Agriculture Sector Financing

    1.0 SERVICES

Loan under agriculture financing window is for financing production, processing and marketing in all agriculture and agriculture-related projects for short, medium, and long terms, utilizing a special Window funded initially by the Government.  Agriculture activities in this framework is broadly defined to include both crops and livestock.

2.0 TARGETED BORROWERS

The target borrowers for this credit program/Window will include all agricultural and livestock projects with established good track records and competent management teams.

     Specifically, the target market for this credit program/Window shall comprise of:

i) Small and medium size farms organized as cooperatives or out-growers of larger farms.

ii) Medium and large-scale commercial farms, plantations, and ranches. Categorization of small, medium, and large scale will be as provided in the Government’s SME Policy.

iii) Agricultural machinery and mechanization centres.

iv) Downstream lenders to the agricultural sector, e.g. community banks and micro-finance institutions (NGOs, SACCOS).

v) Intermediate agricultural activities in the value chain, e.g. storage, processing and marketing.

3.0 PRICING

3.1        Lending rate

Interest rate is charged at the rate of a maximum 5% per annum for direct borrowers   and for on lenders interest rate will be charged at the maximum rate of  4% er annum  for on lender where the price to be charged to final consumer/borrower/farmer shall not exceed 8% per annum.

3.2       Bank Charges

All bank charges related with the loan such as stamp duty, transportation of mortgage certificate, contracts, and other services including legal services shall be borne by the client.   For MFI (On lender) the charges to the client shall not exceed 2%

4.0 LENDING TENURE

4.1     Repayment period

The repayment period for credit facilities under this program shall range between six months and 15 years depending on the nature of the agricultural activity being financed, and related financial projections.

4.2        Grace period

Grace period would be granted based on the maturity period of the crop and projected cash flow. The maximum grace period shall be 3 years for perennial crops and 1 year for annual crops. The borrower shall be liable to pay interest during grace period, though the payment will be structured to be in line with seasonality of earnings.

5.0        PRINCIPAL TERMS AND CONDITIONS

Loan process, administration and loan collection procedures will be as follows

5.1        Credit Initiation

i) The borrower makes an application for funding under the Agricultural Financing Window indicating the type of the project to be undertaken and fulfilling other application requirements.

ii) The bank will read the application, visit the proposed location of the business project, and make a preliminary assessment of the suitability of the application. If the proposal is found unsuitable, the applicant will be informed accordingly, and consideration of the financing proposal will be discontinued.

iii) Processing of loan applications shall be done within a period of 21 working days after receipt of a complete application after which the applicants shall be notified on the position of their requests.

iv) The bank will consider nature of the project, production cycle and projected financial income in preparing repayment plan.

v) The credit appraisal Team shall take account of the production and income cycles of the enterprise in structuring the servicing of interest and repayment plan for the principal. In assessing the security cover, the assets to be financed under the Program shall be discounted at 20% to take care for exaggerated values, loss in value and realization cost.

vi) Borrower’s equity contribution shall be at least 30% of the project provided that at least 10% shall be in the form of cash.

v) For any landed property to be taken as part of promoter’s equity it must be (i) having an unencumbered title deed, and (ii) directly involved in the project’s production.

vi) The primary security must be owned by the project or its promoters. Third party property can only be accepted as supplemental security.

vii) Following approval of the facilities, a Letter of Offer will be issued to the borrower.

viii) Disbursement will only be done after execution of all documentation and their registration with the relevant authorities as well as fulfilment of all other Conditions Precedent as stipulated in the credit approval. Legal and Credit Administration Departments will verify that all documentation is in order prior to the disbursement.

ix) Immediately after disbursement the bank will closely monitoring the implementation of project.

x) Repayment will be done as indicated in the loan contract. Repayment plan will depend on project production.

xi) The disbursed fund will be intended for financing agricultural and livestock production, processing, and marketing.

6.0            TERMS AND CONDITIONS FOR SPECIFIC BORROWERS                 

                  6.1     On Lending Institution

i) The borrower must have acceptable legal status e.g. Co-operatives SACCOS, Micro-finance institutions and Associations.

ii) The borrower should have good track record.

iii) Securities under this category should comprise of lien on receivables (outstanding portfolio), fixed deposits and legal mortgage where applicable.

iv) SACCOS, Associations and Co-operatives should own certificates of maximum liability from the Registrar of Co-operatives.

v) Securities pledged by MFIs’ borrowers shall be assigned to TIB (deed of assignment).

vi) Interest rate shall be charged at 4% per annum and for the final borrower/farmer the rate shall not exceed 8%.

vii) The loan tenure will be a minimum of 6 months and a maximum of 15 years.

vii) The loan amount shall be a minimum of TZS 50 million and a maximum of TZS 1,000 million.

6.2        Direct borrowers (commercial farmers)

i) The borrower must be a limited liability company.

ii) The borrower should have good track records but start-ups that meet other critical eligibility criteria shall be considered.

iii) Securities under this category should comprise of fixed deposits, debenture, stocks in warehouses, legal mortgage, and chattels mortgage.

iv) Projects with proper arrangements for irrigation will have an added advantage.

v) Corporate farmers supporting out-growers will have an added advantage.

vi) Interest rate shall be charged at 5% per annum.

vii) The loan tenure shall be a minimum of 6 months and a maximum of 15 years.

viii) The loan amount shall be a minimum of TZS 50 million and a maximum of TZS 1,000 million.

7.0        SECURITY STRUCTURE

The following security structure shall be adopted:

i) Advances under this credit Window shall be secured by debenture and mortgage over landed property, as well as pledges of agricultural machinery, equipment and implements, produce held in warehouses, processing equipment and machinery, motor vehicles and credit portfolios of the on-lending institutions.

ii) Where the project land is not legally owned by the project or its promoters, alternative landed property may be taken as the primary security, provided that the alternative land is legally owned by the project or its promoters. Third party security shall not be accepted as the primary security.

iii) In addition, the assets financed under the Window shall count towards security cover after discounting by 20%.

iv) Whenever feasible, sound insurance cover shall be taken against loss by fire, flooding, etc; the cost of which shall be borne by the borrower.

v) In case of financing of goods in warehouses, there will be strict control by a reputable collateral manager. The borrower shall bear the cost of collateral management.

vi) In all, the security cover requirement will be a minimum of 1.25 times (regulatory requirement). The legal documentation cost is to be borne by the borrower.

8.           RISK ACCEPTANCE CRETERIA

	REQUIREMENT		REMARKS
QUALITATIVE CRITERIA:
1. Minimum number of years in agric business (**start ups that meet other critical criteria shall be considered)	1 Year
2. Availability & adequacy of irrigation	Positive**
3. Management competence	Positive**
4. Climate and soil information	Positive**
5. Pest & disease control	Positive**
6. Environmental protection	Positive**
7. Adequate suitable storage	Positive**
8. Availability of markets	Positive**
9. Trade information (price trends)	Positive**
QUANTITATIVE CRITERIA:
1. Net worth in the last financial year	Positive
2. Net cash flow from operations before interest & tax	Positive
3. Maximum Tenure	15 years
4.Minimum single borrower exposure	TZS 50 million
4. Maximum single borrower exposure	TZS 1,000 million
5. Maximum exposure as % of total project cost	70%
6. Minimum total equity contribution	30%**
7. Minimum cash equity contribution	10%**
SECURITY:		Available	Not available
Mandatory: a) Debenture on all assets b)First priority legal mortgage on farm/business property being financed. c) Assignment of receivables from sales. d) Insurance on fixed & floating assets. e) Machinery, equipment, etc. financed by Window