Warehouse Receipt Financing & Collateral Management System to Promote Agriculture Financing Kashif Umar Thanvi HBL 29 April, 2015 Islamabad 1

Warehouse Receipt Financing HBL Rural Banking 2 Value Chain Financing Instrument Warehouse Receipt Insurance Inspection Farmers Produce Warehouse Credit System of Warehouse Receipt Trade isn't about goods. Trade is about information. Goods sit in the warehouse until information moves them.” -C. J. Cherryh Personal indemnity

Warehouse Receipt Financing HBL Rural Banking 3 Landscape  Sizeable portion of Pakistan’s agri-produce is wasted due to inadequate storage facilities, in-efficient supply chain  The security offering for agriculture financing is agriculture land and landless farmers working on leased lands often fail to get formal financing  The rate of informal lending is three fold i.e. at purchase of inputs, at sale of goods and negative weight variation while purchasing of goods  Financial Institutions are reluctant to provide financing to farmers based on agri-produce due to lack of warehousing infrastructure, regulations and information regarding quality and quantity of agri-produce, farmer credit profiling etc.  Growth in Agriculture in FY14 was only 2.1% - much slower as compared to other sectors of the economy

Warehouse Receipt Financing HBL Rural Banking RELEASE OF GOODS….. Release Order Farmer with his goods 1 Arrival at Storage Facility 2 Weight & Quantity Checks 4 WHR to Farmer 5 Bank to disburse Payment to Farmer 6 Re-Payment to Bank 7 Bank to issue Release Order Weight & Quantity Checks 3 8 Process

Warehouse Receipt Financing HBL Rural Banking 5 Secure access to credit for farmers Option to sell during price optimization period Transparent Price Discovery Reduction in crop losses Increased competitiveness Benefits of WHR Financing Model to Farmers

Warehouse Receipt Financing HBL Rural Banking 6 Development and augmentation of acceptable collateral Enhanced reach to small farmers Better monitoring of stocks through online tools The fidelity insurance by collateral manager minimizes the risk of staff embezzlement / misconduct Benefits of WHR Financing Model to Banks

Warehouse Receipt Financing HBL Rural Banking 7 Challenges 7 Gap Analysis with International Successful Models Farmer Economics & Cost Benefit Analysis Selection of Warehouse Establishment of Borrower Selection Criteria Legal Agreements & Local Laws Commodity & Storage Operations Collateral Manager Guarantees & Indemnities Farmer Awareness and Marketing Activity

Warehouse Receipt Financing HBL Rural Banking 8 Going Forward Graduation of WHR as a security vs. the commodity Regulatory Authority for Collateral Manager & Warehouse Operator Registration and Linkage with Pakistan Mercantile Exchange 8

Warehouse Receipt Financing HBL Rural Banking 9 THANK YOU