USAID – Workshop on
agricultural sector financing
CREDIT PRODUCTS FOR AGRICULTURE
Workshop on July 22 and 23, 2011
PRELIMINARIES
In general, the term “agricultural financing” covers several levels of financing in the agricultural
sector.
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The 1st level is the creation of major basic infrastructures (layout of paddy fields and other
production sites, roads serving agriculture, electrification, agricultural research centers, etc.)
whose financing is basically up to the State
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A 2nd level is the acquisition by the economic operators, among them the farmer
organizations (OPs), of certain infrastructures and equipment (storage warehouses,
transformation units, trucks/ships, etc.) and of operation. These needs are normally financed
by these operators using capital or with the aid of short-, medium- and long-term credit or
structured credits.
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The 3rd level corresponds to financing by the producers themselves (purchases of fields, seed
and other inputs, payment for labor, agricultural equipment, etc.). This type of financing is
very limited in the DRC, on the one hand because the producers are extremely poor, and on
the other hand, because they do not have access to credit, which prevents them from
developing their farms.
BRIEF REVIEW OF FINANCING OF THE
AGRICULTURAL SECTOR IN THE DRC
During the crisis years (1990-2005), the various commercial banks closed their
windows and the majority of savings and credit cooperatives went bankrupt due to
dizzying inflation. Except for in certain enclosed provinces (Maniema), classic banks
are once again operational, specifically in cities with some economic importance,
where a multitude of IMF institutions have developed.
Unfortunately, neither the banks nor the IMF are really interested in the agricultural
sector, credits to merchants (formal and informal), giving them a better and faster
return, for example. Both still consider financing agricultural activities too risky, due to
climate vagaries, but also due to the uncertain character of agricultural markets and
barely profitable prices.
Another problem, the OPs very often lack removable property (ownership title) to
make them credible partners to the banks. For all of these reasons, the financial
partners have not yet thought about forms of credit that are adapted to the different
financing needs of the producers, their professional organizations and all of the
sector’s actors.
EXAMPLES OF AGRICULTURAL CREDIT
NEEDS
Agricultural Producers
Medium- and long-term credit:
 Purchase of a field
 Purchase of modern hives
 Purchase of an improved breed of cow
 Construction of a stable
 Fishing nets
Seasonal credit:
 Purchase of seeds and other inputs
 Payment of labor
Short-term credit:
 Bridge credit for various expenses while
awaiting sale of the harvest
Farmers’ Organizations
Long-term credit:
 Purchase of a tractor, a mill, a sheller, etc.
 Purchase of a centrifuge for honey extraction
 Team of oxen with equipment
 Cultivator
 Storage warehouse
Seasonal credit:
 Working capital for the purchase, storage and
sale of agricultural products
REVIEW DIAGRAM OF THE
AGRICULTURAL VALUE CHAIN
CREDIT PRODUCTS IN THE VALUE CHAIN
STRUCTURED PRODUCTS FOR LARGE FARMS
AND MORE IMPORTANT ACTORS IN THE PROCESS
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Leasing
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Factoring
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Pre-financing of storage receipts
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Working capital financing needs (BFR) Financing and Investments on the basis
of a purchase contract with irrevocable attestation of payment (AVI) for the
suppliers
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BFR Financing and Investments on the basis of a sales contract with AVI for the
distributors
The objective of these credits is to finance a transaction for which the cash is
controlled
SCHEMATIC ANALYSIS OF THE VALUE CHAIN AND
ITS FINANCING FOR THE BRALIMA BREWING COMPANY
Rice Suppliers
Contract for purchase of rice
BRALIMA PRODUCTION/
TRANSFORMATION
COMPANY
Financing of operating needs and medium-term investments
on the basis of the contract and an AVI guaranteeing payment
in its Books and on which the loan installment(s) is(are)
secured, which makes it possible to reduce the credit risk and a
performance risk to be evaluated with regard to the market
trend
Short-, Medium- and Long-Term Financing and Documentary
Credit, according to traditional analysis methodology
Sales contract with distributors
System of quarterly reversed
Financing of operating needs and medium-term investments
bonuses
(vehicles, warehouses) on the basis and the duration of the
Distribution of
contract and an AVI guaranteeing payment in its Books of
quarterly bonuses on which the loan installments will be secured,
transformed/finished
which makes it possible to reduce the credit risk and a
products (beers, sodas,
performance risk to be evaluated with regard to the market trend
etc.)
CREDIT PRODUCTS FOR THE FINANCING
OF FARMERS
• CREDIT FOR PURCHASE OF LAND FOR BUILDING
• CREDIT FOR PURCHASE OR IMPROVEMENT OF LAND SUITABLE FOR
CULTIVATION (ATC)
• CONTINUING CULTIVATION CREDIT (CLP)
• INDIVIDUAL COMMERCIAL CREDIT (COI)
• CONSTRUCTION CREDIT (CTR)
• CREDIT FOR REAL ESTATE MAINTENANCE AND REPAIRS (ERI)
• CREDIT FOR EQUIPMENT MAINTENANCE AND REPAIRS (ERM)
• CREDIT FOR COMMON VILLAGE GRANARY (GCV)
• MUTUAL CREDIT FOR LEASING WITH PURCHASE OPTION (LVM)
• PRODUCTIVE CREDIT (PRO)
• PRODUCT TRANSFORMATION CREDIT (TRF)
(The purpose and conditions of each credit are defined below)
CREDIT FOR PURCHASE OF LAND FOR
BUILDING
I- Presentation/Designation
• This is a credit intended to finance the purchase of land for building.
II- Characteristics
1- Term: 12 months minimum, 36 months maximum
2-Amount: To be defined
3- Repayment terms
• In several installments, to be determined based on the repayment
capacity of the credit applicant.
• Maximum interval between 2 installments= 3 months
• Minimum installment amount= amount of interest for the period.
4- Interest rate: To be defined
5- Late penalties: To be defined
CREDIT FOR PURCHASE OF LAND FOR
BUILDING
(continued)
6- Guarantees
• Mortgage of land (or possibility of change of guarantee using another parcel of
land with a value greater than or equal to 150% of the credit granted) + joint
and several guarantee
• Formalized mortgage in due and proper form, legalization of signatures,
registration and stamps
7- Specific terms and conditions
• Obligatory presentation of land or cadastral title. Without this land or cadastral
title, the application cannot be reviewed
• The land to be purchased is not the subject of a dispute
• The value of the land for building cannot be considered as self-financing,
• Permit authorizing construction from the Mayor’s Office
• Purchase attended by a bank agent, deed of sale to be formalized at the
Registration level followed by the filing at the Property Department level
• 8- Self-financing
• Minimum 25% of the cost of the project to be deposited before the purchase
CREDIT FOR PURCHASE OR
IMPROVEMENT OF LAND SUITABLE
FOR CULTIVATION (ATC)
I- Presentation/Designation
• This type of credit is reserved for farmers to help them acquire land for
cultivation by purchase or transformation of raw land into land for
cultivation or expansion of area to be cultivated.
II- Characteristics
1- Term
• 1 year to 24 months maximum
2- Ceiling: To be defined
3- Repayment terms
• In several installments, to be determined based on the repayment
capacity of the credit applicant.
• Maximum interval between 2 installments= 4 months.
CREDIT FOR PURCHASE OR IMPROVEMENT
OF LAND SUITABLE FOR CULTIVATION (ATC)
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(continued)
At minimum, the borrower makes three repayments per year, of which the
minimum installment amount is the amount of interest for the period elapsed. In
each harvest period, the payment of capital is obligatory.
4- Interest rate: To be defined
5- Late penalties: To be defined
6- Guarantees
The land to be purchased or developed + joint and several guarantee up to 100%
of the value of the loan
7- Specific terms and conditions
The land to be purchased or developed is not the subject of a dispute, to be
verified by the bank. The ownership title (property title, property certificate,
cadaster) must be required in order to avoid a fraudulent credit.
8- Self-financing
Minimum 25% of the purchase price of the land to be acquired.
25% of the cost of development to be completed.
CONTINUING CULTIVATION CREDIT (CLP)
I- Presentation/Designation
• The CLP credit is a medium-term loan intended for the extension of coffee
plantations or the extension of other already existing continuing
cultivations
II- Characteristics
1- Term: Maximum: 48 months and Minimum: 1 year
2- Ceiling: To be defined
3- Repayment terms
• In several installments.
• At each harvest, the payment of capital is obligatory.
• The interest must be paid quarterly.
4- Interest rate: To be defined
5- Late penalties: To be defined
CONTINUING CULTIVATION CREDIT
(CLP) (continued)
6- Guarantees
• 120% of capital and interest, able to be the mortgage of the cultivated
land if the latter is titled.
7- Specific terms and conditions
• Titled land. The land must be the property of the applicant member or of
his/her spouse.
8- Self-financing
• 25% of the cost of the project, may be in kind.
INDIVIDUAL COMMERCIAL CREDIT
(COI)
I- Presentation/Designation
• The individual commercial credit is a credit granted to an individual in order to
finance activities of a commercial nature, activities that make it possible to develop
the rural world. The following activities are eligible:
- Grocery store, diner, butcher shop, grocery store-bar (PPN [soft drink
brand], hygienic beverages, beers, wines);
- Trade (purchase for resale) in artisan products, agricultural products and
animal husbandry and fishing products. The needs related to agricultural operation
are classified in the productive credits.
- Used clothing store
- Sale of pharmaceutical products, medicinal products and veterinary
products upon presentation of an approval, a license or an authorization documenting
the exercise of the activity.
• Not considered as eligible activities are trade in exclusively alcoholic beverages
(rum, whiskey, etc.), and generally, in products prohibited and/or harmful to the
environment.
INDIVIDUAL COMMERCIAL CREDIT
(COI) (continued)
II- Characteristics
1- Term
• 3 months minimum and 12 months maximum
2- Ceiling: To be defined
3- Repayment terms
• Maximum 2-month deferral, then monthly repayments,
• - Repayment in constant payments or blended payments
4- Interest rate: To be defined.
5- Late penalties: To be defined
6- Guarantees
• 150% of capital + interest according to the following characteristics
INDIVIDUAL COMMERCIAL CREDIT
(COI) (continued)
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Goods given in pledge or as security, and/or personal and joint and several guarantee of
a solvent and non-indebted person. Accept only solvent guarantees.
In case of pledge of inventories, a quarterly adjustment must be made in verification of
guarantees. This type of guarantee is seldom recommended due to the rather high level
of risk.
Guarantee documents must be recorded at the Mayor’s Office before the unblocking of
the loan.
7-Specific terms and conditions
Unblocking: In one or several installments following the evaluation by the bank and
next unblocking after verification of the use of the preceding installment
Follow-up:
- physical inventory of stock required before the financing,
- inventory a minimum of once or twice during the term of the loan.
registration of the applicant member in the trade register is required.
8- Self-financing
25% of the credit amount. Can be in kind (example: merchandise inventories).
CONSTRUCTION CREDIT (CTR)
I- Presentation/Designation
• Credit intended for the financing of construction or of finishing work on a
commercial building or a private house.
• The financing of the purchase of a private house may possibly enter into this
type of credit. It can be classified as a real estate credit.
II- Characteristics
1- Term: Minimum 24 months and Maximum 60 months.
2- Ceiling: To be defined
3- Repayment terms
• In several installments, to be determined based on the repayment capacity of
the credit applicant.
• Maximum interval between 2 installments = 3 months
• Minimum installment amount = amount of interest for the period
• At minimum, once per year at each harvest period, a repayment of capital is
required
4- Interest rate: To be defined.
CONSTRUCTION CREDIT (CTR) (continued)
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5- Guarantees
Mortgage formalized in due and proper form at the property registration office.
Additional guarantee not required if the market value of the mortgage exceeds
the value of the credit granted. In the opposite case, the additional guarantee
must cover at least the difference between 150% of the credit amount and the
value of the mortgage.
6- Specific terms and conditions
Titled land only with obligatory presentation of a certificate of recent legal
situation, without dispute or pre-notation and whose area is already well
defined.
Obligatory presentation of a cost estimate detailed and certified by a
construction company or at the limit by a professional in the field.
Obligatory presentation of a valid construction permit or an authorized plan.
Unblocking by installments according to progress of the work.
CONSTRUCTION CREDIT (CTR) (continued)
• On-site verification by the bank and presentation of invoices upon each
request for unblocking.
• The mortgage registration must be made before the total unblocking, with
documentary evidence in support.
• For the credit intended for the purchase of a private house, the bank is
required to assist in the purchase. Deed of sale to be formalized
7- Self-financing
• 25% of the amount of the project. The value of the land for building
cannot be considered as self-financing.
CREDIT FOR REAL ESTATE
MAINTENANCE AND REPAIRS (ERI)
I- Presentation/Designation
• This type of credit is intended for the exclusive financing of rehabilitation, repair or
beautification work.
• Examples: painting, woodworking, tiling, purchase of construction materials or
sanitary appliances, the cost of installing water and/or electricity, etc.
II- Characteristics
1- Term: Minimum: 3 months and Maximum: 24 months
2- Ceiling: To be defined
3- Repayment terms
• In several installments, to be determined based on the repayment capacity of the
credit applicant.
• Maximum interval between 2 installments = 3 months
• Repayment in constant payments, or in blended payments.
CREDIT FOR REAL ESTATE
MAINTENANCE AND REPAIRS (ERI)
(continued)
4- Interest rate: To be defined
5- Guarantees
• 150% of Capital + Interest
6- Specific terms and conditions
• Building permit not required
7- Self-financing
• 25% to be deposited before unblocking or self-financing in kind. For the
self-financing in kind, the preparation of an official report is needed from
the bank
CREDIT FOR EQUIPMENT
MAINTENANCE AND REPAIRS (ERM)
I- Presentation/Designation
• The “Equipment Maintenance and Repair” credit is intended to finance
equipment maintenance or repair projects: purchase of replacement
parts, updating, reupholstering, etc.
II- Characteristics
1-Term: Minimum: 3 months and Maximum: 18 months irrespective
of the method for acquiring the equipment
2- Ceiling: To be defined
3- Repayment terms
• Possibility of 2-month deferral, and repayment in constant payments.
4- Interest rate: To be defined
CREDIT FOR EQUIPMENT MAINTENANCE
AND REPAIRS (ERM) (continued)
5- Guarantees
• 150% of capital and interest.
7- Specific terms and conditions
• Equipment belonging to the applicant member or to his/her spouse with
documentary evidence in support. The purchase of replacement parts
above a certain amount is required to be assisted by the bank.
8- Self-financing
• 25% of the amount of the project, available in DAV prior to the unblocking
or in kind
CREDIT FOR COMMON VILLAGE
GRANARY (GCV)
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I- Presentation/Designation
Purposes: Rice and other cereal products
The GCV credit is intended to assist the peasant farmer in controlling the price of
his products from harvest until commercialization.
This operation is expressed through the storage of products in a granary in the
harvest period, during which the prices of market products are relatively low.
Then, it is removed from storage at determined times (generally, in the period
between harvests) on the basis of an estimate of possible increase in product
prices.
But need to define the rules for a granary: security (wall, roof, opening, etc.).
CREDIT FOR COMMON VILLAGE
GRANARY (GCV) (continued)
II- Characteristics
1- Term: according to the period between harvests (from 4 to 8 months)
2- Ceiling: To be defined
3- Repayment terms
• Possibility of repayment in several installments.
• In order to reduce the amount to be paid, the amounts of the installments can
be divided
• -To comply with the payment of minimum interest required, the first
installment must be fixed no earlier than 3 or 4 months (based on the product
stored) after the unblocking date. This does not prevent the borrower from
making the repayment earlier if he has the possibility to do so
• For early payment of the entire loan, interest is stopped at the time of
repayment
CREDIT FOR COMMON VILLAGE
GRANARY (GCV) (continued)
4- Interest rate: To be defined
5- Guarantees
• Stored products
6- Specific terms and conditions
• Portion financed: To be defined based on the products between 50% and
75% of the local market price. The storer receives a loan of approximately
65% to 75% of the market value of the products stored according to the
local market price at harvest.
MUTUAL CREDIT FOR LEASING WITH
PURCHASE OPTION (LVM)
I- Presentation/Designation
• The LVM appears among the range of products made available by the bank to
its clients to enable them to acquire production equipment.
• The LVM credit makes it possible to finance 3 products, directly linked to the
purposes of the credit. These are:
1. Vehicles
2. Agricultural equipment
3. Other equipment
• The choice of equipment to purchase belongs to the credit applicant. The item
purchased belongs to the bank and the credit beneficiary only becomes its
owner after paying all of the rent (capital + interest). The asset transfer costs
are the responsibility of the member.
• For the case of the product “Vehicles,” the gray card is in the name of the bank
but must mention “For account of: client.”
MUTUAL CREDIT FOR LEASING WITH
PURCHASE OPTION (LVM) (continued)
II- Characteristics
1-Term: Minimum: 6 months and Maximum: 48 months
2- Ceiling: To be defined
3- Repayment terms
• Insofar as is possible, the installments are fixed monthly. On an exceptional
basis, and considering the cash situation of the borrower, this measure may be
adapted.
• Maximum interval between 2 installments = 3 months: discharge at least of
interest accrued at each installment.
• Capital: according to the projected cash flow
4- Interest rate: To be defined
5- Guarantees
Value required for the Guarantee Items backing the credit:
• For the registered rolling stock credit items: 100% of capital.
• For the bovids, agricultural equipment, and other credit items: 50% of capital
MUTUAL CREDIT FOR LEASING WITH
PURCHASE OPTION (LVM) (continued)
6- Specific terms and conditions
• For the purchase of an item, each purchase is the subject of a deed of sale
document between the supplier and the bank. This deed of sale is to be
drawn up in duplicate, one copy for the supplier and another for the bank.
• Given that the negotiation of the price of the equipment is done by the
applicant before preparing the application for credit, the difference
engendered by an upward revision of the price made by the supplier,
acknowledged at the time of purchase, is paid by the beneficiary. In the
opposite case, the credit amount decreases.
• The expenses and the duties related to the acquisition of equipment and
to its registration in the bank’s name are the responsibility of the
beneficiary, including among others the forwarding costs, the expert fees
in cases of used rolling stock, registration or transfer fees, etc.
MUTUAL CREDIT FOR LEASING WITH
PURCHASE OPTION (LVM) (continued)
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7- Self-financing
Vehicles: 20% of the amount of the good if new, 30% of the amount of the good if
used
Agricultural and other equipment: 10% for new equipment and 30% for used
equipment.
Bovids: 10%
Self-financing must be available in DAV no later than the evening before the day of
the purchase of the good
PRODUCTIVE CREDIT (PRO)
I- Presentation/Designation
• The productive credit is a loan granted by the bank to its clients in order to
enable them to develop their sources of income. It serves to finance the
operation in the primary sector: agriculture, animal husbandry and fishing.
II- Characteristics
1- Term: 3 months minimum and 12 months maximum, even 18 months
maximum, for certain activities in the long production cycle
2- Ceiling: To be defined
3- Repayment terms
• In one or several installments according to the projected cash flow situation
(operating income and income excluding operation) and the harvest period
• For farms, the installments must be in line with the beginning of the harvest
period. A storage credit (GCV) may facilitate the repayment of the PRO credit.
PRODUCTIVE Credit (PRO)
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4- Interest rate: To be defined
5- Guarantees
Material goods 150% of capital + interest or to be combined with a joint and
several guarantee
6- Specific terms and conditions
Credit amount: determined based on the anticipated gross income:
X% of the anticipated gross income for agriculture, direct production
Y% of the gross income for animal husbandry and fishing
Z% of the gross income for skilled work
Conditions:
Obligatory verification by the bank of application information (area cultivated,
return per hectare, etc.)
Unblocking:
In one or several installments according to the projected cash flow needs.
The Contract and the Repayment Plan must conform to each other.
The next unblocking cannot take place until after verification by the bank of the
use of funds, Official Report in support.
PRODUCT TRANSFORMATION CREDIT
(TRF)
I - Presentation/Designation
• This is a credit that consists in financing the working capital needs for product
transformation activities: transformation of cereals, etc., not including alcoholic
and mining products.
II - Characteristics
1 – Minimum Term: 3 months and Maximum: 12 months
2 – Ceiling: To be defined
3 – Repayment terms
• Repayment in at least 2 (two) installments for the capital and at most quarterly for
the Interest.
• Possibility of repayment in constant payments or blended payments.
PRODUCT TRANSFORMATION CREDIT
(TRF) (continued)
4 – Interest rate: To be defined
5 – Guarantees
• Guarantees with a value of 150%
6 - Self-financing: minimum 25% of working capital needs
9- Specific terms and conditions
• Unblocking of one or several installments according to the bank’s
evaluation.