GUARANTEE SCHEME EXPERIENCE AT aBi Finance

Limited IN UGANDAJULY 2014

Background- aBi TrustaBi Trust(Agricultural Business Initiative Trust) was jointly founded by the Governments of Uganda and Denmark in 2010 with a multi-donor backing.

Objective- To strengthen the competitiveness of Uganda’s agricultural and agro-processing sector.

Background- aBi FinanceaBi Finance Limited (formerly called Agribusiness Loan Guarantee Company) is the investment arm of aBi Trust that provides financing for agribusiness development in a more commercial manner.

Focuses on risk management and return on investment to ensure sustainability of aBi Trust.

aBi Finance Products

i. Lines of Credit for on lending to Agribusinesses

ii. Guarantee Schemes (the Agribusiness Loan and Construction Guarantee Schemes)

iii.Fund Management

aBi Finance basically supports Financial Institutions to reach the ultimate agribusiness beneficiaries.

This presentation shall focus on Guarantee Schemes, particularly the ALGS.

Basic Guarantee Features- Construction Guarantee Scheme

CrossRoads (DFID project) partnered with aBi to deliver the Construction Guarantee Scheme because: 

i. Already had relationships with a range of FIs;ii. Demonstrated reliability and experience in managing funds

from several development partners;iii. Exhibited strong governance;iv. Had a mission consistent with the objectives of the CGF.

Covers - Bid, Performance Bonds & Advance Payment Guarantees (50% of loss -principal outstanding only) True Risk Sharing between FI & aBi Finance Summarily operate scheme according to the Guarantees operations manual used for ALG, with a few exceptions which are highlighted.

Basic Guarantee Features- Agribusiness SMEs

Agricultural Sector and support structures -Businesses at any stage of the value chain from Input supply to Production to Retailer’s shelf.

SME’s with a maximum of:50 staff; USD $ 300,000 Balance Sheet Size;USD $ 400,000 Annual sales turnover

Any two (2) of the above three (3) qualifies

Maximum Facility USD $200,000 (Up to USD $ 1Million exceptionally).

Guarantee Terms

Cover for up to 50% of principle outstanding.

Maximum total amount granted to FIs determined by application and due diligence.

Maximum tenure of Guarantee – same applies

True Risk Sharing by Guaranteed party – At any point in time, risk is shared between the FI & aBi Finance.

No rescheduling of loans without notification.

Utilization Fee ranging between 0.75%- 1% per annum of the Guarantee limit.

Eligibility CriteriaApplicant must be an FI legally registered in Uganda across various Tiers;

Must have at least 3% of its loan portfolio in Agribusiness lending;

Have a branch network outside City (Kampala);

Should be able to present 3 years audited Financial Statements for DD;

Must comply with regulatory financial covenants.

Innovative approaches of aBi

1. The ownership and governance set up allows more flexibility of operation and accountability to stakeholders.

2. Coexistence with aBi Trust, which addresses specific gaps identified during FI due diligence, through TA.

3. Focus on commercial viability and sustainability through fund management.

4. Other products offered enhance the relationships with FIs.

5. Partnership with like minded organizations.

Statistics

Value of New Guarantees granted since 2010-2013 - USD 63M

Number of New Guarantees granted since 2010-2013 - 63,026

Leverage as at 31st December 2013 – 99%

Claims payout ratio 2010-2013 – 0.4%

Average Yield on investment (2010-2013)- 13.62%

Fees charged on Guarantee limit and not utilization – 0.75%-1%.

Statistics

Subsectors served – Coffee, Bananas, Maize, Sugarcane, Oilseeds, Horticulture, Dairy, Beef, Poultry, Pulses and Cereals, as well as support services like transporters, veterinary services.

Number of FIs on scheme grew from 5 in 2010 to 12 in 2013 whose clients are representative of actors in each part of the value chain.

1 Development Bank, 8 are Commercial Banks, 2 are Credit Institutions and 2 are Microfinances.

aBi Finance Impact Assessment 2010-2013

aBi Finance was taken over by aBi Trust to achieve the following targets:i. Double agriculture’s share of the

participating FI’s loan portfolio;ii. Increase term lending to SME agribusinesses

threefold; iii. Create an efficiently run loan guarantee

company where the loss rate is within international good practice; and

iv. Create Employment.

An impact assessment was conducted end of 2013 to ascertain whether the above were achieved.

Impact Assessment Objectives

To evaluate the performance of aBi Finance over the period (Sept. 2010 to Sept. 2013) to determine the extent to which intended goals have been achieved;

To recommend corrective or other measures that may be deemed necessary to achieve the main objectives.

Levels of Evaluation1. Participating Financial Institution (FI) 2. Beneficiary or Bank Clients in specific

enterprises

RATIONALE FOR SAMPLING

• FIs that had implemented the programs for a long-enough period to create measurable impact.

• Selected FIs provided details of their loan beneficiaries, including the enterprises they engaged in.

• Enterprises with the highest number of beneficiaries were selected, to ensure sufficiently large numbers for meaningful statistical analysis and control to make comparisons.

InterventionStart

Time

Chan

ge

with intervention

Impact

without intervention

InterventionEnd

Total change

Methodology: Difference in Difference

15

Study Findings at FI level.

i. Continued growth in the Agribusiness loan portfolio which came above industry average for the sampled FIs.

ii. More attention to promotion of agribusiness lending within FIs- e.g. tailor made Agribusiness loan products, Agricultural lending units….

iii. NPAs at half of branch level averages to help increase appetite for Agribusiness lending.

iv. 63,026 new agribusiness loans were under written.

Examples in next two slides

ABC Bank Portfolio status (Billions of USh)

2009 2010 2011 2012 20130

100

200

300

400

500

600

700

800

55 69 88 100 114

355406

527571

682

Agriculture LoansTotal Loans

XYZ’s Portfolio status (Billions of USh)

2010 2014 -

10.00

20.00

30.00

40.00

50.00

60.00

70.00

0%

1%

2%

3%

4%

5%

6%

7%

8%

0.10 4.49

29.830

63.622

Agriculture Loans Total Loans % of Agric Loans

• Increase in volume and value of loans accessed from 2010 to 2013.

• No. of new FTE jobs on sampled beneficiaries indicated that each beneficiary created two jobs. (approx. 120,000).

• Average income growth was reported at an average of $3,000 across the sampled enterprises.

• There was a demonstrated increase in net asset holdings in land, livestock, equipment.

• Perception on borrowing for agriculture improved since the loans helped them earn some profits from their farms.

Study Findings at beneficiary level.

No. of FTEs Jobs Created in various enterprises

Sugarc

ane

Coffee

Banan

aBee

f

Dairy

0

20

40

60

80

100

120

101.88

62.4356.25

45.53741.25

1.52 4.58.125 12.125

TreatmentControl

Concerns highlighted by Study & Resolutions

Paucity of technical skills in agriculture lending and operation of Guarantee schemes especially at Branch level.Continue collaboration with aBi Trust to direct their grants to specific partners that are still challenged in this regard. Disseminate the sensitization sessions we offer to the Branches.

Gender imbalance in favour of men exhibited.Continue collaborations with institutions that are keen on financing women and youth Agribusiness projects as had been done in the past to reduce imbalance.

Lower portions of the sampled enterprises which suffered pest attacks felt agricultural lending was beneficial, underscoring the need to avail affordable crop insurance services.Continue collaboration with other partners to stimulate increase in use of insurance product in order to bring the overall cost down and maintain confidence of beneficiaries to borrow.

Concerns highlighted by Study & Resolutions

Need to expand geographical coverage –Northern Uganda Already included in strategic objectives of aBi Finance and FIs with Northern Uganda expansion programs targeted going forward.

MIS challenges affecting reporting timelines and qualityAutomation at aBi Finance level as well as sensitization of partners has and continues to improve this.

Perceived high fees by FIsHave taken time to articulate to them how the fees are arrived at and usually consider a slight decrease if the limit is above $4M.

Leverage Portion of the fund to back Guarantee, has since been reduced and dedicated to Lines of Credit.

Plans for scaling1. For financial inclusion, bring on board some of the

smaller institutions (Tier IV) to whom TA has been provided by the Trust over the past three years.

2. Support addressing of MIS challenges which become more apparent as more volumes are dealt in.

3. Business plan intention to inject new capital once key targets like leverage ratio are met in 2014.

4. Focus on more financially excluded groups.5. Introduce other products.6. Introduction of mechanisms to promote socially

responsible investments.

THANK YOU