Parque Agricola - ++++via +++Lara Fira the Case of Fira (Mexico)

8/2/2019 Parque Agricola - ++++via +++Lara Fira the Case of Fira (Mexico)

1/26

ConferenceonSMEAsset-BackedFinancingInstruments:

Opportu

nitiesinEurope

-Structuredfin

ancein

Mexico:an

Innovativesolutiontointegratesmall

produ

cersinthesupp

lychain

-

Slovakia,May2008

AlbertoLaraLpez


2/26

2

1.1.FIRA

FIRA

2.Financing

AgricultureinMexico

3.FIRA:Cre

atingvalues

olutions

4.FinalRem

arks

A

genda


3/26

3

F

IRAisthelead

ingfinancialin

stitutionforag

ribusinessand

fisheries

inMexico

TrustFundcreatedbytheMexicanGovernment53yearsag

o.

Operatesasasecond-tier

bankthatprovidesfunding

andcredit

guaranteesto

thebankingsystemtofinance

agriculturalan

dfisheries

inMexico.

Publicentitywithprivatebehaviorandbestm

arketpractices

SummarizedBalanceSheetDecem

ber2007

(MillionDollars)

Assets

9,775.8

Financial

Instruments

4,664.5

Loans

3,812.9

OtherAssets

1,298.4

Liabilitie

s

5,047.0

Equity

4,728.8


4/26

*Sm

allproducersare:PD1.-Produ

cerswhoseannualincomeis

notmorethan1,000timesthe

minimumwageoftheregionwhereinvestmentswill

be

madeandPD2.-Producerswhoseannualincomeishigherthan1,000timesbutlessthan3,000timestheminimumwageoftheregionwhere

investmentswillbemade.

FIRAhasincre

asedtheannualcreditflowat

atwodigitrateduring

thelastsixyears

2

,543

3,0

16

3,7

88

4,7

07

4,9

17

5,0

44

5,1

76

1,1

6

3

965

941

2,2

79

1,8

38

1,8

62

1,5

81

500

1,5

00

2,5

00

3,5

00

4,5

00

5,5

00

6,5

00

2

001

2002

200

3

2004

2005

2006

2007

FIRAstotalcreditflow

andcredittosmallprod

ucers*through

commercialbanks

GrowthRate15.9%

2001-2007

GrowthRate13.3%

2000-2007

(Milliondollars2007)

Total

SmallProducers

4


5/26

5

1.FIRA

2.Financing

AgricultureinMexico

3.FIRA:Cre

atingvalues

olutions

4.Finalremarks

A

genda


6/26

6

Agribu

siness,rurala

ndfishingsec

torsinMexico

Agribusinessh

aslesspricevolatilityandhasbecomethesectors

driver.

Also,therea

resomecompetitiveadvantages

inhighlyexportoriented

productsina

gribusinessandfisheriessectors.Ag

ricultural&AgribusinessGDP

(Millonofpesosde1993)

30,0

00

40,0

00

50,0

00

60,0

00

70,0

00

80,0

00

90,0

00

100,0

00

110,0

00

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Agricultural

Agribusiness

AgriculturalP

riceIndex

100

105

110

115

120

125

130

135

140

145

150

Ene-05

Feb-05Mar-05

Abr-05

May-05

Jun-05

Jul-05

Ago-05

Sep-05

Oct-05

Nov-05

Dic-05

Ene-06

Feb-06

Mar-06

Abr-06

May-06

Jun-06

Jul-06

Ago-06Sep-06

Oct-06

Nov-06

Dic-06

Ene-07

Feb-07

Mar-07

Abr-07

May-07

Jun-07

Jul-07

Ago-07

Sep-07

Oct-07

Nov-07Dic-07

Ene-08

Feb-08

Mar-08

CPINational

CPIAg

ribusiness

CPIAgricultural


7/26

7

D

erivingfrom

asymmetricinformationalenderfacesanadverse

selection

p

roblem,specially

inagriculturala

ndfishingsectorsdominatedby

smalland

m

ediumsizeproducers.

T

hereforegatheringfinancialinformationiscostlyanddifficult,sinc

emanyof

these

producers

donotkeepa

formalaccounting.Thus,asse

ssingthe

p

roductive

capab

ility

and

financ

ialstrength

in

an

adequatem

anneris

e

xpensiveforaba

nk.

B

ecauseoftheinvolvedrisks,ban

ksdonotshowanactivelending

activityto

these

sectors,c

oncentrating

the

irloan

portfolio

s

in

otheractivities

like

m

anufacturing,h

ousing

andco

nsumerlending

.Therefore

the

lack

of

s

pecialized

know

ledge

aboutthese

sectors

res

ults

in

muchh

igherrisk

p

erceptionbythe

banksthanthe

actualrisk:Thu

s,asymmetricinformation

p

lays

againsta

ccess

to

credit

markets

for

agriculturalan

d

fishing

e

ntrepreneurs.

Agencyp

roblemsarisin

gfromasymm

etricinformation


8/26

8

Becauseoftheweakenforcem

entofpropertyrightsinMexicoandtodebt

reliefprogramsinthepast,bo

rrowersinsome

instanceshave

hadweak

incentivestorepaytheirloans.

Thishashisto

ricallyresultedinlargenon-performingloanport

foliosand

lossesforban

ks.Inaddition,

thelackofriskassessmentcapabilitiesin

bankswithres

pecttoruralandfishingactivitieshasnotenable

dthemto

conductadequ

atemonitoringto

avoidsuchmoralhazardproblem

s.

Becauseoftheprofileofsmallagriculturaland

fisheries'participantsand

theirleveloffo

rmality,screenin

giscostly.Inad

dition,animportantpartof

theloansaresmallinsize,andtherefore,thec

ostoforiginating

aloanis

relativelyhigh.

The

geograph

iccoverageof

the

bankingsystem

inMexico

remains

concentratedinurbanareas.Highlydispersed

andsmallclientsmakeit

difficultforban

kstoservethea

griculturalandfis

hingsectors.

MoralHazardProbl

emsandTrans

actionCosts


9/26

9

1.FIRA

2.Financing

AgricultureinMexico

3.FIRA:Cre

atingvalues

olutions

4.Finalremarks

A

genda


10/26

10

FIRAsactivity

isaimedatso

lvingmarket

failures/imperfections

withamarke

tapproachandaclearvisionoffinancialm

arket

development

Transactioncosts

Transactioncosts

reduction

reduction

F

IRA

F

IRA

A

symmetric

A

symmetric

information

information

solutions

solutions

Market

Market

making

making

Valuecreation

Valuecreation


11/26

11

FIRAapproache

dthetradingcompaniesandsuppliers

toofferaninno

vativesolution:StructuredF

inance

Solvingtheadv

erseselectionproblem

byfindingawaytomake

screening

effectiveandinexpensive.

Reducing

the

transaction

co

sts

for

theba

nking

sector

to

finance

commoditiessu

ppliers.

Mitigatingrisk

throughdiversificationandadeq

uatecollateralthatreduce

moralhazardproblems;

Hedgingpricevolatilityandcommercialrisksin

awaythatcan

beeasily

understoodand

managedbyafinancialinstitution

.

Designing

new

products

that

could

be

easilyunderstood,p

riced

and

managedbyfin

ancialmarkets.

MainChallengefacedbyFIR

Awasfindingsolutionstothefollo

wing

aspects:

Valuecreation

Valuecreation

Market

Market

making

making

Asymmetric

Asymmetric

information

information

solutions

solutions

Transaction

Transaction

costs

costs

re

dution

re

dution


12/26

12

FIRA

puttogetherateam

of

expertsspecializedinagriculture,fisheries,

investmentbankingandlegalaspectstofindsuch

astructure.

Theresultwasafacilitythatallowed:

a)Trading

companiestom

aintainthecurre

ntrelationshipw

ithsuppliers

while

reducing

thelev

erage

ofitsba

lance

sheetan

d

itscredit

exposu

re,

b)Thecommoditysupplierstoreceiveloan

sinatimelyma

nnerandin

sufficientamountthatallowedthemtoreducetheirfinancialexpenses

and

c)Thefina

ncialsystemtoe

xpanditsinvestm

entopportunities

bycreating

debtinstrumentsthatco

uldbeeasilyassessedandprice

dbybanks,

withreducedriskandtransactioncosts.Adescriptiono

fthefacility

andits

rationalesfollows

:

Thesolutionth

atFIRAdesignedinvolvedtransferring

experiencesinsecuritizationofaccountsreceivables

Valuecreation

Valuecreation

Market

Market

making

making

Asymmetric

Asymmetric

information

information

solutions

solutions

Transaction

Transaction

costs

costs

re

dution

re

dution


13/26

13

S

tructuredfinance:developin

gfinancialme

chanisms

a

daptedtoclient'sneeds

A

BSstructures:

Account

receivables

(working

capital

loans)

Stockofcomm

odities

F

IRA

worksa

s

a

s

tructureagent

F

IRA

p

rovides

F

inancing

and

e

nhancement

Op

timization

offirm's

balance

sheet

Liq

uiditytoallowgrowth

Str

engthenthesupplychain

Tim

elycreditforpro

ducers

Ne

wfinancialsolutionsformore

businessopportunit

ies

Valuecreation

Valuecreation

Market

Market

making

making

Asymmetric

Asymmetric

information

information

solutions

solutions

Transaction

Transaction

costs

costs

re

dution

re

dution


14/26

14

StructuredFinancingwasd

evelopedinth

reegreat

strategicareas

Primary

activity

inG

rains:corn,sorghum,

wheat,beans,etc.

Fishing:aquaculturean

dcaptureofsh

rimpand

tuna.

InventoriesFinancing:sugar,corn,sorghum,

wheat,c

offee,soy,nut,orangejuice,

potatoes

andcaca

o.

This

allowed

positioningFIRA

like

a

developerof

businessesa

ndlinkbetween

smallproducersandbig

globalcorporations.(Example:Nestl-SmallProducers

ofCacaoand

MilkofGoat).

Valuecreation

Valuecreation

Market

Market

making

making

Asymmetric

Asymmetric

information

information

solutions

solutions

Transaction

Transaction

costs

costs

re

dution

re

dution


15/26

15

Primary

Production

Phase

Nonbank

intermediaries

Structureoftitle

rights

Products

Storing

and

Warehou

sing

Inventory

financing

Pignoratious

Structurew

ith

CDstitles.

Trans

formation

Structureoftitle

rights

offba

lancesheet

inventory

financing

SalesPoint

Su

ppliers

de

velopment

Thevisionistoleaveindivid

ualfinancingandadopt

anintegralfor

mula

CD:DepositCertificate

Valuecreation

Valuecreation

Market

Market

making

making

Asymmetric

Asymmetric

information

information

solutions

solutions

Transaction

Transaction

costs

costs

re

dution

re

dution


16/26

16

Thismechanismp

rovidesliquidityba

sedonfarmersinv

entories.

ThisisaRepoop

eration,itisnotaCreditoperation,soitdoesnotimpac

tonfinancial

statements.

Itdoesnotaffectfirmscreditlineswithotherfinancialin

stitutions.

E

xample1:WhiteCorn,YellowCorn&Whe

at

Inventoryfinan

cingsolution

OtherInvestors

(Ra

bobank,

Deutschebank)

Serv

icer

R

epoofCD

Portfoliosale

Creditderivative

M

exican

Banks

OTC

hedge

W

arehouse

Valuecreation

Valuecreation

Market

Market

making

making

Asymmetric

Asymmetric

information

information

solutions

solutions

Transaction

Tra

nsaction

costs

costs

redution

redution


17/26

17

Generatesafin

ancinginstrum

entforvaluechainswithparticipationof

theprivatesector.

Thereisaprofessionalagentwhichhandleandmanagethecollateral

Theoutputinventorytomarke

tisordered,diminishingtheriskoflow

pricesassociatedtoseasonalexcessofgrain

supply.

Itcreatesliquid

ityfrominvento

riesforgrainsc

onsumer.

FortheBankisalowrisktransactionwithlo

woperationcosts,which

allowsthemto

obtainanattrac

tivereturnbyo

peratedvolume

.

E

xample1:Adv

antagesofgrainsinventory

financing

Valuecreation

Valuecreation

Market

Market

making

making

Asymmetric

Asymmetric

information

information

solutions

solutions

Transaction

Tra

nsaction

costs

costs

redution

redution


18/26

18

BUYER

54

WAREHOUSE

WAREHOUSE

Credit$

Cessionof

Rights

BANK

BANK

Creditwitha

Guaranteeo

f

even96%

6

PRODUCERS,

DEALERSOR

CONSUMERS

PRODUCERS,

DEALERSOR

CONSUMERS

1

Product

2

Certificates

ofdepos

it

8

Margincalls

3 7

SERVICER

RepoofCD

SERVICER

$

E

xample2:Sug

arfinancing

Valuecreation

Valuecreation

Market

Market

making

making

Asymmetric

Asymmetric

information

information

solutions

solutions

Transaction

Tra

nsaction

costs

costs

redution

redution

PUT


19/26

19

Primary

producers

have

access

to

technologies,

financing,

administrationofriskandprod

uctcommercialization.

Suppliers,dealersandindustriesobtaininp

utsinsuitable

amounts,

withthequality

theyneedand

intherequired

time,whichallowsthem

tomakeitsplanningofinvento

ries,production

andsales.

Consumersrec

eiveproductsa

ccordingtothe

irrequirements.

E

xample2:Sug

arfinancinga

dvantages

Valuecreation

Valuecreation

Market

Market

making

making

Asymmetric

Asymmetric

information

information

solutions

solutions

Transaction

Tra

nsaction

costs

costs

redution

redution


20/26

20

Ourstructured

financeinstrumentsofferattractiveinvestment

opportunitiesi

nunexplored

markets

V

alue

chain

integration

Valuecreationfor

participants(income)

Development

analy

ticalcapability

financial

interm

ediaries

Developmentfinancial

market

L

ower

transaction

costs


21/26

50

100

150

200

250

Repos

Fishingand

aquaculture

In2

007FIRAconductedoperati

onsforUS$42

1.7millionsof

structured

financing

Dollars

Millions$

20

9.7

20

9.7

1

5.3

1

5.3

196.7

196.7

Prim

aryActivity


22/26

22

F

IRAalsoparti

cipatesinthederivativesma

rket.Thishas

allowed

theInstitution

tooffervalue

addedproduc

tsandtoimpr

ovethe

portfolioprofitability

Producersrequests

Cashflowgrouping

Interestrateswapclosing

Fixedinterestratecreditdisbursement

C.F.Bund

ling=MoreVo

lume=AttractiveInterestRa

tes

Lowincomebo

rrowersareperceivedhighrisk;th

eirsizelimitsthe

iraccess

toriskmanagementinstruments

.

SWAPSletsmallproducershav

eaccesstovery

competitiveinterestrates.

Smallamountc

redits(lessthan

$10,000dollars)

cangetfixedinterestrate.

ThefinancialriskforFIRAdoes

notincreasesinc

e

Thecreditofferedunderfixedinterestrateishedged100%w

ith

interestra

teswaps(zerom

arketrisk)

Creditriskisminimizedthr

oughastrictsele

ctionofcounterp

arts

Informativeweeklyrateproposal


23/26

23

1.FIRA

2.Financing

AgricultureinMexico

3.FIRA:creatingvaluesolutions

4.FinalRem

arks

A

genda


24/26

24

FIRAdevelopsnewway

stofinancesmallproducers

by

structuredfinancefacilitiesthatcanb

eunderstoodand

adoptedby

thefinancialm

arket

Bystructuredfinance,FIRAis

abletocoordinatestakehold

ers,align

theirincentives

anddistribute

risksalongthesystem

withapositive

impactonparticipantsthatres

ultinanincrea

sedaccesstoproducers

inobtainingloans.

Structured-finan

cedsolutionscanhelpovercomecreditratio

ning.The

keyistodesign

efficientways

toleverageeachparticipantsstrengths,

whilecreating

therightincentivesforthem

tomitigaterisksand

transactioncosts.

Throughreducingtransactioncostsandgiving

solutionstoasymmetric

information,FIR

Acreatesvalueaddedtoitsclients,includ

ingsmall

commodityprod

ucers.


25/26

25

Pointstobe

consideredan

dlessonslearnedwithstruc

tured

financedproducts

Asaruleallcontractsmust

countoninsu

rancesagainstdiseases,

climate,robbery,damage,firesandaccidents

.

Alltheoperationswillhavetobeformalizedwithcontractsbetween

suppliersandp

laintiffs.Contra

ctsshouldestablishthatprod

ucersyield

therightsofcollectionbythes

aleoftheirproductionsothattheincome

oftheirsaleisappliedinfirstinstancetothepaymentofthe

creditplus

thegeneratedinterestsandthesurplusisgiventothem.

Contractsand

legaldocumen

tsshouldbedevelopedbya

nexternal

legaloffice,thathastheres

ponsibilitytog

ivelegalcerta

intytothe

operation.Com

paniesshould

becloselysu

pervisedandqualifiedin

ordertopreven

tbankruptciesorfrauds.

FIRA

isnow

focused

onp

romoting

verticalintegration

structures

relatedwithsupplierdevelopm

ent.


26/26

26

ww

w.fira.gob

.mx

Parque Agricola - ++++via +++Lara Fira the Case of Fira (Mexico)

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Transcript of Parque Agricola - ++++via +++Lara Fira the Case of Fira (Mexico)