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Project implementation during CredAgro's first two years has been impressive. Lending infrastructure with the capacity to extend good loans is now firmly embedded within the organization. Nevertheless, the first two years had their share of the usual problems of project inception. CredAgro's marketing strategy remains undeveloped. And there are still social, legal, personnel, and other logistical hurdles to overcome. However, CredAgro as an institution is progressing rapidly through a very crucial but formative stage in shaping itself into the kind of organization that was originally envisaged by USAID and by ACDI/VOCA.
At present, CredAgro offers a single loan product to its customer namely, a term loan from $500 to $30,000 that is disbursed in one tranche and at the average loan size of $4,000. Interest is charged at a rate of 18 percent for production and small-scale processing purposes and 25 percent for business/trade purposes, both rates being significantly lower than rates charged by non-bank lenders. Interest accrues daily from the date of disbursement and is based on a 360-day year. The principal is typically repaid within 12 months in installments that have been agreed to before disbursement.
Loan applications are completed and screened at the branch level. All customers are required to complete a pre-application interview and pre-qualification report, submit a written application with supporting documentation and designate collateral that is inspected and approved by the branch manager and/or loan officer. A branch Loan Committee then reviews loans.
Collateral from the borrower or from third-party guarantors or co-signers is required to secure all loans. Collateral is typically valued at 150% of the amount borrowed (at "liquidation" values) if it is insured against loss with CredAgro as the beneficiary, and 200% if not insured. Primary collateral includes commercial/agricultural real estate, agricultural machinery and farm implements, and motor vehicles in good working order, residential property in Baku, and gold or jewelry.
Secondary collateral includes registered livestock, regional residential property and furniture/household effects. "No-value" collateral includes open agricultural land and unregistered but still valuable agricultural machinery and implements. "Unacceptable" collateral includes residential property in villages, unregistered vehicles, equipment in poor condition and land leased or rented by the borrower. All collateral is appraised by the branch manager and/or loan officer with authentication confirmed by other assigned staff and/or a licensed appraiser.
A business plan with actual and projected cash flow spreadsheets completed and signed; dated pre-qualification and application forms; the registration and/or ownership documents for all pledged collateral with appropriate notarizations; and reports about the site visit from the branch manager, loan officer, and/or collateral appraiser.
CredAgro may not lend to government agencies or to its own employees or to friends or relatives of employees on behalf of employees. It will not lend to finance the production, processing, or distribution of alcohol (exception vineyards), tobacco, or cotton. All information pertaining to any applicant or CredAgro borrower is kept strictly confidential and will not be disclosed to any third party except as a result of a legal court order to do so.
CredAgro retains ongoing relationships with customers over the life of the loan. By maintaining contact with customers, early interventions save troubled loans. At the outset, the company offers customers the choice of when the principal and interest will be repaid at regular pre-arranged intervals. This ensures that the borrowers business is not disrupted due to cash flow problems caused by the variable cycle of most production agriculture.
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