Learning

Rural finance course

This training guide has been designed for use in introductory rural and microfinance training courses. While the fundamentals of development finance and approaches in microfinance apply to rural finance, there are particular issues and characteristics that must be understood and taken into account in order to address rural, and in particular agricultural, finance. The material is organized into 10 teaching modules each of which should take approximately one-half day to deliver. The first 5 modules are designed to give a broad understanding of the key issues and approaches. The last 5 modules are more advanced and generally build from the broad concepts of the first modules into a focus on the important operational issues of cash flow and risk assessment and on specific product innovations and approaches used in rural and agricultural finance. The modules are organised in a logical sequence but the course facilitator can be selective in including or excluding modules based upon the length of training and the needs and interests of the participants. The material, which is still under development, presumes that the participants have a basic understanding of financial services (microfinance, development finance, banking and/or rural economic development). Some knowledge of market development services would also be helpful. It is aimed primarily at people who work in rural financial institutions, government and non-government development agencies, MFIs, banks and donors who advise and work with rural populations and communities. By the end of the course the participants should be able to:

  • Understand the special challenges of rural areas that are traditionally associated with rural and agricultural credit directed to the poor.
  • Build a deeper understanding of the fundamental issues of rural finance.
  • Have skills in conducting a rural and agricultural portfolio assessment and loan analysis – applying 5 C’s in rural finance.
  • Be familiar with several innovative models and alternate ways of offering rural finance services.
  • Gain skills in conducting seasonality analysis, preparing cash flows, assessing risk and appraising loans.
  • Develop an understanding of new and innovative loan products and savings approaches for agriculture and rural areas.
  • Gain awareness of sources and reference links to further information and support for addressing future challenges in the application of financial services in rural areas.

The material presented here has been developed by Calvin Miller of FAO, IDEAS (Institute for Development, Evaluation, Assistance and Solutions) and the Giordano dell’Amore Foundation in collaboration with the University of Bergamo in Italy. Each module contains facilitator’s notes, a PowerPoint presentation, background reading and a case study for use in a class.

Modules

Module 01: The key issues

This module is intended to assist participants to understand thoroughly the challenges and issues in rural finance. It reviews the problems rural people face in accessing financial services and the special challenges of rural areas that arise from rural and agricultural credit directed to the poor. The case study highlights the risks and challenges associated with agricultural lending.

Resources

Module 1: Case study exercise
The objective of this case study is to increase course participants' awareness of risks and challenges associated with agricultural lending and the issues that have to be taken into consideration when starting an agricultural lending program.
Module 1: Elective reading material
The following documents are recommended as additional reading material for participants wishing to further develop their knowledge in this topic.
  1. Rural finance and poverty alleviation
  2. A brief history of rural finance
  3. Characteristics, credit types and principles of the microfinance methodology
  4. Agricultural lending lesson 1
Please follow the links below to download the documents direct from the Rural Finance Learning Centre.
Module 1: Module outline and facilitator’s notes
Two documents are provided here:
  1. The teaching plan for Module 1 in a tabulated format.
  2. Facilitator notes for the case study exercise.
Module 1: Power point presentation and notes
Slides for use with Module 1 of the Rural Finance Training Course. The module is divided into four blocks:
  1. What and why of rural finance
  2. History of rural finance and what was learned about RF needs
  3. Key challenges in rural finance
  4. Case study from Harmenistan
Module 1: Reading material for pre-course distribution
The following documents are recommended as required reading for this module. They should be distributed to course participants in advance of the course or session.
  1. Rethinking Rural Finance: A Synthesis of "Paving The Way Forward For Rural Finance" Conference
  2. Key Challenges in Rural Finance
Module 02: Actors and approaches

This module will provide students with an overview of the “new view” and paradigms in agricultural and rural finance. Participants will gain knowledge of:

  • the main approaches in rural finance and development finance focusing the attention on the different typologies of actors involved and their institutional and operational characteristics
  • the role of microfinance and the differences in supply financial and non financial (BDS) services
  • the analysis of rural finance supply side and understand the main features of the products offered, in terms of financial characteristics, target groups, strengths and weaknesses.

Resources

Module 2: Case study exercise
The aim of this case is to learn how to design a rural loan product. The issues which are examined in the case study are: elasticity of demand, credit culture, seasonality, geography, marketing, group size, compulsory savings, group meetings attendance, purpose of borrowing.
Module 2: Module outline and facilitator’s notes
Two documents are provided here:
  • The teaching plan for Module 2 in a tabulated format.
  • Facilitator notes for the case study exercise.
Module 2: Power point presentation and notes
Presentation for Module 2 is divided into five blocks:
  1. New view in rural and agricultural finance
  2. Rural finance approaches and actors
  3. Microfinance and BDS
  4. Products offered
  5. Review and evaluation of the day
Module 2: Reading material for pre-course distribution
Listed documents are suggested as required reading for this module. They should be distributed to the students in advance.
  1. Rural Financial Services Institutions Review
  2. Types and Roles of Formal Financial Institutions Providing Agricultural Credit
  3. Loan Needs, Typology and Characteristics
Module 03: Loan planning and analysis

The focus of this module is loan planning & analysis. The course deals with the cash flow and rural finance in the context of household, loan analysis and its key factors (character, capacity, capital, collateral and conditions). Moreover, the course cover issues of how to analyze the seasonality of income and expenses for rural agricultural based households and how seasons affect the demand for savings and loan services.

Resources

Module 3: Case study exercise
There are three case studies in Module 3.
  1. Term finance case example
  2. Processing the loan application of Aglend
  3. Understanding seasonality of cash flow for agricultural families
Learning objective of these cases is to increase students' knowledge of loan planning and analysis.
Module 3: Elective reading material
The following documents are recommended as additional reading material for participants wishing to further develop their knowledge in this topic. Please follow the links below to download the documents directly from the Rural Finance Learning Centre.
  1. Agricultural lending: lesson 3
  2. Financing agricultural term investments, FAO
  3. Term finance examples
Module 3: Module outline and facilitator’s notes
Two documents are provided here:
  • Module outline
  • Facilitator's notes
Module 3: Power point presentation and notes
Presentation for Module 3 is divided into four thematic blocks:
  1. Cash flow & investment needs
  2. Five Cs and three Rs of loan analysis
  3. Seasonality analysis
  4. Term and Investment Finance
Module 3: Reading material for pre-course distribution
The following documents are recommended as required reading for this module. They should be distributed to course participants in advance of the course or session.
  1. Loan analysis: Understanding the client and business
  2. Crop budget & cash flow tables
Module 04: Loan risk analysis

In this module students will become familiar with 5Cs and 3Rs and loan analysis indicators. These analytical tools or indicators for loan analysis can be divided into five categories, which are:

  1. Profitability
  2. Liquidity
  3. Solvency
  4. Repayment capacity
  5. Risk

Participants will also learn about assessing and managing the risk through case study.

Resources

Module 4: Case study exercise
Learning Objective of this case is to remind students of the key factors in loan analysis – character, capacity, capital, collateral and conditions - and see how an initial screening process and loan application form contribute to providing this information.
Module 4: Elective reading material
The following documents are recommended as additional reading material for participants wishing to further develop their knowledge in this topic. Please follow the links below to download the documents directly from the Rural Finance Learning Centre.
Module 4: Module outline and facilitator’s notes
Module 4 introduces the concepts and the formulas and gives participants a chance to practice them in the case study. Module 6 goes much more in-depth on this same material, spending almost all of the class time working on a case study.
Module 4: Power point presentation and notes
Module 4 presentation covers 5 Cs in Loan analysis, 3 Rs, the ratios and cash flow analysis.
Module 4: Reading material for pre-course distribution
The following documents are recommended as required reading for this module. They should be distributed to course participants in advance of the course or session.
  1. Financial analysis measurements
  2. Ratios
  3. Rural loan analysis chart
  4. Client loan assessment
Module 05: RF service delivery

This module has the following objectives:

  • to review and discuss rural service delivery models and approaches
  • to learn about the linkages and adaptations
  • to explain innovative concepts and technologies that serve the rural areas
  • to review several insurance options

Resources

Module 5: Case study exercise
This module proposes two cases:
  • Livestock insurance in Mongolia - Which livestock insurance is right for Mongolia?
  • XacBank - expanding frontier in rural finance
Module 5: Elective reading material
The following documents are recommended as additional reading material for participants wishing to further develop their knowledge in this topic.
Module 5: Module outline and facilitator’s notes
Three documents are provided here:
  • Module outline
  • Facilitator's notes - case Mongolia
  • Facilitator's notes - case XacBank
Module 5: Power point presentation and notes
Presentation for Module 5 is divided into four blocks:
  • Reaching remote areas: Case study of XacBank in Mongolia
  • Reaching remote areas through savings-led methodologies
  • Successful rural linkage models
  • Product adaptation and innovation
Module 5: Reading material for pre-course distribution
The following documents are recommended as required reading for this module. They should be distributed to course participants in advance of the course or session.
  1. CARE International's village savings & loan programmes in Africa
  2. Caisses Villageoises d'Epargne at de Crédit Autogérées (CVECAS), Niono, Mali
  3. Member-based financial organizations
  4. A technical guide to rural finance: exploring products
Module 06: Loan management

The conceptual content of the Module 4 and Module 6 are similar. This has been done deliberately since Module 4 is an introduction to theme and Module 6 building on it. The slides in Module 4 introduce the concepts and some of the basic formulas needed to do the Aglend case study. Then Module 6 is focused basically on a case study that deepens the participant’s knowledge and skills at working with ratios. Remember: The 10 modules are designed so that they build progressively the participant’s understanding. The first five modules can be offered independently as an introductory course. Then the second set of five modules (Numbers 6 through 10) can be offered as a more advanced course for those who have taken the introductory course or for persons who already through their work experience have the basic knowledge provided in the first five modules. Modules 9 and 10 also offer advanced topics within the module folders as shown in folders marked Module 9 Advanced and Module 10 Advanced respectively.

Resources

Module 6: Case study exercise
Case Exercise – the focus is to use the information to decide if, based on the budgets and case flow the client should get a loan and then for what amount, what length, when should disbursements be made and when and how should it be repaid. Several cases of spreadsheets are included in the case material.
  • It is suggested to use the Crespo Case to explain the model and required information. Please note that this case closely follows the description of the FAO-GTZ Agricultural Production Toolkit and as such the description can be found in that Toolkit manual listed in the elective reading.
  • Then, it is suggested to use the Nigeria Loan Case. Not all the spreadsheets are shown since the focus should be only on the crop budget, including timing of costs and labor, and then to the cash flow spreadsheet which is where the main focus and discussion should be focused. This in turn leads to the loan planner spreadsheets which are generated and the graphs. The “cheat-sheet” list of indicators is included to help interpret the financial ratio information.
Module 6: Elective reading material
The following documents are recommended as additional reading material for participants wishing to further develop their knowledge in this topic. The excel based loan planner tool (found in the case study folder) follows the outlay design and description in the Agricultural Production Lending Toolkit. Please follow the links below to download other documents direct from the Rural Finance Learning Centre.
Module 6: Module outline and facilitator’s notes
Three documents are provided here:
  • Module outline
  • Facilitator's guide - Nigeria case
  • Cash flow & loan planner model
Module 6: Power point presentation and notes
PowerPoint covers the following topics:
  • The 5Cs of loan analysis
  • 5Cs=5 factors for analyzing credit risk
  • The 3Rs
  • Types of risk
  • Profitability indicators
  • Repayment capacity
  • Cash flow
  • Guarantee analysis
Module 6: Reading material for pre-course distribution
The following documents are recommended as required reading for this module. They should be distributed to course participants in advance of the course or session.
  1. Financial analysis measurement
  2. Financial indicators - ratios
  3. Rural loan analysis - chart
Module 07: Agricultural products and services

Resources

Module 7: Case study exercise
The aim of this case is to learn from examples of how to access credit through small farmer associations and conditions for success in warehouse receipts.
Module 7: Elective reading material
The following documents are recommended as additional reading material for participants wishing to further develop their knowledge in this topic. Please follow the links below to download the documents directly from the Rural Finance Learning Centre.
Module 7: Module outline and facilitator’s notes
Two documents are provided here:
  • The teaching plan for Module 7 in a tabulated format
  • Facilitator notes for the case study exercise.
Module 7: Power point presentation and notes
Presentation for Module 7 is divided into five thematic blocks:
  • Term finance
  • Trader finance: trader credit and out-grower schemes
  • Trader finance: benefits & limitations
  • Warehouse receipts schemes: definition & actors involved
  • Review
Module 7: Reading material for pre-course distribution
Listed documents are suggested as required reading for this module. They should be distributed to the students in advance.
  1. Basic Trade Finance Tools: Payment Methods in International Trade
  2. Ghana: Inventory credit for small-scale farmers
Module 08: Portfolio risk management

Resources

Module 8: Case study exercise
This module has two cases: Best Finance and Hope. The goal of these cases is to prepare students for how to calculate portfolio risk.
Module 8: Elective reading material
The following document is recommended as additional reading material for participants wishing to further develop their knowledge in this topic.
Module 8: Module outline and facilitator’s notes
Three documents are provided here:
  • Module outline
  • Facilitator's notes
  • Example of exposure management, Rabobank
Module 8: Power point presentation and notes
Presentation for Module 8 is divided into five thematic blocks:
  1. Risk analysis and type of risks
  2. Measuring portfolio quality: ratios
  3. Strategies for active loan portfolio management
  4. Credit Guarantees and Guarantee Funds
  5. Review
Module 8: Reading material for pre-course distribution
The following documents are recommended as required reading for this module. They should be distributed to course participants in advance of the course or session.
  1. SEEP chart
  2. Financial term definitions
  3. Credit control
  4. Public and private investments in microfinance: a look at guarantee instruments
Module 09: The role of innovations

Resources

Module 9: Case study exercise
There are two cases provided in this module. Ethiopia case is about risk management and Mongolia case is about livestock insurance.
Module 9: Elective reading material
The following documents are recommended as additional reading material for participants wishing to further develop their knowledge in this topic. Please follow the links below to download the documents directly from the Rural Finance Learning Centre.
Module 9: Module outline and facilitator’s notes
Three documents are provided here:
  • The teaching plan for Module 9 in a tabulated format
  • Facilitator notes for the case study exercise: Mongolia case and Ethiopia case
Module 9: Power point presentation and notes
Presentation for Module 9 is divided into five blocks:
  1. The concept of risk
  2. Farmers'risk exposure and reaction
  3. Insurance: contracts and schemes
  4. Leasing
  5. Review of the day
Module 9: Reading material for pre-course distribution
Listed documents are suggested as required reading for this module. They should be distributed to the students in advance.
  1. Income risk, coping strategies, and safety nets
  2. Insurance of crops - a fresh look
  3. Insurance as a microfinance product
  4. Finance for the poor: Equipment leasing and lending: A guide for microfinance
Module 10: Savings, funding, product and program design

Resources

Module 10: Case study exercise
There are two documents provided here: case study and product development chart. The case study is divided into two parts: the first is CARE community savings microfinance in Cambodia and the second one is Thai village funds.
Module 10: Elective reading material
The following documents are recommended as additional reading material for participants wishing to further develop their knowledge in this topic. Please follow the links below to download the documents directly from the Rural Finance Learning Centre.
  1. Sources of funds for agricultural lending
  2. Financial sector reforms and savings mobilization in Zambia
  3. Remittances and rural development
  4. The MBP guide to new product development
Module 10: Module outline and facilitator’s notes
Two documents are provided here:
  1. The teaching plan for Module 10 in a tabulated format.
  2. Facilitator notes for the case study exercise.
Module 10: Power point presentation and notes
Presentation for Module 10 is divided into five blocks:
  1. Sources of funds, saving products, and mobilization
  2. Other sources of funds
  3. Challenges in product development
  4. Product and project design: definition and actors
  5. Review
Module 10: Reading material for pre-course distribution
Listed documents are suggested as required reading for this module. They should be distributed to the students in advance.
  1. The microfinance experience with savings mobilization
  2. Rural and microfinance program design framework