AFRACA RISK MGMT
SEMINAR ON RURAL
CREDIT( MALAWI
EXPERIENCE)
HELD AT METCOURT
HOTEL - RSA
Presented by J L D Zainga of
MUSCCO
INTRODUCTION.
 MUSCCO – MALAWI UNION OF
SAVINGS AND CREDIT
COOPERATIVES LTD.
 IT WAS FORMED IN 1980 WITH THE
SOLE MANDATE OF PROMOTING
SACCOS IN MALAWI.
 IT IS THE NATIONAL ASSOCIATION
OF SACCOS IN MALAWI.
MUSCCO
 MUSCCO HAS 70 PRIMARY SACCOS
SPREAD THROUGH OUT THE
COUNTRY AFFILIATED TO IT.
 TOTAL SACCO MEMBERSHIP
STANDS AT 85,000.
 OVER 45% OF THE MEMBERSHIP
LIVE IN RURAL AREAS.
MUSCCO HAS THREE
DEPARTMENTS
 SACCO DEVELOPMENT- DEALS WITH
PROMOTION OF SACCOS AND
TRAINING.
 FINANCE DEPARTMENT- THE
BANKER TO THE SACCOS, THE
INSURER TO SACCO MEMBERS.
 GENERAL MANAGEMENT AND
ADMINISTRATION.
CENTRAL FINANCE PRODUCTS
MENU
 CENTRAL FINANCE RECEIVES
DEPOSITS FROM SACCOS IN FORM
OF : 1 SHARES
2 ORDINARY DEPOSITS
3 SPECIAL DEPOSITS
4 FIXED DEPOSITS
5 LOAN COLLATERAL DEPOSIT
CENTRAL FINANCE
PRODUCTS MENU
 CENTRAL FINANCE – THE LENDER OF LAST
RESOLT FOR SACCOS AND SMALLHOLDER
FARMERS ORGANIZATIONS.
 CENTRAL FINANCE EXTENDS- LIQUIDITY
LOANS
DEVELOPMENT LOANS
AGRICUTURAL LOANS
FARM INPUT LOANS TO SACCOS AND
SMALLHOLDER FARMERS ASSOCIATIONS
MANAGEMENT OF FARM
INPUT LOANS.
 MUSCCO WORKS WITH NATIONAL
SMALLHOLDER FARMERS
ASSOCIATION OF MALAWI (NASFAM)
AND KASUNGU SMALLHOLDER
VIRGINIA PROJECT MONITORED BY
LIMBE LEAF TOBACCO COMPANY.
NASFAM
 SMALL HOLDER FARMERS IN THE
NORTH AND CENTRE GROW BURLEY
TOBACCO UNDER THE SUPERVISION
OF NASFAM IN FARMERS
ASSOCIATIONS.
 NASFAM OFFICIALS IDENTIFY
TOBACCO CLUBS WITH GOOD
TOBACCO PRODUCTION RECORDS
AND RECOMMEND THEM TO
MUSCCO FOR FINANCING.
KASUNGU SMALLHOLDER
VIRGINIA PROJECT.
 KASUNGU SMALLHOLDER VIRGINIA
PROJECT( MONITORED BY LIMBE LEAF)
PROMOTES THE PRODUCTION OF FLUE
CURED TOBACCO BY SMALLHOLDER
FARMERS.
 KSVP OFFICIALS IDENTIFY SMALLHOLDER
FARMERS’CLUBS WITH GOOD FLUE
CURED PRODUCTION RECORDS AND
RECOMMEND THEM TO MUSCCO FOR
FINANCING
THE SCREENING PROCESS
 MUSCCO, NASFAM AND KSVP
SCREEN THE CLUBS AS REGARDS
TO ELIGIBILITY TO PARTICIPATE IN
THE FARM INPUT LOAN SCHEME.
 THE SCREENING PROCESS LOOKS
AT THE FOLLOWING :
 PAST YEARS PRODUCTION
VOLUMES IN KGS
THE SCREENING PROCESS
 PAST YEARS AVERAGE PRICE PER
KG.
 THE LOAN AMOUNT BEING APPLIED
FOR.
 CHECK THE VALIDITY OF THE CLUBS
TOBACCO GROWING REGISTRATION
NUMBER.
 CHECK THE VALIDITY OF CLUBS
MEMBERSHIP TO THE ASSOCIATION.
THE SCREENING PROCESS
 CHECK THE CLUBS ABILITY TO PAY
10 % COLLATERAL DEPOSIT.
 CHECK THE CLUBS ABILITY TO PAY
2.5% INSURANCE PREMIUM FOR
CREDIT LIFE.
 CHECK IF THE CLUB HAS SIGNED A
DIRECT MARKETING CONTRACT
WITH ANY OF THE REGISTERED
TOBACCO BUYERS.
LENDING METHODOLOGY
 MUSCCO ADVOCATES FOR SOLIDARITY





GROUP LENDING METHODOLODY
BECAUSE OF THE FOLLOWING REASONS:
PEER PRESSURE
JOINT LIABILITY
GROUP COLLATERAL DEPOSITS LIEN.
NO ADVERSE SELECTION ON CLUB
MEMBERS.
LENDING IN CYCLES
FARM IN PUT LOAN
PACKAGE PER HECTARE
 TOBACCO INPUTS
 9 -50 KGS BAGS OF SUPER D
FERTILIZERS
 2- 50KG BAGS OF CAN
 2-50KG BAGS OF UREA - MAIZE
 2-50KG BAGS OF NPK 23:21:0 - MAIZE
 I PACK OF CHEMICALS
 MK45,000.00 FOR FIREWOOD AND
OTHER ACCESSORIES.
FARM INPUT
DISBURSEMENT
 HAVING PAID THE COLLATERAL
DEPOSITS REQUIRED MUSCCO AND
THE FARMERS ORGANIZATION
IDENTIFY THE SUPPLIER OF FARM
INPUT TO SUPPLY THE INPUTS TO
THE FARMERS IN CLUBS.
 THE DISTRIBUTION OF FARM INPUTS
IS SUPERVISED BY THE FINANCING
ORGANIZATION AND THE FARMERS
ORGANIZATION.
LOAN DOCUMENTATION
 AFTER THE COMPLETION OF FARM
INPUTS DISTRIBUTION CLUBS DO
COMPLETE LOAN APPLICATION
FORMS.
 COMPLETE STOP ORDER FORMS
FOR LOANS TO BE DEDUCTED AT
THE MARKET.
 COMPLETE DIRECT MARKETING
AGREEMENTS WITH TOBACCO
BUYERS.
FIELD MONITORING
 TOBACCO FIELDS MONITORING
STARTS IN JANUARY UP TO MARCH
THE IDEA IS TO VERIFY THAT
INDEED FERTILIZERS WERE USED
FOR THE INTENDED PURPOSE.
 MONITORING CURING AND SUN
DRYING OF TOBACCO IN SHEDS
 ESTIMATING NUMBER OF TOBACCO
BALES TO BE SOLD IN RELATION TO
LOAN SIZE PER MEMBER.
FIELD MONITORING
 MONITORING THE USE OF
REGISTRATION NUMBERS TO MAKE
SURE THAT CORRECT NUMBERS
ARE BEING USED. THIS CHECKS
AGAINST DIVERTING TOBACCO
BALES BY USING OTHER
REGISTRATION NUMBERS TO BY
PASS STOP ORDERS.
FIELD MONITORING
 URGING FARMERS TO BAIL THEIR
TOBACCO VERY EARLY SO AS TO BE
ABLE TO SALE THEIR TOBACCO
EARLIER AND MAXIMIZE PROFIT BY
PAYING LESS INTEREST ON THE
BORROWED AMOUNT.
 WORKING WITH TRANSPORTERS TO
ENSURE THAT BALES ARE
TRANSPORTED TO THE FLOORS IN
TIME.
TOBACCO SALES
MONITORING
 COLLECTING SALES DATA FROM
AUCTION FLOORS TO KNOW WHICH
CLUBS HAVE COMPLETED
REPAYING THEIR LOANS.
 PREPARE EARLY INTEREST
REBATES TO CLUBS THAT HAVE
COMPLETED REPAYING THEIR
LOANS. THIS IS A CONTINUOUS
EXERCISE UNTIL THE END OF THE
TOBACCO SELLING SEASON.
OTHER RISK MITIGATING
TECHNICS INCLUDE:
 LETTERS OF DEFAULT GUARANTEE. THIS
IS WHERE A MEMORANDUM OF
UNDERSTANDING IS SIGNED BETWEEN
THE TOBACCO BUYER AND THE PROVIDER
OF FINANCE IN CASES WHERE OUT
GROWERS(CONTACTED FARMERS) ARE
ENGAGED TO GUARANTEE DEFAULTED
LOAN AMOUNTS UP TO 30%.
 COMPULSORY CREDIT LIFE INSURANCE
FOR ALL SMALLHOLDER FARMERS
BORROWING FROM US.
TECHNICS
 LOAN AGING THAT LEADS TO MAKING
GOOD LOAN LOSS PROVISIONS.
 LOAN PORTFOLIO MIX i.e.
50% Agriculture Production( cash crops)
50% Agriculture commercial (Food crops)
Loan portfolio diversification ( Don’t put all your
eggs in one basket.
Loans should have different maturity periods.
TECHNICS
 BUYING WEATHER INDEX INSURANCE TO
HEDGE AGAINST EXCESS AND DEFICIT
RAINFALL ON LOAN PORTFOLIO BASIS.
 ATTENDING FARMERS ASSOCIATION’S
AGM AND PRESENT SMALL GIFTS TO BEST
PERFORMING CLUBS AND ASSOCIATIONS.
MAJOR RISKS CONTROLLED
BY THE ABOVE PROCESSES
ARE.
 DEFAULT RISK .
 CREDIT RISK
 LIQUIDITY RISK.
 INTEREST RISK .
 MFI-REPUTATION RISK
 WEATHER RELATED RISKS.
EFFECTS OF (IAC) RISKS
 LOW LEVELS OF DEFAULT -5%
 HIGH INCOME ON LOANS – COLLECT
95-97 % INTEREST
 LOAN PORTFOLIO GROWTH.
 INCREASE IN NUMBER OF FARMERS
ACCESSING CREDIT FROM MFIS.
 INCREASE IN MFIS DEPOSITS
COLLECTED.
EFFECTS OF (IAC) RISKS
 INCREASED INCOMES FOR
FARMERS RESULTING IN POVERTY
REDUCTION. (use of baseline inform)
 HIGH LEVEL OF FOOD SECURITY IN
RURAL HOUSEHOLDS AS TOBACCO
LOANS PAY FOR MAIZE
FERTILIZERS.
 HIGH DEMAND FOR LOANS WHEN
COMPARED TO FUNDS AVAILABILTY.
MUSCCO LOAN PORTFOLIO
GROWTH IN 3 YEARS
 PERIOD
LOAN AMT REP RATE
2007
MK 20.5M
100%
2008
MK 57.5M
100%
2009
MK209.0M
?
Our Loan Portfolio has grown this big
because of high cost of fertilizers in 2008
and increased number of KSVP hectares
financed in 2009
1US $ = MK 140.00.
CHALLENGES
 MARKET PRICES FLUCTUATIONS
 HIGH INTEREST RATES
 HIGH COST OF FERTILIZERS
 HIGH TRANSPORTATION COSTS
 HIGH TRANSACTIONAL COSTS IN
BANKS .
 HIGH LABOUR COSTS. ALL THESE
HAVE A BEARING ON LOAN
RECOVERY.
PRODUCTION TRIANGLE

PRODUCTION
Labour , Land,Climate
 MARKETING
Auction & Cont Prices
FINANCE
Loans and Int
THE END
 THANK YOU VERY MUCH FOR YOUR
ATTENTION.
 JLD ZAINGA
 MUSCCO
 MALAWI