make long-term investments

Impact of Microfinance have 12-56% higher household income show family-wide improvement in nutrition are 14%-68% more likely to move up the economic ladder invest more in their children’s education Compared to non-clients, microfinance clients… Sources: Measuring the Impact of Microfinance: Taking Stock of What We Know, Grameen Foundation USA Publication Series, December 2005. Doocy et al., Journal of Microfinance. Vol. 7, #1, 2005.

Overview of Microfinance FINCA: Village Banking and Rural Applications Case Studies: Rural Microfinance The Frontier: New Directions & Products

Where FINCA Works Eurasia Armenia Azerbaijan Georgia Kosovo Kyrgyzstan Russia Tajikistan FINCA HQ Washington DC Greater Middle East FINCA has learned over the past two decades that our methodology is transferable to different regions because, and we make adjustments to our products and services, based on the needs of the area we are serving. We currently operate programs in 20 countries of Latin America, Africa and Eurasia and have established a regional hub system to provide technical assistance and oversight. Regional headquarters offices are located in Kampala, San Jose and Kiev. Afghanistan Jordan Latin America Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Africa DR Congo Malawi Tanzania Uganda Zambia Regional Hubs San Jose, Costa Rica Kampala, Uganda Kiev, Ukraine

Vital Statistics * Indicator Region Total Latin America Africa Eurasia GME Active clients Loans outstanding Disbursements† Client savings FSS** 130,425 $27.8M $106M $11.6M 99% 286,826 $90.8M $314M $10.9M 100% 263,900 $225M $371M - 115% 47,561 $7.5M $15.3M $102k 46% 741,576 $341M $806M $22.7M 98% * data as of 31-Dec-08 † Annualized ** Financial self-sufficiency

Profile of FINCA’s Clients 70% of clients are women 20-50 years old Support five family members plus other relatives, neighbors and orphans Typical Businesses Rural clients: smallholder farmers, animal husbandry, agricultural marketers, food processors, etc. Urban clients: street vendors, service providers, artisans, etc Our clients are the productive poor, mostly women, who have lived their lives in severe poverty. Although FINCA does not discriminate, it targets women clients because they are the least able to access credit, and because women with children are typically the poorest segment of the poor. Of the 1.3 billion people living in poverty worldwide, women account for 70 percent. In the developing world, and even in the United States, a woman's chances of receiving credit are markedly lower than a man's, and yet, in an increasing number of families, the woman provides a substantial portion—or all—of the family's income. Our clients typically feed and clothe their families on a cash budget of $3 per week. In addition to supporting their immediate family, our clients often provide some income for their extended family and, in many areas (especially Africa), our clients also care directly, or indirectly, for multiple children orphaned by acts of violence or AIDS.

FINCA’s Products Credit Savings Insurance Remittances Village Banking (i.e., group loans) Individual Rural Loan Product Housing, etc. Savings Insurance Credit Life Accident Health Remittances Additional loan services Second generation loans Education loans Additional social services Health education (i.e., maternal health, HIV/AIDS prevention education) Business training services

How Does Village Banking Work? Group Lending Solidarity Guarantee Step credit Group Repayment Group Loan Village Bank -Interest -Principal -Savings Individual Loan Food Health Care Education Client Self-Employment Activities Income Sales Customers 11

Rural Loan Products (RLP) The RLP is a specialized loan product is: designed for rural communities where there is a huge unmet demand for financial services supports rural income generating activities crop planting, animal husbandry, market gardening, dairy production, processing, and trade in rural produce Delivers loans from $200 to $1,000 with a term of up to twelve months (varies by locale) Relies on group solidarity to guarantee loans, capitalizing on the value of a client’s reputation in the community

Traditional Agricultural Lending Finances a specific commodity or growing activity. High risk for client and lending institution. staple crop production

FINCA Rural Loan Product salaries pensions remittances trade income market gardening services income dairy production and sale Analyzes all income streams. staple crop production Constructs a suitable loan treating the rural household as an integrated economic unit.

Overview of Microfinance FINCA: Village Banking and Rural Applications Case Studies: Rural Microfinance The Frontier: New Directions & Products

FINCA & Food for Progress (FFPr) Partnership Began in 2000 Ecuador, Georgia, Guatemala, Nicaragua, Tanzania, Uganda, Zambia, to date Purpose Infuse capital into rural & agricultural economies Increase ag production, processing & marketing Increase on and off-farm incomes Increase access to food Outcomes 116,000+ clients served 676,000+ lives benefited $93 million in recycled FFPr loan capital disbursed every year Click once for Partnership FINCA has monetized 119,300 metric tons of US ag products Click once for Purpose USDA’s own goal is: strengthening private sector agricultural and economic development and enhanced food security in recipient countries Click once for Outreach FINCA Zambia has disbursed 26,413 loans to new clients, surpassing the original target by 267%

FFPr Impact in Ecuador FFP #2 FFP #1 Click once for emphasis on text FINCA Ecuador doubled its client targets to 16,000 10-fold increase in client outreach and 50-fold increase in loan portfolio

2006: Exceed client target by 35% FFPr Impact in Georgia 2006: Exceed client target by 35% FFP (Click for emphasis on text) As a result of FFPr, FINCA Georgia: More than doubled its client outreach More than tripled its portfolio. In 2004 disbursed a total of $7.5M. In 2007 disbursed $25M. To put this figure into perspective , $25M is $10M more that USAID provided to Georgia for Econ Growth in 2004 ($14M). Developed an ag. loan tailored to crop cycles Grew its agricultural portfolio to 32% (2006) Focused on the poor as shown by an average rural loan size of $673 USD, compared to $1400-2300 USD for other rural lenders Grew its geographic footprint from 9 to 27 offices Doubled outreach, tripled portfolio, introduced an agricultural loan product (grew it to 32% of portfolio), grew from 9 to 27 offices

FFPr Impact in Guatemala Click once for text highlighting: In 2007 alone, FG disbursed $23M, which is more than 5 times what USAID invested in econ freedoms strategic objective, and more than half what USAID invested in all programs in Guatemala that year. Client outreach increased 115%, loan portfolio increased 180%” 3 new offices opened in secondary cities 19

FFPr Impact in Guatemala Food Security Enhanced. In 2006, 30% of clients reported food insecurity… only 18% reported the same in ‘08. Jobs Created. The number of clients with employees nearly doubled, from 8% in ’06… to 15% in 2008. Agricultural Economy Strengthened. Nearly 70% of clients used their loans to build and grow ag. / ag-related business, a sector dominated by the poor. Avg. USDA client loan size grew 29% from $406 in 2006 to $570 in 2008. Click for sequence. Ag sector includes production, processing and sales – value chains Standard of Living Increased. Daily per capita spending grew from $2.92… to $3.17 (inflation-adjusted).

Overview of Microfinance FINCA: Village Banking and Rural Applications Case Studies: Rural Microfinance The Frontier: New Directions & Products

Challenges Long-term Problem: Reaching the Remote Poor 75% of world poorest reside in rural areas 60%+ of rural families depend on agriculture (85% in Africa) Tactical Challenges: Operational Roadblocks Developing a sustainable service model is challenging Dispersed and uneven demand Poor infrastructure Lack of client information High risk enterprises Lack of useable collateral Prevailing Circumstances: Global Economic Slowdown Donations – stable, but at risk Investments – drying up Clients – remittances down increase transaction costs increase provisioning

Penetration of Microfinance 68.0% Coverage 11.4% Coverage 20.2% Coverage 28.8% Coverage * State of the MicroCredit Summit 2004

Future Directions & Innovations Goal: Reach the remote, rural poor via a sustainable financial services delivery model. Build Partnerships & Strengthen Existing Sectors and Mechanisms (e.g. Value Chains) FFPr support in Zambia stimulated value chain project FINCA exploring provision of financial services to the dairy value chain Applying Delivery Technology to Reduce Costs Using handheld / mobile technology, ATMs, Point of Sale devices to save costs while: Expanding into remote, un-served rural areas Reducing human resource costs (time, tasks – e.g. recordkeeping) Improving availability of client information (performance / risk) Providing Products to Enhance Resiliance Provision of financial products that reduce vulnerability & build safety nets Savings, micro-insurance, and targeted loan products (micro-energy loans)

Future Directions & Innovations Build Safety Nets to Enhance Resilience savings, insurance, targeted loan products (e.g., micro-energy) Deploy Technology (mobile phones, ATMs, PoS) expand to un-served rural areas reduce human resource costs improve availability of client information (performance / risk) Build Partnerships & Strengthen Existing Mechanisms provide credit to the dairy value chain (outgrowth of FFPr activity in Zambia) Goal: Reach rural poor via a sustainable financial services delivery model

Thank You