2013
Concept Paper – Livestock
Financing
Research Department
KASHF MICROFINANCE BANK
LIMITED
6/24/2013
Contents
Concept Paper on Livestock Financing Product ........................................................................................... 3
Introduction .................................................................................................................................................. 3
Key Factors of Growth .................................................................................................................................. 4
Key Research Findings................................................................................................................................... 5
Research Findings Pertaining to Rural Finance Market Potential ............................................................ 5
Overall Demand ........................................................................................................................................ 7
Preference for a New Product: Livestock Sector ...................................................................................... 8
Growth of Lending Portfolio ......................................................................................................................... 9
Product Development ................................................................................................................................... 9
Product Proposal....................................................................................................................................... 9
Livestock Financing ..................................................................................................................................... 10
Summary ..................................................................................................................................................... 14
Annexure ..................................................................................................................................................... 15
Annexure-1.............................................................................................................................................. 15
Concept Paper on Livestock Financing Product
Tapping into Rural Microfinance Opportunities to change lifestyles by creating
economic opportunities for the low income households of rural communities
Introduction
Kashf Microfinance Bank Limited commenced its operations from October 2008 with a vision to provide
a comprehensive range of financial products and services to the micro and small entrepreneurs. KMBL
on the lending side focuses on catering to the needs of micro and small businesses that have a fast
turnover. It focuses on experienced entrepreneurs requiring funds for working capital or fixed assets. On
the liabilities side, the bank’s mission is of financial inclusion by providing low income households a wide
range of savings products and services supported by various customer friendly alternate delivery
channels to provide easy accessibility to the large unbanked population of the country.
Our flagship lending product-Kamyab Karobari Karza Plus acts as an injection of capital that allows micro
and small business entrepreneurs to expand their businesses thus increasing the productivity of their
existing economic activity. Thus KKK Plus acts as a catalyst in creating jobs ensuring sustainability of
communities and families.
Since its inception, the bank has been able to develop a sizeable portfolio of assets and deposits. The
asset portfolio of the bank stands at 28,209 customers with an outstanding portfolio of PKR 1.41 billion.
The liability customer base is currently at 185,879 accounts customers with total deposits of PKR 2
billion*.
This concept paper aims to highlight the key research findings of rural microfinance research carried out
in collaboration with Shorebank International (Consultant’s name: Drew Tulchin) in 2011 which was
followed by developing rural strategy and rural product options that the bank can offer based on the
research findings.
*Figures as of May 31, 2013
Key Factors of Growth
The following are the key levels of growth:
Offer
customerfocused
products and
services
Increase
client
retention
rate
Provide lowcost ADCs
Key
Factors of
Growth
Increase
quality
asset and
liability
portfolio
Enhance
brand
recognition
and recall
Increase
bank
outreach and
footprint
Key Research Findings
The findings mentioned below highlight the insights gained from research on Rural Finance carried out
in 2011. The following responses highlight the potential rural market for KMBL and the demand for new
products and services to cater to the needs of rural market segment.
Research Findings Pertaining to Rural Finance Market Potential
The rural research conducted indicates positive opportunity for KMBL entry into rural markets as an
estimated potential market of two million clients has been identified within the districts included in the
sample.
The table below summarizes district wise market potential calculated in the districts in which research
was carried out. The Districts of Pakistan are local administrative units inherited from the British
Empire. Districts are generally grouped into administrative divisions, comprising of villages, towns and
cities which in turn form provinces. Pakistan has 130 districts out of which till date KMBL has its
presence in 25 districts.
Table 1: Rural finance market potential
District
Thousands
Faisalabad
Gujranwala
Gujrat
Hyderabad
Karachi
Lahore
Khanewal
Rawalpindi
Sahiwal
Sialkot
Total
Potential
microfinance
market
1,096,924
735,741
446,630
517,652
1,329,990
872,760
432,948
327,457
395,468
501,997
Market
Penetration
115,658
94,457
29,484
44,693
125,410
222,800
30,991
58,396
52,830
38,975
Untapped
Market
981,266
641,284
417,146
472,959
1,204,580
649,960
401,957
269,061
342,638
463,022
-
Rural
split of
district
57%
49%
72%
49%
2%
18%
82%
47%
84%
74%
Rural
microfinance
market
559,322
314,229
300,345
231,750
24,092
116,993
329,605
126,459
287,816
342,636
2,633,246
Demand
as per
survey
84%
85%
68%
66%
66%
51%
84%
62%
82%
81%
600
400
200
-
Rural microfinance market
Figure 1: District wise market potential
Potential Market for KMBL
Potential
Market for
KMBL
469,830
267,095
204,235
152,955
15,900
59,666
276,868
78,404
236,009
277,535
2,038,498
The Top Five Major Business Activities Identified:
Agriculture
Services
Trading
Livestock
Manufacturing
Market has some lending experience and also untapped potential: According to the survey, 45% of non
KF clients were un-tapped by formal or informal financial sources. 9% have obtained loans from both
sources and 38% from informal
sources. Out of KF clients, 24% had
also obtained loans from informal
sources.
KMBL identified its preferred
lending comprising of micro and
small business loans between Rs.
50,000 to Rs. 150,000.
Both, 9%
Figure 2: Market Penetration & Potential
The research demonstrated three segments of respondents having prior experience of higher loan sizes:
farmers, entrepreneurs and working housewives. Some interesting characteristic of these segments
were highlighted from the survey findings.
Farmers
Entrepreneurs
Working Housewives
•Land holding between 4-12.5
Acres
•Monthly income between Rs.
25,000-30,000
• Stated preference for bullet
repayments tied to crops and
interested in a range of terms
from 6 to 18 months
•Higher literacy level (75%)
•Generally related to services
& trading sector
•Monthly income between Rs.
25,000-30,000
•Stated preference for
monthly repayments and
shorter loan tenures
•Moderate literacy level (55%)
•Generally related to services
& livestock sectors
•Monthly income between Rs.
10,000-20,000
•Monthly repayments
•Low literacy level (25%)
Figure 3: Characteristic of potential segments.
Overall Demand




Eighty (80%) of the
overall respondents
had expressed
interest in credit
services for business.
Livestock made up
for 4% of overall loan
demand while within
livestock demand for
loans was 88%.
The demand for
larger size loans
100%
90%
2%
11%
26%
80%
70%
60%
5%
34%
16%
53%
3%
50%
20%
40%
4%
30%
53%
20%
30%
10%
5%
2%
KF Clients
0%
Agriculture
37%
Livestock
Non-Clients
Trading
Services
Total Demand
Manufacturing
(more than Rs.
Figure 4: Demand of credit services
50,000) was primarily
in Agriculture and Livestock.
There were two types of business needs specifically identified by respondents requiring credit
services i.e. working capital (67%) and asset purchase (31%). For livestock, there is a sizeable
demand for asset purchase loans for milking animals, trading and fattening. Livestock trading
during the Eid season was identified a lucrative business from focus group discussions, which
require higher loan sizes over a short period of time.

Preferred repayment terms and tenures for livestock were:
o 6-12 & 18-24 months
o Monthly or fortnightly repayments
Preference for a New Product: Livestock Sector
60%
Livestock:
Repayment terms
Livestock: Loan size
40%
100%
20%
50%
0%
Up to Rs 20K Rs. 20K to
50K
Rs. 50K to
150K
0%
Monthly
*81%
respondents
desired monthly
repayment
33% KF clients
42% non-clients
demanded loan
sizes above
Rs. 50,000
*19% preferred
semi-annual &
bullet
Non-clients:
44% showed
preference to
have insurance
services with
loan
25%=> 6-12 months
17%=>12-18
months
25%=> 18-24
months
Livestock: Tenure
50%
40%
30%
20%
10%
0%
3 to 6
6 to 12
12 to 15
12 to 18
months
18 to 24
Other
Semi
Annually
Bullet
Growth of Lending Portfolio
Growing the lending portfolio base of Kashf Microfinance Bank Limited is linked to the core activity of
the bank and its mission to provide financial services to the micro and small entrepreneurs who lack
access to banking and its related services. Building on our mission, lending is the main revenue
generation driver under which we want to extend various credit facilities to our target market segment
so that they can become financially sustainable, expand their business and consequently create job
opportunities.
The Pakistan’s economy is currently passing through the most difficult phase of its economic history.
Once a robust economy, with economic growth over 6% of GDP, now it has been transformed into a
fragile economy, due to serious economic challenges, the most important being the persistent ‘Power
and Energy Crisis’ which has crippled our industrial sector and ‘Law & Order’ situation specially in KPK
and Karachi. These challenges have adversely impacted manufacturing, trade and services. However
there is a lesser impact on agriculture, livestock and poultry business. Since most of the infected
business sectors are operating in urban areas so KMBL needs to stay conservative in urban markets and
consider focusing on rural areas for the next 3 years expansion.
It is essential that KMBL adopts measures to increase its asset growth and improve its customer base
and client retention in peri-urban areas by offering customer focused products and services. It is
required that keeping in line with our vision and mission KMBL should not only introduce new products
tailored to the needs of rural sector but also tweak the existing products in order to provide a fresh
impetus to the existing assets portfolio.
Product Development
Customer Focused Products and Services whether they take the form of tweaking of existing product
features or entirely new concepts are an essential component of business productivity. Innovation is one
of KMBL’s core values on which we must focus as an institution in order to grow our business and
increase our retention rate, resulting in improved portfolio of products which are essential for business
viability. For this purpose it is important to hear and understand our customers and be a pioneer in the
Microfinance Industry.
KMBL has begun to consider entry into rural markets, to advance financial inclusion and job creation for
people in agricultural communities. These markets offer extensive untapped potential, particularly as
urban markets become saturated, as well as portfolio diversification and the establishment of
alternative service delivery channels for improved product offerings by MFIs.
KMBL aims to design a basket of rural loan offerings satisfying the following characteristics:
1. Stimulates lifestyle changes by creating economic opportunities in rural markets
2. Focuses on serving untapped rural areas: on- & off- farm activities
3. Maximizes job creation
4. Loan size to serve the ‘missing middle’
5. Simple underwriting is better
6. KMBL offers a basket of solutions, rather than a single product
7. Rural strategy requires lower investment & is geared towards more profitable options
8. Seeks low risk profiles
Product Proposal
In light of the above mentioned research findings which clearly indicate the need and market demand
for livestock financing and in addition to the following statistics which highlights the edge that KMBL has
by already having approximately 1200 clients in livestock sector with PAR > 30 days less than 1%, the
management proposes that this need can be met by adaption of our existing flagship lending product
KKK plus.
Sector
Active Clients
OS Principal
Concentration
01 day PAR %
(With Write Off)
Services
9,470
379
43.92%
4.65%
Trading
8,004
340
39.35%
3.25%
Manufacturing
2,299
89
10.30%
5.74%
Live Stock
1,264
55
6.41%
1.68%
Grand Total
21,037
863
100%
4.04%
Moreover, it is evident from the table above that the repayment behavior of this market segment has
been good. In view of the above, the management proposes that this need can be met by introducing a
branded product for this market segment with the following product features.
Livestock Financing
Livestock financing is cash flow based lending and an adaptation of Kashf Kamyab Karobari Karza plus
loan to the specific needs of livestock sector. The product is aimed at livestock sector and will grant
loans for a maximum tenure of 24 months.
The basic product features of the facility are:
Target market
Disbursement mode
Age of the client
Livestock sector of rural and semi rural communities having at least 2 years
of business experience
Adaptation of KKK plus loan, tailored to livestock focus with regular
payments for those animals
Livestock farming including purchase of mature milk/meat yielding animals,
replacement of animals, purchase of young animals for rearing for meat
product, milk storage chilling tanks/ refrigeration plants and milk carrying
containers, refrigerated meat storages and refrigerated containers,
construction/procurement of permanent sheds, water tanks, water pump
tube wells
6 months, 12 months, 18 months, 24 months
PKR 35,000 – PKR 150,000
Livestock farming
Monthly
Quarterly, bi annual and Bullet payment
Visits & regular contact
1 Guarantor required (in case of fresh clients) whereas in case of repeat
clients the existing terms and conditions of KKK plus will apply. Please note
that repeat client in this regard implies any client who has availed a loan
facility from KMBL.
Lump sum at the start
21 – 62 years(Sixty years of age means 61 years 364 days)
Guarantor Condition
For Fresh Clients:
Product Description
Loan Purpose
Loan Tenure
Loan amount
Activity Type
Repayment Mechanism
Product Requirements
Terms & Conditions
A Guarantor is required who is:
Age: 21 – 62 years (at the time of sanction of loan)
Please note that the guarantor should not be blood relative/spouse, tenant
or employee of client. Additionally, he/she should not fall under clients or
loans exclusion/negative profession list.
(i)
A public or private sector employee with a protected salary.
(ii)
A person with an independent activity (doctor, shopkeeper,
etc.)
(iii)
A person running a micro-enterprise & business experience
must be minimum of 12 months.
The Guarantor’s monthly net income (after all House Hold & Business
Expenses are met) must at least equate to the total amount of the
monthly loan instalment of the client, and he/she must have the
capacity to repay the instalments in case the concerned client defaults.
He or she must have willingness to act as a guarantor and also have a
good character and reputation in the market/society.
For salaried person, minimum salary should be Rs. 15,000/-.
a) Guarantor business place should be within branch working area.
If there is more than one branch in a city area guarantor business place
should be located anywhere in the same city.
For Repeat Clients:
In case of repeat clients with good repayment history, guarantor will not be
required. A repeat client for the purposes of this loan product is defined as
any client who has already availed any loan (e.g. KKKK+) from KMBL.
Below mentioned conditions will be applicable:
(i)
If client has only 02 instances of late payment up to 06 days
branch will be allowed to disburse that case.
(ii)
If client has only 03 instances of late payment up to 10 days
branch will be allowed to disburse that case after HBB approval.
(iii)
If client will not meet any of above mentioned criteria,
guarantor will be mandatory.
Can Guarantor
client
be
a
a) Guarantor shall also be eligible to avail the loan after 6 months of
becoming a guarantor for another client provided he is meeting all
the criteria prescribed for livestock financing.
b) Delayed instances of respective client should not be more than two
instances in 1-4 bucket in last six months.
Guarantor must provide a commitment to supporting the existing loan and
helping in recovery in case there are any problems.
Documents in custody
Guarantor’s agreement only where applicable, Customer’s agreement, Post
Dated Cheques, and Promissory Note in Original must be kept under lock and
key under proper custodianship.
Product Pricing/ Interest
Rate
Processing Fee
For monthly repayment:
Same as for KKK+ (rates are subject to change from time to time as per
industry’s policy). For details , please see Annexure-1
For quarterly, bi annual and bullet repayment:
To be decided
For monthly repayment:
Same as for KKK+ (rates are subject to change from time to time as per
Insurance
Overdue Penalty
Type of cash flow
analysis
Terms and Conditions
Credit Approval
Authority
industry’s policy). For details , please see Annexure-1
For quarterly, bi annual and bullet repayment:
To be decided
For monthly repayment:
Same as for KKK+ (rates are subject to change from time to time as per
industry’s policy). For details , please see Annexure-1
For quarterly, bi annual and bullet repayment:
To be decided
For monthly repayment:
Same as for KKK+ (rates are subject to change from time to time as per
industry’s policy). For details , please see Annexure-1
For quarterly, bi annual and bullet repayment:
To be decided
Household cash flow analysis. The household cash inflow will comprise of
income from agriculture, livestock and any other source (e.g. rent, pensions
etc). This will allow small scale livestock farmers to qualify for this facility.
Moreover, risk will be mitigated as livestock income will be backed by crop
income.
Client has an operating business, 1 guarantor if applicable, promissory
note, post dated cheques, and current account with KMBL.
The household cash flow analysis will be carried out by LO, the Credit Risk
Officer will carry out an independent analysis followed by a BM pre
disbursement visit for all loan amounts between Rs 100,001 – Rs.150,000.
For loan amounts less than Rs. 100,000 BM visit is not necessary.
Amount of Loan Rs. Up to Rs. Credit Committee will comprise of
100,000
BM, one LO and LO who has
solicited the account.
Amount of loan Rs.100,001 to Rs. Branch Credit Committee & Regional
150,000
Manager
Maximum clean
exposure
eCIB
KMBL shall ensure that total exposure of its clients from
banks/MFIs/MFBs/other financial institutions/NGOs etc. does not exceed
Rs.150,000/- in aggregate as per SBP Prudential Regulations for MFBs.
eCIB with other FI’s should have maximum 4 instances in 1-29 bucket OR
maximum Rs. 1,000 outstanding in 30+ days buckets (subject to RM
approval) subject to the condition that eCIB for up to 1,000 Rs (Approval
from RM should be based on Deposit Slip, NOC, Clearance Letter or any
other correspondence with concerned financial Institution).
eCIB with other FI’s having greater than Rs. 1000 outstanding in 30+ days
must be presented to HBB for approval with solid reasoning subject to the
condition that eCIB for above 1,000 Rs (Approval from HBB based on
Deposit Slip, NOC, Clearance Letter or any other correspondence with
concerned financial Institution).
Recommended Delivery
Channel
Operational Radius
Risks
Hub and Spoke model
As per SBP’s policy.
Animal Death
Animal Theft
Summary
The above proposal is based on the key research findings outlined in the beginning of the document. To
reiterate, KMBL needs to enter into rural markets keeping in view the potential demand for
microfinance services in such markets. Livestock financing can cater to KMBL’s strategic growth
objectives and help the bank achieve its long-term mission of ensuring financial accessibility to the
unbanked population of the country. Considering the existing energy crisis deeply impacting
manufacturing, trading and services industry in urban markets and the edge that KMBL has by already
having approximately 1200 clients in livestock sector with PAR > 30 days less than 1 %, KMBL proposes
roll out of livestock financing pilot by starting with monthly installments catering to micro and small
dairy farmers. Therefore, the management seeks your kind approval in this regard to roll out the pilot
phase of the livestock financing product. It will be a six months pilot.
Annexure
Annexure-1
Tenor
Slabs
6 months
100,001-150,00
70,001-100,000
12 months
18 months
50,001-70,000
35,000-50,000
100,001-150,00
70,001-100,000
50,001-70,000
35,000-50,000
100,001-150,00
70,001-100,000
50,001-70,000
35,000-50,000
Insurance rates
Late Payment Service Charges
Early Settlement Charges
Fresh Clients
Flat IRR
Doc &
IRR
Process
fees
Not applicable
28%
46.53% 3,000
Repeat Clients
Flat
IRR
Docs &
IRR
Process
fees
Not applicable
26.50% 44.10% 1,000
29%
48.14% 1,500
30%
49.75% 1,000
Not applicable
28%
48.22% 3,000
29%
49.84% 1,500
30%
51.44% 1,000
Not applicable for fresh
clients
27.50%
28.50%
25.50%
26.50%
27.50%
28.50%
25.00%
26.00%
27.50%
28.50%
45.72%
47.33%
44.16%
45.79%
47.41%
49.03%
43.09%
44.67%
47.02%
48.58%
600
500
1,000
1,000
600
500
1,000
1,000
600
500
1.35% p.a.
Rs. 100/- Per Day, For Each Day of Over Due
(Delinquency)/
instance or Rs. 500/- whichever is lower Plus FED
5% of the outstanding loan amount Plus FED
Please note pricing for 24 months tenor is yet to be decided.