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Presentation on Presentation on Study Visit/ Study Visit/

Attachment ProgramAttachment Program

Bank for Agriculture and Bank for Agriculture and Agricultural Cooperatives Agricultural Cooperatives (BAAC) Bangkok, Thailand(BAAC) Bangkok, Thailand

From 18th February to From 18th February to 29th February 200829th February 2008

Attended ByAttended By

Kamran Akram Bakhshi Joint Director

Sardar Muhammad Ejaz Junior Joint Director

Muhammad Nadeem KhanzadaJunior Joint Director

Abdus Saboor Assistant Director

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Country area : 513,115 sq.km.

Population : 65.7 million

Population growth : 1.5 %

Religions : Buddhism 95 % Muslim 3.8 % Christianity 0.5 % Others 0.7 %

Administrative divisions : 76 provincesCapital city : Bangkok

Country Data

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• Agriculture (10%)• Manufacturing (44%)• Trade (15%) • Service (28%)• Real estate (3%)

Agriculture accounts for 10% of GDP and 16% of total export value.

42 million People or 69% of the population live in rural areas and their major occupation is farming.

Economic StructureEconomic Structure

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Bank for Bank for Agriculture and Agriculture and

Agricultural Agricultural CooperativesCooperatives

(BAAC)(BAAC)

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HEAD HEAD

OFFICEOFFICE

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BAAC VISIONBAAC VISION

“ To be a secured rural development bank with modern management

focusing on the uplift of the small-scale farmers’

quality of life”

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BAAC was established under the “Bank for Agriculture and Agricultural Cooperatives Act” in 1966 as a government – owned bank.

BAAC is supervised by the Ministry of Finance but in practice, MOF asks BOT to supervise BAAC.

BAAC’s mandate has been to provide credit to farm households (individual farmers) and agricultural cooperatives.

Legal Framework

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• BAAC has a large network of 908 branches and 945 field offices.

Branch Network

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Traditional Standard Structure of BAAC’s Branch

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Outreach

1. Individual farmers 4.13 MFH

2. Agricultural cooperatives 940

Number of membership 1.55 MFH

Total number of clients 5.68 MFH

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BAAC is accepted to be the largest formal Agri/Rural

Financial Institution in Thailand with an outreach

of 5.68 million farm households (98.1% of the

total farm households)

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Outstanding Loans as on 31-12-2007

12,245 Million US$

(1 US$ = 35 Baht)

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Sustainability

Category Amount(in million

US$)

Percent Share

Deposits from generalpublic 14,

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91.7

8 7 .73

%

Shareholders13

96.31

86.3%

Borrowings26

22.0

16.2%

Other liabilities32

62.0

20.2%

Total Operating Funds

16,173.94 100%

Sources of Fund (31 Mar 07)

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Sources of Fund Sources of FundBorrowings 162( . %

)

Other Liabilities

202( . %)

Deposits(8 7 . 7 3 % )

Shareholders(8.63%)

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Financing Financing PolicyPolicy

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SS ince its establishment in ince its establishment in 1966 1966 and up to and up to 20052005 , BAAC was allowed to provide loans , BAAC was allowed to provide loans oo

nly to nly to Agricultural Sector Agricultural Sector – individual f– individual farar mers or mers or agricultural cooperatives for agricultural cooperatives for

onward lending to their membersonward lending to their members

FromFrom 2006 2006 onwards onwards,, BAAC has also been all BAAC has also been all owed to provide loan to owed to provide loan to non-agricultural non-agricultural

sectorsector as well, as well, but the volume of loan to n but the volume of loan to n- on farming borrowers must- on farming borrowers must not exceed not exceed

20% 20% of the total loan volume at any point o of the total loan volume at any point o f time f time

Who can borrow? Who can borrow?

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Directions For Credit Directions For Credit• BAAC will not provide loan for any

activity that have negative effect tonatural resources and environment.

• Promote clean farming technology to farmers

• GAP, GMP

• Food Safety • BAAC advises (give signal to ) far

mers about the sunset and sunris e farm products

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Credit Services

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““Our Service is Beyond Savings and Loan”Our Service is Beyond Savings and Loan”

“ Develop First Then Follow By Loan”

How to reduce cost of production,

Living expenses, Farming tools & techniques, How to improve farming productivity .

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1. Credit Services to Agricultural 1. Credit Services to Agricultural SectorSector

A. Retail credit to individual farmers mainly organized in joint liability groups (accounting for 85% of the portfolio)

B. Wholesale credit to farmer’s institutions such as agricultural cooperatives, community enterprises (accounting for 15% of portfolio)

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Short-term loan - 12 to 18 months

for working capital for the purposes of

- purchase of agricultural inputs

- postponement of sales of farm products

- purchase of labor & farm production

- other farm related activities

A. Credit Services to Individual A. Credit Services to Individual FarmersFarmers

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Long-term loan - 15 to 20 years

for investment in- agricultural working tools or machinery- livestock- fixed agricultural assets

and for refinancing/ repayment of old debts

A. Credit Services to Individual A. Credit Services to Individual Farmers Farmers (continued)(continued)

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Agricultural cooperatives, farmers’ associations, or community enterprises can also borrow from BAAC for purposes of;

•Re-lending to members•Procurement of farm inputs and equipments•Collection of farm products from members

Presently, credit to such institutions/ cooperatives accounts for 15% of the total portfolio of the bank.

B. WholesaleB. Wholesale Credit to Farmers’ Credit to Farmers’ InstitutionsInstitutions

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2. Credit Services to Non-2. Credit Services to Non-Agricultural SectorAgricultural Sector

Since 2006, BAAC has also been allowed to finance non-agricultural sector including Medium, Small & Micro Enterprises (MSMEs) subject to the condition that -the volume of loan to non f

arming borrowers must not exceed 2 0 % oft he t ot al l oan vol ume at any poi nt of t ime. The facility is available for all economic activities in the country.

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INTERESTINTEREST RATERATE

BAAC has market based interest rate system on deposits as well as on advances. The present applicable rates are as under:

•Minimum retail rate (MRR) = 7.5% for lending to individuals farmers and MSMEs.

•Minimum lending rate (MLR) = 5.5% for wholesale lending to cooperatives for onward lending to their members.

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SECURITY SECURITY REQUIREMENTSREQUIREMENTS

• JOINT LIABILITY GROUP (JLG): Under this system, borrowers have to form a group of minimum 5 farmers This group stands as substitute for land collateral for small and short term loans. Under joint liability system, the farmers can borrow up to Thai Baht (THB) 150,000 (US$ 4,200) each.

• Two Guarantors: At least 2 branch clients or other people approved by BAAC can perform as guarantors. The amount of loan must not exceed THB 150,000 (US$ 4,200).

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SECURITY SECURITY REQUIREMENTSREQUIREMENTS

• Having immovable assets (land with title) which are not mortgaged to other creditors. The amount of loan must not exceed 50% of the land value.

• Having Thai government securities or deposit with BAAC as collateral. The amount of loan must not exceed 50% of the value of securities.

• Having other collateral specified by the president with the approval from the Board of Directors.

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Joint Liability Group

(JLG)

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Joint Liability Group (JLG)Characteristics

•group of minimum 5 farmers

•membership decided by farmers (not the bank)

•mutual guarantees (know & trust each other)

•substitute for land collateral

• individual lending, group guarantee

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Joint Liability Group (JLG)Individual Lending, Group Guarantee

AA

DD

FF BB

EE CC

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Benefits of JLGBenefits of JLG

• By using JLG, each farmer can borrow 4,200 US$ (150,000 Baht) for major crops.

• By using 2 guarantors within the group, each farmer can borrow another 4,200 US$ (150,000 Baht) for other farming activity.

Thus, a farmer can avail up to US$8,400 wit h no collateral or fixed security.

Presently, 70% of the bank’s credit portfolio is collateral free. The average loan size is

90,000 THB per person.

Other Services Other Services & Measures by & Measures by

BAACBAAC

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Credit Credit SS ervices ervices underunder GGoovernmentvernment Security Security

• Occupational promotion and development• Help improve standard of living of farmers• Assist farmers facing occupational problems. • Cover damages from disaster or natural calamities wh

ich affect production levels or quality of farmers’ product or lead to falling prices

UnderUnder a cabinet resolution a cabinet resolution, , credit extensioncredit extension to to farmersfarmers for for::

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Measures for Past Due Loan Measures for Past Due Loan RecoveryRecovery

1. Postponement of repayment

2. Debt restructuring

3. Loan recall

4. Acceleration of repayment from guarantor

5. Litigation

6. Write off

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Measures to aid clients hurt by Measures to aid clients hurt by the natural disasterthe natural disaster

1. Measure for clients who passes away: – Write off the debts in principal and interest of the

dead or missing farmers. BAAC accepts takes responsibility for write off amount.

2. Measure for clients who suffered extensive loss:– Extend the repayment deadlines by 3 years for debts

of farmers who suffer extensive losses. – Farmers are exempted from interest payment for 3

years– Provide rehabilitation loans (if required) with

interest rate of 2 % per annum. The loan to be repaid within 3 years.

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Islamic Banking WindowIslamic Banking Window

•BAAC has also started Islamic Banking Window for clients who wish to avail credit facility under Islamic modes of financing.

•It has appointed a Sharia Advisor for the purpose.

•This product is available to everyone irrespective of their faith or religion.

It is pertinent to mention that Muslims It is pertinent to mention that Muslims are only 3.8% of the population of are only 3.8% of the population of Thailand.Thailand.

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Farmers’ Coaching and Farmers’ Coaching and Training Training

• BAAC pr ovi des t echnol ogi cal advi ces t o f ar mer s as t o howt hey can :

– reduce cost of living & cost of farming and– improve the productivity

• Loans ar e not pr ovi ded f or act i vi t i es w hi ch have negat i ve eff ect on nat ur al

resources andenvi r onment .

•BAAC al so advi ses (givesignalt o) t he farmers aboutsun setand sunr i se cr ops.

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Moral SuasionMoral Suasion

• BAAC inculcates in its clients a respect for moral values

•It motivates the borrowers to abstain from indulging in bad habits or unhealthy activities like gambling, drinking, etc.

•It also obtains the services of Monks to persuade people to adopt good habits.

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Crop InsuranceCrop InsuranceBAAC has recently initiated crop insurance (for maize) under a World Bank project in collaboration with government agencies and insurance companies. The “weather derivative indexed crop insurance scheme” enables farmers to cover their production risk. It covers risks of losses in case the rainfall exceeds or falls short of a certain predetermined level in respective areas.

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Risk Management Risk Management StrategyStrategy

BAAC is able to maintain non-performing loan ratio within manageable level.Starting 1999, BAAC has also began to rationalize its interest rate policy adopting a risk-based loan pricing - pricing interest rates based on repayment performance.BAAC has also initiated a unique “unconventional” risk contingency system to address loan delinquency. The system allows re-structuring of accounts not paid due to force majeure, up to three times.

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RecoveryRecoveryRecovery rate of the bank is very high (95% of the total disbursement). The main reason for high recovery rate is its tight monitoring and good risk management systemsField officers of the bank pay frequent visits to clients/ borrowers and monitor their activities & cash flows which help them receive/ get repayment in time.

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Lessons Learnt from

BAAC

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• Comprehensive Agri/ Rural Loan Policy

• Linkages with Stakeholders • Close Liaison with Farming

Community• Incentives for Regular Borrowers • Help Formulation of Agricultural

Marketing Cooperatives by Farmers• Guidance to the Farmers/ Borrowers • Training & Awareness • Rural Deposit Mobilization and Fund

Based Services

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Thank you for your kind attention.