UC Nursing CESDEV Seaweed Financial Products Presentation


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UC Nursing CESDEV Seaweed Financial Products Presentation

  2. 2. The Program <ul><li>Opening Remarks </li></ul><ul><li>Rationale of the Meeting </li></ul><ul><li>Sharing of the Results of the Financial Product Development </li></ul><ul><li>- farmers revenue vs. expenses </li></ul><ul><li>- pricing and costing financial product </li></ul><ul><li>Sharing of Ideal Farm Management Plan </li></ul><ul><li>Plenary (Improvement/Suggestions of the Financial Product) </li></ul><ul><li>What’s Next </li></ul>
  3. 3. <ul><li>Conference Workshop on The Role of Micro-Finance in Coastal Communities (Panglao Island, Bohol) </li></ul>The Beginnings May 19-20, 2005 June 15-17, 2005 Training of Sub-Sector Approach July – Dec., 2005 Conduct of Sub-Sector Analysis and Presentation of Results March 16, 2006 Sub-Sector Project Planning and PEF’s Framework on Coastal Based MF May - July 2006 <ul><li>Presentation of Plans with PAC and Partner Organizations </li></ul><ul><li>Study Tour at CCFI Seaweed Project </li></ul><ul><li>Market Research in CPG </li></ul><ul><li>Financial Product Development </li></ul>
  4. 4. Coastal Based MF Sub sector analysis as a Primary technology in Identifying appropriate Livelihood project Fundable Organizations are: PACs, PAC member NGOs or Associations Bias of project is between and among duty bearers and rightholders Primary Strategy Aquaculture P E F on Framework Environmental Effects Resting the sea Regeneration Address the issued on resource depletion Income Effects Poverty Reduction Increase Organizational Income Increase in Individual Income
  5. 5. The Seaweed Industry Mid 1960’s Seaweed Gathering for Trading in Central Visayas Mid 1970’s Mid 1980’s To date Seaweed Farming in Bohol, Leyte, Jolo and Tawi-tawi Seaweed Farming was an alternative livelihood in the Philippines <ul><li>Phils among top producers in the world </li></ul><ul><li>Exported US$ 16.3M of dried seaweeds (2001) </li></ul><ul><li>Exported US$ 113.3 M of processed seaweeds (2001) </li></ul><ul><li>Emerged as an important and major source of livelihood in the coastal areas in the Southern Philippines (BFAR) </li></ul><ul><li>Employs between 100,000 – 120,000 manpower (90% are farmers and the rest are processors and traders </li></ul>
  6. 6. The Market Research at CPG Identified Needs/Wants vs. How these Needs/Wants are addressed Loans for capitalization <ul><li>seed capital to buy seaweeds, treatment facilities (for dryers) </li></ul><ul><li>financial assistance to buy gasoline and implements for gathering (for gatherers) </li></ul><ul><li>financial support for health/medical needs, rice assistance and household consumption needs </li></ul><ul><li>marketing assistance and technical assistance on the quality of dried seaweeds </li></ul><ul><li>Capital to buy seaweeds from gatherers (for dryers) </li></ul><ul><li>financial support for health, education and household consumption needs </li></ul>Seaweed Gatherers /Dryers Loans for capitalization <ul><li>financial assistance for buying input materials e.g. seedlings, ropes </li></ul><ul><li>ready market of seaweed products </li></ul><ul><li>capital </li></ul><ul><li>(to finance for </li></ul><ul><li>drying facilities </li></ul><ul><li>improvement </li></ul><ul><li>of </li></ul><ul><li>productivity, </li></ul><ul><li>farm </li></ul><ul><li>expansion and </li></ul><ul><li>sustainability) </li></ul>Seaweed Farmers What the MFI Offers What the Financiers/ Traders Offer Needs/Wants Clients
  7. 7. Terms and Conditions <ul><li>Individual/Group loan </li></ul><ul><li>Loan application conducted at the TSKI office with filing of application forms </li></ul><ul><li>Pre-qualification tests (background investigation,) </li></ul><ul><li>Documentation requirements include (CTC, barangay clearances, etc </li></ul><ul><li>Processing time approximately one week </li></ul><ul><li>Weekly equal payments </li></ul><ul><li>No collateral required but relationship is based on trust e.g. all seaweed gathered/processed shall be sold to the traders who financed the expenses in gathering and drying expenses </li></ul><ul><li>Assurance of ready market for seaweeds since traders are the one financing the gathering expenses </li></ul><ul><li>No documentations required </li></ul><ul><li>No interest charges but payment done after sales of seaweed products </li></ul><ul><li>Seaweed </li></ul><ul><li>Farmers </li></ul><ul><li>and Seaweed Gatherers </li></ul><ul><li>/Dryers </li></ul>Terms and Conditions offered by the MFI Terms and Conditions offered by Financiers/Traders Clients
  8. 8. The Financial Products <ul><li>Ready access to financial assistance for household needs (educational, medical, consumption needs). </li></ul>a. Wants/Needs of Seaweed Farmers/Gatherers/Dryers <ul><li>Capital for investment of their seaweed farms (as in the case of farmers) or to buy gathering implement (as in the case of the gatherers) or to buy seaweeds (as in the case of the dryers); </li></ul><ul><li>Ready access to market of seaweed products (wet or processed), </li></ul>
  9. 9. <ul><li>Savings is an intrinsic part of a poor household. However, the manner in which they save is an important consideration. For instance, poor people save in a way that their savings can readily be liquefiable (or easily turn into cash when needed) especially during emergency situations or the coming of unexpected opportunities, etc. </li></ul>b. Guiding Principles in designing for the Financial Products <ul><li>Seaweed farmers can not afford to bear the full investment cost needed to run a seaweed farm. However, if given the enabling environment to put up their own funds for their capital investments needs, these clients (as entrepreneurs) would be more than willing to do so. MFIs can instead, supplement or “top-up” for their capital investment needs </li></ul>
  10. 10. c. The Financial Products for Seaweed Farmers/Gatherers/Dryers <ul><li>Savings Plans – “A Door-step Banking Services” </li></ul><ul><li>Contractual Savings Plans </li></ul><ul><li>Capital Investment Plans </li></ul>This service aims to provide a ready access to banking services for the seaweed farmers, gatherers and dryers. As the name implies, banking services are made available to the clients at their doorsteps thus freeing them from all the hassles of spending transaction costs in going to the local bank (if there is one). <ul><li>Loan Products – “A Credit Offering Based on Needs” </li></ul>This financial service responds to the diverse household needs of seaweed farmers, gatherers and dryers. This includes a quick access to short-term credit services and a “top-up” support for start-up or expansion of the seaweed farm <ul><li>Fast Cash Loans </li></ul><ul><li>Capital Investment Loans </li></ul>
  11. 11. The Savings Plans <ul><li>Minimum investment deposit P _________ </li></ul><ul><li>voluntary payment scheme </li></ul><ul><li>can not be withdrawn except when opting to leave the organization </li></ul><ul><li>interest provision shall commence upon reaching the minimum investment amount </li></ul><ul><li>Opening deposit amount set at P ________ </li></ul><ul><li>Deposit amount is determined by the savers </li></ul><ul><li>Deposit contribution term: daily, weekly or bi-monthly </li></ul><ul><li>Minimum savings term = 12 months </li></ul><ul><li>maximum savings term = 36 months </li></ul>Product Description Capital Investment Plans (CIP) Contractual Savings Plan (CSP) Product Name
  12. 12. <ul><li>Open only to those who are engaged in seaweed activities like farming, gathering or drying </li></ul><ul><li>withdrawals made prior to maturity date forfeits the interest for the CIP </li></ul><ul><li>Closing of CIP shall be charged with service fee. </li></ul><ul><li>Open only to those who are engaged in seaweed activities like farming, gathering or drying </li></ul><ul><li>withdrawals made prior to maturity date forfeits the interest for the CSP </li></ul><ul><li>early withdrawal of deposits shall earn a penalty fee and/or service fee. </li></ul><ul><li>The longer the term of maturity, the higher interest rate for the plan </li></ul><ul><li>Missed deposit payments shall have to be paid the following day </li></ul><ul><li>7 successive days of missed deposit payments (for daily contributions) or 2 successive weeks of missed deposit payments (for weekly or bi-monthly contributions) shall automatically forfeit the interest rate for the CSP </li></ul><ul><li>Interest shall commence upon reaching the P 500 minimum deposit required </li></ul>Policies on Delivery Capital Investment Plans (CIP) Contractual Savings Plan (CSP) Product Name
  13. 13. <ul><li>Interest rate : ____% p.a. </li></ul><ul><li>Service Fee :____% for </li></ul><ul><li>closing CIP account </li></ul><ul><li>maturity term : </li></ul><ul><li>12 months maturity = ____% </li></ul><ul><li>24 months maturity = ____% </li></ul><ul><li>36 months maturity = ____% </li></ul><ul><li>Penalty fee : _____% for every withdrawal made prior to maturity </li></ul><ul><li>Service fee : _____% for every withdrawal made prior to maturity </li></ul>Pricing Capital Investment Plans (CIP) Contractual Savings Plan (CSP) Product Name
  14. 14. The Loan Products <ul><li>Maximum loan amount = ___ X the CIP </li></ul><ul><li>term = 4 months (equivalent to the cropping cycle) </li></ul><ul><li>Mode of Payment: </li></ul><ul><li>For expansion loans = bi-monthly </li></ul><ul><li>For start-up = once upon marketing of seaweed products </li></ul><ul><li>interest payment deducted in advance </li></ul><ul><li>______% service fees </li></ul><ul><li>______% penalty for </li></ul><ul><li>delayed payment </li></ul><ul><li>Loans are made for farm expansion or start-up </li></ul><ul><li>Maximum loan amount = ___% of CSP deposit </li></ul><ul><li>term = 2 months </li></ul><ul><li>Mode of Payment = daily, weekly or bi-monthly (as determined by the clients) </li></ul><ul><li>interest payment deducted in advance </li></ul><ul><li>no service fees </li></ul><ul><li>penalty charges for delayed payment </li></ul><ul><li>loans are made to serve for the household needs e.g. education, medicine, consumption or unexpected investment opportunities </li></ul>Product Description Capital Investment Loan (CIL) Fast Cash Loan (FCL) Product Name
  15. 15. <ul><li>Interest Rate: ____% per month </li></ul><ul><li>Penalty Rate : ____% on missed payments </li></ul><ul><li>Interest rate : ____% per month </li></ul><ul><li>Penalty rate : ____% penalty on missed payments </li></ul>Pricing <ul><li>Open to CIP holders only </li></ul><ul><li>Loan amount is dependent on the CIP deposits </li></ul><ul><li>Depositor to fill-up a loan request form with farm management plan attached </li></ul><ul><li>Approval of loan not to exceed one day </li></ul><ul><li>Open only to CSP holders only </li></ul><ul><li>Loan amount is dependent on the CSP deposits </li></ul><ul><li>Depositor to fill-up a request for FCL notice and submit to the Collector </li></ul><ul><li>Collector files FCL notice for prioritization </li></ul><ul><li>FCL is released on the same day at the office </li></ul>Policies on Delivery Capital Investment Loan (CIL) Fast Cash Loan (FCL) Product Name
  16. 16. <ul><li>Number of loan cycles per year. The maximum number of days incurred from harvesting to marketing is estimated at 90-120 days therefore, in one year, MFIs could have three (3) loan cycles. </li></ul><ul><li>Initial number of borrowers at the start and how much increase in these numbers will incur every after loan cycle. What is the saturation point? </li></ul><ul><li>Initial loan amount and how much increase per loan cycle </li></ul><ul><li>Loan loss provisioning </li></ul><ul><li>Computation or costing procedures to use all-cost basis – including both actual and imputed costs </li></ul><ul><li>Cost of borrowed capital </li></ul><ul><li>Reserved Rate as regulated by Central Bank (for savings products) </li></ul><ul><li>Fees and charges made to clients </li></ul>d. Product Costing Some important costs considerations in pricing for the financial products
  17. 17. <ul><li>Readiness to take on the responsibility of marketing the seaweed products for their clients; </li></ul><ul><li>Readiness to put up a system that entails quick decision-making process with less documentations required; </li></ul><ul><li>Financial products are not applicable to other type of clientele other than seaweed farmers, gatherers and dryers; </li></ul><ul><li>Daily/weekly payments of loans may not be realized since payment scheme would totally depend if the seaweed farm is either at the start-up stage or an expansion. For instance, if the farm is at the start-up stage, it is most likely that payment is made in full only after the seaweed produce is fully marketed i.e. after 4 months. If the farm is at the expansion stage, this would depend on the farm management plan of the farmer-applicant and this could mean that payment be done for as frequent as monthly basis only. </li></ul><ul><li>Importance of evaluating the viability of a seaweed farm. </li></ul><ul><li>Loan administration is different with that of the usual micro-finance clients. </li></ul>e. Some Implications for the MFIs
  19. 19. Seaweed Farm Activities (One Cropping Cycle) Materials Preparation - purchasing - construction of rafts - tying of seaweeds Planting and Growing Harvesting Drying Jan Feb Mar Apr
  20. 20. Revenue per Cropping Cycle 10,350   III. NET REVENUE per CROPPING CYCLE 15,900   Total Peso Sales of Dried Seaweeds   P 30/kg Price per kg of Seaweed   530 kg Total Dried Seaweeds   1:10 Fresh to Dried Seaweeds Ratio   5300 kg Total Production (good)   100 kg Less: Spoils   5400 kg Total Yield per cropping     II. REVENUE 5,550   Total Costs of Growing/Drying Seaweeds per Cropping   1,406 Labor Costs (P225/day x 2 hrs/d x 1 d/8 hrs x 25 days/mo x 1 month   550 Depreciation of drying facilities 1,956   Cost of Drying     x 2 months/cropping)   1,688 Labor Costs (P225/day x 2 hrs/d x 1 d/8 hrs x 15 days/month   1,427 Share of Depreciable Costs   480 Non-depreciable Costs 3,594   Cost of Site Preparation/Planting/Growing Seaweeds     I. COST PER CROPPING
  21. 21. Begin with one line (150-200kgs) Wait for 2 months until seaweed matures Harvest /Dry/Market Re-Plant (Expand) Wait for 2 months until seaweed matures Harvest /Dry/Market Re-Plant (Expand) Farm Management Harvest-Dry- Sell Replant every week Harvest- Dry-Sell every week Replant every week
  23. 23. Pricing and Costing <ul><li>There are three loan cycles in one year. Initial number of borrowers is 200 </li></ul><ul><li>Initial loan is at P5,000, with P2,500 increase per loan cycle. </li></ul><ul><li>Number of borrowers will increase 100 per loan cycle. Saturation point is at 2,000. </li></ul><ul><li>Loan loss provision is incorporated in the cost at 5% of total receivable outstanding. 90% Repayment rate </li></ul><ul><li>The costing procedure used is all-cost basis - including both actual and imputed costs. </li></ul><ul><li>f. Source of loan portfolio is PEF with 12% p.a. financial cost. P 4M Loan amount is released on staggered basis, g. In this assumption, service charge is 5% of loan amount while interest is 3% monthly. </li></ul>Basic Assumptions on Product Costs: