Tuesday, August 17, 2010

A Premier Micro Individual Loan Case...












[Photos from Top to Bottom and Left to Right: Cooperative Sign and President Juvenal, Vice President Immaculee, President and Kamari (UOB's Director of Lending), an old fashioned equipment that puts the cap on the bottle one at a time, Workers, and another sign photo]
On Tuesday, August 17th, I visited a cooperative that is producing fruit drinks sold to supermarkets, restaurants and regional wholesalers. It is called COATTRACO-PROBIO. The purpose of our visit was to see if their request for RWF10 million (US$16,700) makes sense. UOB has never made this big a loan to one borrower and I took along with me a couple of staff who are involved in individual lending for the training purpose.

This cooperative was established originally by 11 members and 14 additional members are now making their contribution to be members of this cooperative. Into the cooperative, members have so far injected RWF12 million and the cooperative has been operating without any debt so far. They reported annual sales in 2009 at RWF32 million or US$54,000. For the first six months this year, their sales was only RWF12 million mainly because the government agency overseeing all cooperatives in Rwanda, called Rwanda Cooperatives Agency (RCA), put a control over its activities because its original certificcate of license allowed only farming. But it has since obtained approval to be able to carry out the fruit drink processing busiiness without any further restriction. COATTRACO-PROBIO produces passion fruit concentrates and dilluted drinks (60% of sales) and local wines using berries. They plan to also produce banana and pineapple drinks.
This size of business is clearly beyond a micro enterprise that we mainly target to serve. It falls into a small to medium enterprise (SME) category. We are not actively pursuing this type of clients, but we need to strengthen our lending staff's capacity to be able to analyze and serve the businesses that are graduating from micro businesses. At UOB, we call these clients Premier Micro Individual Loan (MIL) clients. So far, the largest borrower who has graduated from micro enterprise is now borrowing RWF8 million. This client's first loan was only RWF20,000 or US$35 in 2002. It is an excellent example of impressive economic transformation. This particular client does not want to go to other commercial banks even if she is well qualified because she appreciates UOB's assistance when she needed it most.
The President of COATTRACO-PROBIO, Juvenal, plans to increase the monthly sales from the current level of RWF2 million up to RWF7 million, only if he can buy an extraction machine and install the power to the processing plant that he owns and leases to the cooperative. Currently they are using an extraction machine for home use. The machine will cost the cooperative approximately RWF6.5 million and the power installation approximately RWF3 million; hencethus the request for a RWF10 million loan. Once the power is brought in, its neighbors will also benefit from the power, thus lowering the burden for the operating expenses.
Out of the business, they can generate a net profit of approximately RWF800,000 a month with which they should be able to pay back the loan over 24 months even at the current sales level. Once the machine is put in place and the power is brought into the plant, Juvenal and his vice president Immaculee are confident in increasing the sales further. Currently they have 40 accounts and are not selling to those that ask for a credit term. Juvenal proudly explained that they turned down an order from Laico Hotel, one of top class hotels in Kigali, because they could not produce the products fast enough.

Juvenal and his wife will guarantee the loan and also pledge their building that is worth at least RWF20 million.

Juvenal looked competent and was confident about his business. He is proud that Rwanda National University, the best school in Rwanda, sends its students for internship at his cooperative.

We left the place with more confidence, but we will discuss again and make the decision on Monday next week. There are a couple of lingering questions in my mind... In the worst case scenario of not making the loan, however, Kamari and Pacifique (not shown in the photo) have witnesses how they can produce pro forma balance sheet and income statement solely based on information obtained from questions to validate them against the financial statements. - Jeffrey