Revitalised rural economies
ECRDA carries on its shoulders, on behalf of government, a broad developmental mandate which uses various high impact applications to bring about the desired socio-economic returns in the rural sector. ECRDA is acutely aware that the development and application of responsive and inspired rural finance tools is a central pillar to stimulate economic activity in this sector. The extension of credit lines in the form of loan funding to rural entrepreneurs is an important element for the further growth and development of the rural economy. While government often provides the infrastructure and platforms necessary for development, ECRDA complements government’s efforts to ensure that rural programmes and enterprises have the requisite working and operating capital to bring their ideas to life.
Higher risk appetite
ECRDA provides these loans fully-aware of the risks attached to this activity. The rural finance market is a challenging space to do business because of its high-risk nature. This is a market rarely serviced by private lenders because it has no assets or collateral as security for loan funding. ECRDA takes on a higher risk appetite and advances loan funding to rural enterprises aware of the potential recollection challenges it would have to confront. ECRDAs role in this space is significant if one considers that without this higher risk appetite, rural entrepreneurs would have no means to turn their ideas into a reality to promote economic activity in the rural sphere and thereby create job opportunities, income generation and self-sufficiency. A lack of credit lines to rural economies undoubtedly further depresses the rural landscape and diminishes the ability to galvanise and revitalise economic activity in this sector.
ECRDAs rural finance unit pays particular focus on the quality of loans disbursed, number of beneficiary enterprises and on the recovery of disbursed loans. The organisation typically splits its loan portfolio between agricultural and non-agricultural loans for rural entrepreneurs. However, while the organisation recognises its development finance role and risk appetite, its loan disbursements are guided by a credit and collection policy which falls in line with the requirements and expectations of the National Credit Regulator (NCR). A key criterion to loan funding is therefore measured according to the individual enterprise’s ability to repay the loans. During the review period no enquiries were received from the National Credit Regulator an indication that organisational credit policies and procedures are sound.
Credit policy review
At the end of the third quarter of 2014/15, ECRDA conducted a minor review of its credit policy. The review sought to limit the exposure of loans advanced to staff to limit any potential conflict of interest while ensuring that all business loans awarded to staff should not exceed 5% of the total annual loans budget.
In addition, ECRDA ensures that its credit policy is complemented by an empowering aftercare philosophy which calls for diligent post-investment monitoring. This includes monitoring of loan funding through project visits, ensuring that money is used for its intended purpose and to identify shortcomings in the enterprise’s ability to honour loan repayments. Once potential challenges are identified, loan officers are required to develop reports on the performance of the individual loans and provide recommendations for corrective action.