Loanable Funds – Future Komp http://futurekomp.net/ Sun, 20 Nov 2022 16:07:00 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://futurekomp.net/wp-content/uploads/2021/03/futurekomp-icon-70x70.png Loanable Funds – Future Komp http://futurekomp.net/ 32 32 Warehouse Receipts for Financial Inclusion – Manila Bulletin https://futurekomp.net/warehouse-receipts-for-financial-inclusion-manila-bulletin/ Sun, 20 Nov 2022 16:07:00 +0000 https://futurekomp.net/warehouse-receipts-for-financial-inclusion-manila-bulletin/

MARGINS

JAIME ARISTOTLE B. ALIP, PHD

According to the Philippine Statistics Authority, our economy grew 7.6% in the third quarter of 2022 compared to last year. The agriculture, forestry and fishing sector also increased by 2.2%, a reversal from a -1.7% decline in the same quarter of 2021. Still, the share of this sector in the gross domestic product (8.5% against 9.6% in 2021) continues to decline, which is worrying given the problems of inflation and food security. Agriculture faces many challenges, including access to credit. The banking system generated a total of £6.5trillion in loanable funds in 2020, but only 6% went to agriculture, according to the Farm Credit Policy Council. The banks’ overall compliance with the Agri-Agra Act was only 10%, 15 percentage points below the mandatory credit quota. Compliance has also declined over the past 10 years.

This is unfortunate as financial exclusion is widespread in the agricultural sector, with many farmers remaining unbanked and underserved. Republic Act No. 2137, the Warehouse Receipts Act of 1912, was supposed to help farmers gain access to credit, by allowing them to store their produce in exchange for warehouse receipts they could redeem, encumber or use as collateral for loans. However, this century-old law needs to be updated to support modern business transactions.

Warehouse Receipt Financing

The government is already considering how the current law can be updated. I had the privilege of attending the warehouse receipt financing forum that the Bangko Sentral ng Pilipinas hosted last week. I welcome the proposal to create a warehousing and record system that promotes financial inclusion. Provided the system is secure, transparent and reliable, it could make a big difference for our farmers, agri-entrepreneurs and MSMEs.

Proposals to modernize our warehouse receipt system involve the creation of a central electronic warehouse receipt register, to be operated by the Securities and Exchange Commission. It also includes warehouse licensing, bonding and insurance for warehouse operators, and a loan guarantee scheme.

Benefits for farmers

The proposed warehouse receipt register complements the banks’ risk management system. The guarantees envisaged assure banks and financial institutions of the integrity and reliability of warehouse receipts as collateral for loans. The system will give farmers easy access to credit, allowing them to sell their crops only when they can maximize their profits. The registry will also provide market information needed for strategic policy decisions regarding food security.

Modernizing our warehouse receipt system is in line with the National Strategy for Financial Inclusion and would benefit the rural poor, especially farmers, MSMEs and others with limited access to finance. Small-scale farmers typically lack the assets and credit history that banks require, making them vulnerable to loan sharks and informal lenders. They often sell their produce at the start of the harvest season so that they can hold onto their crops until the lean season, when price and profit potential are at their highest. However, lack of post-harvest facilities, improper preservation or drying techniques, coupled with inadequate storage facilities, usually force them to let traders reap the rewards of seasonal price fluctuations. With warehouse receipt financing, farmers can access credit and maximize profits from their hard-earned labor.

Some recommendations

To really benefit farmers, we should:

  1. Improve storage facilities. There should be adequate, affordable and accessible warehouses, otherwise farmers will always be at the mercy of middlemen. Warehouses should be spacious to accommodate produce during the harvest season, with the necessary tools, equipment and other facilities. They must also be within easy reach; otherwise, farmers cannot afford transportation costs in addition to storage costs. Most importantly, the government should provide basic infrastructure, such as farm-to-market roads, irrigation and post-harvest facilities.
  2. Assist farmers. Farmer organizations/cooperatives/associations should ideally own warehouses with government supporting their capacity building. The government could help them hire professional managers (for example, give subsidies for salaries during the training phase) to ensure their financial viability. This will level the playing field, with warehouses not only owned by traders, middlemen and private financiers, but also by farmers.
  3. Provide insurance. Insurance is important, but from a practitioner’s point of view, the crux of the matter is the speed of claims payment. Many insurance companies take months to process claims. We need to change that. Claims should be paid as soon as possible, as farmers urgently need funds for daily consumption and agricultural inputs. Also, since insurance can only cover a certain amount, there should be a pooled compensation fund from contributions from the government and warehouse owners.
  4. Ensure negotiability. The warehouse receipt is a negotiable instrument and is worth like cash, eliminating the need for complicated due diligence requirements. So when a farmer goes to the banks, he should be able to immediately get a loan using it as collateral. Prompt resolution of cases, whenever there are disputes, would also promote confidence in warehouse finance.

Finally, understanding of warehouse receipt financing must be encouraged, to enable stakeholders, especially farmers, to benefit from the system. Support our farmers. Author Amit Kalantri is right when he says:

“If the peasant is rich, so is the nation.”

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Uganda Securities Exchange creates new window for SME capital raising https://futurekomp.net/uganda-securities-exchange-creates-new-window-for-sme-capital-raising/ Thu, 17 Nov 2022 08:26:15 +0000 https://futurekomp.net/uganda-securities-exchange-creates-new-window-for-sme-capital-raising/

Through USE Edaala, USE seeks to provide a new window through which small and medium-sized businesses can raise capital for long-term investments.

The Uganda Securities Exchange said it has created a specialized market known as USE Edaala.

This unlisted securities platform will help companies that do not qualify for listing on the main stock exchange to access long-term capital.

USE currently has 18 companies listed on the primary investment segment, with just two corporate bonds and more than 34 treasury bills.

The Uganda Securities Exchange has the Growth Enterprises (GEM) market segment which has failed to take off. USE noted that the segment drew low audience attendance, forcing it to rethink a new way to revitalize small and medium-sized businesses to participate in stock markets before moving on to publicly traded companies.

  • The Uganda Securities Exchange has established a specialized market known as USE Edaala,
  • The new segment will allow companies to access long-term capital through private placements, a wider pool of domestic and international investors, flexible admissions and regulatory compliance requirements.
  • USE currently has 18 companies listed on the primary investment segment, with just two corporate bonds and more than 34 treasury bills.

The segment was established in 2012, with the aim of creating a window for small and medium enterprises, through which they could raise capital to accelerate the growth of their business offered against flexible listing requirements.

Commenting on the new segment in Kampala, USE Managing Director Mr. Paul Bwiso said that the name “USE Edaala” was derived from a Luganda word Edaala, which means a ladder, due to the underlying symbolic meaning. of growth, rising to the next level. , fill gaps and scale heights.

“We believe this is exactly what USE Edaala will do for small and medium enterprises,” he added, noting that any private or public company that operates and was incorporated in Uganda, will be eligible to apply to participate. market provided it has a minimum net capital of Shs500m.

A small and medium-sized enterprise (SME) in Uganda is one whose operation has a threshold of at least Shs 100 million in total assets and employs between five and 250 people.

The funds, USE noted, will be made available to private companies through private placements and restricted offerings provided by professional equity investors for equity and debt financing.

The USE Edaala will also allow private companies with many shareholders to benefit from the shortcomings of existing trading and depository platforms, as shareholders can trade their shares if they wish to divest their shares and use portfolio management tools.

The application period for the first cohort is scheduled to end on December 8, after which USE will conduct an eligibility assessment of applicants.

Through this new segment, companies will be able to access long-term capital through private placements, access to a broader pool of domestic and international investors, flexible admissions and regulatory compliance requirements , among others.

Capital is the primary fuel for any business, regardless of size. However, sometimes a business may face monetary constraints and lack of funds. In such a scenario, business financing can help boost the business.

Capital can help businesses for several purposes. This can range from improving working capital, expanding, buying new assets, rebuilding inventory, hiring more staff, or refinancing to pay off existing debt.

Meanwhile, Ugandan banks have launched a $261.7 million regional export facility to support exporters in the country and the East African region.

The facility, launched by the banks under the umbrella of the Uganda Bankers Association, commenced on November 1, 2022.

It mainly lends to companies suffering from the pandemic and those with growth potential. The export facility charges interest of 12% per annum for loans denominated in shillings and 6% per annum for loans denominated in foreign currencies.

The facility aims to support the improvement of cross-border export risks. The facility is available for individual exporters, SMEs, local exporting companies and multinationals.

According to the Bank of Uganda, in the quarter ending September 2022, corporate lending credit standards tightened, signaled by a net tightening of 3.0%, in contrast to the net easing of 0, 1% recorded in the quarter ending June 2022.

The divergence in results despite consistency in direction could be attributed to competition for the few trustworthy customers without compromising the quality of the loan portfolio.

Regardless of firm size, credit standards tightened for SMEs and large firms, represented by the net tightening measure of 4.6% and 9.4%, respectively. In terms of loan duration, credit standards eased for short-term loans, while long-term loans tightened in the quarter ending September 2022. High levels of default attributed to the rise inflation, the instability of corporate cash flows and the reduction in the purchasing power of customers are the main reasons cited by banks for the net tightening of credit standards. Credit standards consist of internal banking rules that determine the type of loans and the amounts to be granted, and to which customers. This is based on classifications by sector, area, size, duration and financial indicators.