FAIDA Workshop Credit System updated1

Farm Service Centers, Agdepots and Veterinary Field Units Credit Systems

Development

Agenda Goals and Objectives Financial products offered by Financial

Institutions Financial Institutions criteria and requirements Credit Scheme 1: Direct Lending Credit Scheme 2: Reference through Supplier Credit Scheme 3: Supplier on-lends to agriculture

networks Steps to obtain finance

Goals and objectives

• Develop different credit programs to enhance access to finance for existing agricultural networks (Agdepots, Farm Services Centers, Veterinary Field Units)

• Design and implement Sharia-compliant wholesale and on-lending loan products

• Develop procedure to simplify the process of applying for loan

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Agriculture Sector Stakeholders

Financial Intermediaries

Non-financial Intermediaries

Potential borrowers

Commercial Banks, Finance Companies

Suppliers Processing Facilities, distribution agencies

Leasing Companies, Farm Service Centers

Farm Stores, Ag Depots, VFUs

Microfinance Institutions

Associations, Cooperatives

Agents, Farmers

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Access to FinanceFAIDA’s role to facilitate access to finance for the following

agriculture stakeholders including but not limited to: Large Suppliers, Wholesalers, farmers Ag Depots, Farm Service Centers, Veterinary Field UnitsFAIDA will work closely with the following financial

institutions • Specialized Agriculture Funds/Finance Companies• Commercial Banks• Microfinance Institutions

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Potential Financial Institutions (Fis) Agriculture Development Fund Ghazanfar Bank Pashtani Bank Azizi Bank Afghanistan Rural Finance Company First Microfinance Bank Afghanistan United Bank Microfinance Institutions (Oxus, FINCA)

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Lending products Islamic lending products

• Murabaha• Musharakah• Mudarabah• Ijara

Conventional loans• Agriculture loans• Individual Loans for various purposes• Group Loans for micro-credits

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Sharia Compliant Lending products • No cash – buy & sell transaction• Asset backed products• Profit and risk sharing

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Murabaha

Murabaha is a particular kind of sale where the transaction is done on a “cost plus profit”, basis i.e. the seller discloses the cost to the buyer and adds a certain profit to it to arrive at the final selling price.

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Musharakah

Musharakah means a joint enterprise formed for conducting some business in which all partners share the profit according to a specific ratio while the loss is shared according to the contribution ratio

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MudarabahThis is a kind of partnership where one partner gives money to another for investing in a commercial enterprise. The investment comes from the first partner who is called “Rab-ul-Mal” (Investor). The management and work is an exclusive responsibility of the other, who is called “Mudarib” (Working Partner). Profit is shared as per agreed ratio. In case of Mudarbah all losses are borne by Rab-ul- Mal.

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IjarahIjarah related to the usufructs of assets and properties, and not the services of human beings. ‘Ijarah’ in this sense means ‘to transfer the usufruct of a particular property to another person in exchange for a rent claimed from him.’ In this case, the term ‘Ijarah’ is analogous to the English term ‘leasing’. Here the lessor is called ‘Mu’jir’, the lessee is called ‘musta’jir’ and the rent payable to the lesser is called ‘ujrah’.

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Conventional lending productsDisbursement of actual cashClear interest rate calculation Credit – Debtor relationshipFixed loan duration

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Pros and cons of loansPros

Alternative access to finance, not depend on credit sale

Fee on credit sale is higher to compare with loan charges

More options to buy agro inputs from various suppliers

Legal contract with FI14

ConsRepayment schedule

not always support agriculture activities

Procedures takes time (loan process and approval)

Financial Institutions’ criteria Legal business activity/operation Registered with AISA/MAIL or other agency Financially sustainable for the last 2 years Good history purchase of agro inputs Location of business in relatively secure place for

loan monitoring & follow up

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Financial institution’s requirements Detailed explanation of use of loan Existing market opportunities Legally registered collateral Borrower should contribute to the finance

transaction from his own resources Repayment period should be 1 year

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Lending documents required Concept Note Balance Sheet (2 years) Income Statement (2 years) Cash Flow Projection (optional) Copy of license given by AISA or other

governmental agency Copy of collateral papers: Qabala, or legal title Copy of National ID (Tazkera) Other documents upon request

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Required Collateral and/or guarantees

Personal property: land, buildings Equipment (optional) Third party guarantee (optional) Purchase Order (optional) Signed contract with MAIL or other agency

(optional) A loan to security ratio could be 1:1.5

(100%/150% security to the loan)

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Additional Information Make sure that business place could be

monitored and visited any time Make sure to provide original documents for

collateral Make sure information provided match the real

situation, provide with real picture Get recommendations from local community

leaders if necessary

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Credit Scheme 1

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Financial Institutions

Ag Depots, Farm Service Centers, Veterinary Field Units

FAIDA will facilitate preparation of Concept Note and financial statements

FAIDA will provide with basic info and due diligence, provide clients with FI’s requirements

FAIDA

Credit Scheme 1 - Description

Financial Institutions disburse the loans directly to the AG, FSC and VFU

FAIDA will facilitate preparation of Concept Note and financial statements

FAIDA will provide with basic info and due diligence to FIs, and provide clients with FI’s requirements

FAIDA will play a vital role in lending process

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Credit Scheme 2

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Loan

for a

gro i

nput

s Documents for loan

Agro inputs, no cash

FI transfers the loan funds to

Supplier

FS, AG, VFU submit

documents to FI for approval

Credit Scheme 2 - Description Supplier provides agro inputs to Farm Stores, Ag

Depots, VFUs Supplier provides information & recommendations to FI

for funding of potential borrower Borrower submits all required documents to FI FI conducts a due diligence and approves a loan Borrower and FI sign a loan contract Supplier releases agro inputs to Borrower, no cash

disbursement to borrower Borrower repays a loan directly to FI

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Credit Scheme 3 Financial Institutions

Supplier

Ag Depots, Farm Service Centers

Vet Field Units

Loan

Loan

Repayment

Repayment

FAIDA

Supplier on-lends to AG, FS, VFU Technical

support in extending the loans

Credit Scheme 3 - Description Financial Institutions disburse the loans directly

to Suppliers Supplier on-lends to Farm Service Centers, Ag

Depots, VFUs Supplier has a full responsibility for loan

repayment Sales based on traditional credit system FAIDA provides technical assistance to Suppliers

and farm service centers, agdepots and VFUs.

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Steps to obtain finance Meet with FAIDA representative / Regional

Coordinator Reason for borrowing Type of business Location of business Number of employees Financial Statement Collateral Other information upon request

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Procedure Regional Coordinator will assist borrower in filling

out Concept Note and Financial Projection Submit documents to FAIDA Kabul Office FAIDA will discuss it at the Pre Banking Review

Committee If approved, it will be submitted to relevant FI for

further processing

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FAIDA office locationLocation Name E-mail Phone Number

Mazar Naqibullah Azizpur

[email protected] 0794501303

Jalalabad Faridoon Awalkhil


Kandahar Waleed Sahibzada


Herat Zahir Shirzai [email protected] 0793587721

Kabul Farida Akbar [email protected] 0794501157

Kabul Mahdi Parsa [email protected] 079746918028

mailto:[email protected]






THANK YOU!!!

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