AgriFin (June 2015) | The following note summarizes key results and lessons from AgriFin's project with the National Agricultural Development Bank (BNDA), aimed at strengthening the agricultural finance portfolio of BNDA.
The National Agricultural Development Bank of Mali (Banque nationale de développement agricole - BNDA) was established in 1981 as instrument to finance the agricultural sector in the country. With its more than 40 branches and agencies, in almost all parts of the country, it has the biggest network of all banking institutions in Mali. Over the past 35 years, the bank diversified its clientele and outreach, serving all sectors of the local economy. Initially concentrating mostly on lending, the bank is today very strong in mobilizing local deposits. At the end of 2013, total deposits amounted to US$ 350 million, against loans outstanding worth US$ 315 million. Its branches and agencies are relatively small, with the minimum necessary to serve clients. Margins are quite narrow, and the bank can achieve profits only if it reduces its transaction costs and keeps loan losses at the absolute minimum. Despite the fragile and weak economy in which the bank operates, and the losses incurred and business restrictions as a result of the military invasion in Northern Mali in 2012-2013, the bank was able to make an average annual profit of approximately US$ 10 million over the past three years.
The objective of the AgriFin-BNDA partnership was to strengthen the bank’s financial product offering for agricultural clients. Traditionally, most of the agricultural loans the bank offered were for cotton production, where farmers were provided with inputs through their farmer groups. The respective loan amounts were then deducted at source by the ginneries and transferred to the bank, and the balance was paid out to producers. Given the many risk factors beyond the control of the bank in the case of lending to the cotton value chain, the bank sought to reduce its exposure in this sub-sector by shifting from cotton to other crops and agricultural activities. The AgriFin project focused on helping BNDA i) revise the agricultural lending policies and procedures with a greater focus on agricultural SMEs; ii) develop new products for agricultural clients; iii) strengthen the overall institutional capacity to serve agricultural clients by providing staff training and developing a range of new lending tools.
Successfully revised the agricultural lending policy endorsed by senior management to focus on agricultural SME lending. Like most banks, BNDA had gradually refined its lending approach over time. With the start of the AgriFin project, it became clear that a general overhaul of systems, procedures, and manuals was required for the entire lending activities, not just a partial refinement. With the help of the external technical assistance engaged under the project, this comprehensive overhaul has been achieved. The discussions about the potential for agricultural loans, the positioning of the bank in the financial sector, and the responsibilities assumed for lending to the agricultural sector involved the entire senior management, and led to a new policy document that was fully endorsed by all. Revisions included the restructuring of the entire work flow in the organization – from first contact with the client to the recovery process in case of default – the revision of definition of responsibilities for all individuals and committees involved, and the refinement of risk management approaches.
Developed new loan products for agricultural SME clients. Traditionally, BNDA has lent to farmer groups wherever structured value chains existed (e.g. in the case of cotton), to individual farmers for various production and processing needs, and to larger companies engaged in food processing. Prior to the AgriFin project, the efforts to diversify lending had led the BNDA to identify SMEs outside the agricultural sector as large potential client segment. Under the AgriFin project, BNDA undertook field surveys around its rural branches to identify potential agricultural SMEs and then developed and refined several products as demanded. These products included the following:
- working capital loans for agricultural production;
- working capital loans for livestock (capital for livestock trading and fattening of cattle and small ruminants);
- advances for traders on non-perishable agricultural stocks, most especially those secured through warehouse receipts, and
- medium- to long-term loans for agricultural equipment.
The bank discussed the draft terms and conditions of these products with potential clients, then trained staff in selected branches on the use of the products, and organized joint sessions of staff from different branches and head offices with the technical assistance provider to appraise loans in the field. After the first round, some inconsistencies and overlaps with other products and unpractical terms and conditions have been revised, and the respective product manuals updated. The work was then completed with the training of loan officers from other branches with potential to sell these products.
Developed a range of new lending tools to increase the efficiency and quality of client assessment. The new tools developed during the project include: i) technical cards which provide detailed agronomic description of sixteen agricultural commodities. Each card contains technical information on production practices, input requirements, potential yield, weather- and price-related risks, diseases, and market conditions; ii) agricultural SME credit procedure which outlines the agriculture SME loan process from start to finish; ii) the credit analysis toolkit which substantially enhances the ability of BNDA to perform client risk analysis; and ii) product sheets which contain detailed description of agriculture SME products and guide the credit officers on what type of tools to use for analysis, eligibility criteria, and other product terms. All of these tools are used by loan officers to make an informed assessment of agricultural clients.
Provided staff training on the new Agri-SME lending policy, procedures, and tools. BNDA credit officers were trained on both the new lending policies and procedures as well as the effective use of the tools developed during the project. Additional on-the-job coaching sessions were conducted at BNDA branches in order to strengthen the agricultural lending skills of credit officers and branch managers. Senior BNDA staff members participated in a study tour in Senegal to learn from the Crédit Mutuel du Sénégal (CMS) experience in agricultural client assessment using a credit scoring tool called ALES. The study tour helped BNDA staff to better understand the importance of a reliable and accurate database and the various steps involved in updating it, which can also be applied to BNDA’s own client analysis tools.
Conducted client workshops in rural areas to facilitate the take up of financial services and products among agricultural SMEs. BNDA held four regional workshops to promote agricultural finance products among agricultural SME clients. The purpose of the workshops was to educate clients about product features, benefits, and requirements. A total of 337 SME clients and 14 extension agents attended the workshops and were equipped with necessary information and knowledge to allow them to apply for BNDA products and services.
When hiring of specialized agricultural loan officers is not viable, the bank can complement staff training with a range of adequate lending tools. Like many development banks, BNDA has over the past decades changed from a bank purely financing agricultural production to a commercial bank which serves a wide range of clients. This has resulted in a loss of specialized skills in agriculture over time as the new loan officers hired did not come have an agricultural background. In addition, as some BNDA branches only have 4-5 staff members, including one or two loan officers, the loan volume generated does not justify specialization in agriculture alone, and loan officers are therefore multipurpose agents in charge of all loan products and client groups. Given this context, BNDA provided in-depth training to its loan officers and developed a range of tools and instruments to guide their decisions when making agricultural loans, especially to build skills in agricultural SME lending.
Market research data solidified the rationale for a new lending approach and helped secure the support of senior management. During the project, BNDA relied heavily on market research to assess new demand for agricultural finance, which helped them identify agricultural SMEs as an opportunity for agricultural portfolio growth and large enough segment to warrant new loan products and policies. The findings also helped gain the support of senior management. The bank strategically leveraged the opportunity to develop its new systems in such a way that it could be modified for improving the financing of other SMEs outside the agricultural sector. This dual objective to have a common system in place with sufficient differentiation between agricultural and non-agricultural SMEs marked the efforts of the bank right from the beginning.
Shifting towards agricultural SME lending could build on existing systems, but required more systematic learning for a majority of loan officers. A great advantage for the bank was that some guidelines on SME lending already existed, especially with regards to risk management. Mostly, the branches in the capital and in a few larger towns had some experience in identifying potential clients and undertaking loan appraisal and risk management assessments. This then had to be replaced by the respective norms and systems prevailing in lending to the agricultural sector, which was not a big step for most loan officers already familiar with the old system. For loan officers with more field experience with group lending and microfinance, however, this has been a major step, as more financial ratios had to be collected, and more emphasis had to be laid on validating the assumptions for projections.
Client workshops were a cost-effective way for BNDA to reach large numbers of potential clients in widely dispersed rural areas. Promoting financial products and services among rural clients, including agricultural SMEs can be challenging for banks as they are often located far from bank branches and major commercial centers. Through its regional workshops, BNDA was able to reach large numbers of potential clients in a cost-effective way. The bank showcased the new products, explained their key features, benefits, and loan application requirements. The workshops increased clients’ interest in BNDA’s agricultural loan products. They also helped the bank to increase its brand awareness among potential agricultural SME clients as well as served as an effective way to build trust in banking services offered by BNDA.
 ALES stands for Agricultural Loan Evaluation System; it is a credit scoring tool developed by the Frankfurt School of Finance and Management. For a webinar presentation of ALEs, visit AgriFin’s website at: /agrifin/event/webinar-credit-scoring-agriculture-lending