BGH BUSINESS PROFILE 2016
Transcript of BGH BUSINESS PROFILE 2016
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Executive summary
• Big Grape’s goal is to provide much needed credit to small scale farmers and market traders • Big Grape Holdings is structured as two separate business units
• Big Grape Financial Services (BGFS) provides $100 to $500 loans to traders and SMEs
• Big Grape Capital (BGC) operates a chicken out-grower project in Domboshawa – so far we have set up 18 chicken runs each producing 1600 chickens every 7 weeks
• Our mission is to help people move from being informal farmers and traders to become established members of the formal financial sector • BGMF’s has experimented with different borrowing segments, our focus now on lending to Traders/SME’s • BGMF has created a customer database of key informal markets in the capital city Harare
• The e-Mali banking system and our ‘Human ATM’ model will expand the reach of our MF products
• BGC is well exposed to the large, fast growing broiler chicken market • We have developed a streamlined model for financing and overseeing the growth of broilers • We are providing our small holder farmers with an average of $4,800/yr of cash income
• BGC’s existing poultry farmers provide an immediate consumer pool for additional financial services • BG can extend the CRISP program to rural farmers nationwide • Opportunities to further invest in the poultry supply and value chains – specifically cold-chain facilities
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Agenda
• Background on Big Grape Holdings
• Business overview: Big Grape Micro-Finance
• Business overview: Big Grape Capital
• Big Grape’s Value Proposition
• Appendix
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Big Grape’s goal is to provide much needed credit to small scale farmers and market traders
• One of the UN’s Millennium Development Goals (MDGs) is to halve poverty by 2015
• Financial services play a key role in enabling households to acquire assets, engage in productive economic activity and pay for goods and services that can improve and protect human well-being • When provided with accessible and flexible financial services those in
the informal sector can be key actors in contributing to the attainment of the MDGs
• Big Grape’s mission is to provide members of Zimbabwe’s informal economy with access to financial services to help bring them out of poverty
• Building a network of creditworthy small scale farmers will allow us to grow as a microfinance firm by bringing our customers into the formal economy
• Our Chicken Rearing and Investment Self-Help Project (CRISP) in Domboshava and Insiza district in Matebeleland is our first step to creating a sizable pool of creditworthy communal farmers.
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Big Grape Holdings is structured as two separate (but integrated) business units
BG Financial Services
• BGFS (Pvt) Ltd provides financial inclusion models for the informal, mass market sector in Zimbabwe
• Experimented with different products and identified loans to Traders/ SMEs as the most viable segment
• Winding down our other loan products in order to focus on Farmers and Traders/SMEs
• Peak loan book size: $243k
Big Grape Capital
• BGC (Pvt) Ltd is an agro-focused structured finance firm that focuses on community based developmental projects
• BGC operates a chicken out-grower project in the Domboshawa area & Insiza
• Number of farmers: 28 • Annualised bird production: 283 ,
020 broilers • Annuali broiler sales: $1,546,928
Planned flow of customers as our
farmers’ enter the formal
financial sector
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The BGC-BGMF integration: developing ‘unbankable’ farmers into empowered, loyal customers
Small-holder farmer 1
• Our farmers initially have no financial or credit track record
• BGC provides farmers with financing for construction of a chicken run, as well as input financing for feed and day old chicks
• These loans are secured against the physical assets provided
Microfinance customer
2 Banking services customer
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• Farmers develop a credit track record through their chicken production activities
• BGMF is able to provide the farmer with financing for other essential items such as water pumps, heating and lighting equipment.
• Farmers can also access beneficial consumptive loans for dependents’ school fees, medical fees and bereavements.
• Farmers accumulate savings and develop a need for conventional banking products
• Big Grape’s long term goal is to obtain a micro-banking license, allowing us to provide an inclusive, low cost and convenient banking platform
• The long standing, trusted relationship with our farmers will encourage them to bank with us
Huge opportunity exists to expand this model into layers, cattle, pigs and numerous other livestock and crop
commodities
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Big Grape Holdings Directors
• 4-years experience as a money market dealer with HSBC and Barnfords Securities • 6-years experiences
with Tetrad Group – rose to position of Exec Director of Operations • Bcom (Hons), National
University of Sciences & Technology • Studying for a Masters
in Business Leadership
John Bere Group Managing
Director • Founding partner and
non-exec director of Reach Africa Investments • Formerly ‘GM – Global
Markets and Trade Finance’ at Tetrad Bank • Bachelor of Business
Science and Master of Commerce (Hons) from Rhodes University • Studying for a PhD in
International Finance from Wits Business School
Tapiwa Karoro Managing Director
BGFS
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Agenda
• Background on Big Grape Holdings
• Business overview: Big Grape Micro-Finance
• Business overview: Big Grape Capital
• Big Grape’s Value Proposition
• Appendix
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BGMF’s goal is to overcome liquidity constraints for traders and SME’s
• Big Grape Microfinance (Pvt) Ltd is a microfinance company focused on developing financial inclusion models for the informal mass market sectors of the economy • We provide $100-$500 loans to market traders, with daily and weekly
repayment schedules
• BGMF’s medium to long term goal is to evolve into a microfinance bank that provides an inclusive, low cost, convenient and simple banking platform
• Our loan book has been an exploratory one, geared towards proofing the viability of various microfinance models and products – our aim is to officially launch and grow our loans offering to Traders/SMEs
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BGMF’s has experimented with different borrowing segments, the focus is increasingly on SME’s
BG Micro-Finance
• Private sector loans were purely cash loans
• Hire purchase loans were also granted to salaried Pvt. Sector clients
• Big Grape Micro-finance started out as a micro-lending Joint Venture
• We experimented with numerous types of borrowers, with varied degrees of success • Private sector, salary based loans turned out to be very risky due to private
companies not consistently paying their employee’s wages
• Trader/SME loans have consistently shown very low default rates, and so we have set ourselves the target of 75% of loans to be underwritten to these borrows
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Trader/SME loans are popular amongst informal store owners, particularly amongst females
BG Micro-Finance
High default rate results from formal
sector employers failing to pay their
employees
Majority of Trader/SME loans are to female
business owners
Monthly interest rates
Product Tenor Pricing Average loan Size Default RateTraders
Avondale 1 Month 10% 500.00$ 4%Mbare 24 days 10% 100.00$ 1%Gulf 1 Month 10% 300.00$ 2%Tamic 24 days 10% 100.00$ 2%Other 1 Month 10% 300.00$ 3%
Salary Based 3 Months 6.50% 390.00$ 27%Hire Purchase 3, 6, 9, 12 Months 4% 462.00$ 0%Civil Servants 3 Months 4.50% 300.00$ 0%
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The e-Mali banking system and our ‘Human ATM’ model will expand the reach of our MF products
BG Micro-Finance
The e-Mali payment system allows us to reach a vast number of clients
Our “Big” idea is to empower our traders to act as human ATMs
• e-Mali is an S.A. based mobile technology company
• e-Mali has operated in Zimbabwe since 2010
• The e-Mali system works off an agency network much like Ecocash, and also has an existing distribution network across the country
• We have piloted the platform in the Mbare Agriculture Market, and it is proving to be the ideal solution to service the high transactional mass markets
• We will empower our informal trading clients to disburse and collect on approved loans • These traders are accustomed to
handling cash on a daily basis
• This will enable our existing and new traders to “sweat” their daily cash holdings and earn additional income
• This “human ATM” model will expand the reach of BGMF’s lending programs
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Agenda
• Background on Big Grape Holdings
• Business overview: Big Grape Micro-Finance
• Business overview: Big Grape Capital
• Big Grape’s Value Proposition
• Appendix
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BGC’s goal is to facilitate the inclusion of small-holder farmers into the formal financial sector
• BGC looks to invest in a number of community based projects and businesses that bring the ordinary Zimbabwean closer to financial services and solutions through financial inclusion, while building key competencies and capacity along investment value chains.
• Big Grape Capital believes in investing in projects that empower rural smallholder farmers through sustainable income generation, job creation and development, and thus creating a reliable credit pool for Big Grape Microfinance.
• We are currently focused on growing our Chicken Rearing and Investment Self Help Project (CRISP) in Domboshava District.
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The market for broiler chickens is fast growing, leaving significant room for BGC to grow
BG Capital
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2010 2012
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2013 2011 2009
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Domestic production Broiler DOC* production (2007-13) Million chicks
* Day-old chick Source: ZPA
Since 2009, Zimbabwe broiler production has increased 3.5x to 64M
birds per year
• Our 14 farmers currently produce 16MT of meat per month (0.46% of the Zimbabwe market). We have just added an additional 4 farmers who will begin production soon
• We plan to add an additional 50 farmers, which would bring production to 40MT/month (1.44% of the ZIM market) – still only a small fraction of the overall market
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Big Grape is positioned to benefit from growth in domestic small holder broiler production
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Monthly domestic broiler production (metric tonnes of meat)
Small holder farmers
Large scale farmers
BG Capital Source: ZPA
• African Development Bank statistics indicate domestic production accounts for only 55% of demand
• There is a huge opportunity to replace imports with local production
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CRISP engages small holder farmers to grow broiler chicken over a 5 week cycle
Provide training to
farmers (BGC extension
officers)
Monitor farming
throughout the cycle
(BGC extension officers)
Collect birds from farmer
(BGC)
Pay farmer within 14 days
of delivery (BGC)
Slaughter birds (Abattoir)
Market birds (BGC)
Identify small holder farmers
(BGC)
Select & contract farmers (BGC)
Finance inputs: chicken runs,
chicks and feed (BGC)
5 week chicken rearing cycle
BGC’s process oversight roles: • Providing a
guaranteed market for the birds
• Managing the end to end value chain and supply chain
• Providing program management and quality control of bird production
• Providing financial literacy training to farmers
BG Capital
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Each stakeholder brings key resources to CRISP’s poultry farming operation
Big Grape Capital • Market linkages
and off-take relationships
• Access to capital • Experience
managing the chicken rearing cycle
Small-holder farmer • Labour • Land • Security
Abattoir • Slaughtering facility • Distribution of slaughtered
birds • Packaging and branding
BGC Extension Officer
• Technical expertise • Relationships with
farmers
BG Capital
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BGC provides numerous benefits to farmers participating in the CRISP program
1. Access to finance
‒ Finance for infrastructure and production inputs
‒ Access to equipment, including feeders and drinkers
2. Access to training & support
‒ BGC extension officers resident in the area provide assistance
‒ Irvine’s and Profeeds also act as advisors to farmers
3. Guaranteed off-take for the chickens
‒ Full payment for delivered birds as contracted despite market uncertainties
4. Improved financial literacy and income generating potential
BG Capital
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CRISP has made a significant impact on the lives of its members and their families
BG Capital
• BGC farmers are earning on average $4,800/year – these farmers had little or no cash income prior to joining the scheme
• This puts them well above ZIM’s GDP per capita of $905/yr (source: World Bank)
Snapshot as at 26/8/2014
Farmer Name Total No. of Rearing Cycles
Total No. of Birds Produced
Average Mortality Rate per Cycle
Average FCR per Cycle
Average Dressed Weight
per bird produced
Average Pay-‐out per Cycle
Infrastructure Loan size
Nhamo E 4 6097 3.12% 1.865 1.21 $ 880.97 $ 3,275.49 Nhamo M 3 4682 2.40% 1.1 1.35 $ 926.57 $ 3,275.49 Fuze 6 8954 3.24% 1.48 1.32 $ 809.75 $ 3,327.99 Chidobera 5 6907 9.62% 1.644 1.25 $ 387.55 $ 3,316.49 Marimo 1 1552 3.90% 1.29 1.9 $ 623.01 $ 3,314.93 Ngwerume 2 2692 4.85% 1.75 1.29 $ 585.16 $ 2,325.99 Chikorowondo 4 5937 7.42% 1.585 1.32 $ 908.72 $ 1,787.43 Nhamo F 3 4579 4.60% 1.74 1.18 $ 542.22 $ 3,380.49 Mungate 3 4581 5.15% 1.52 1.22 $ 536.38 $ 3,744.93 Chinyani 4 6015 5.72% 1.60 1.23 $ 480.07 $ 2,903.99 Nyakonda 4 6283 2.33% 1.67 1.27 $ 856.07 $ 3,311.49 Edna Dongo 0 $ 3,162.99 Makunde 2 3078 3.75% 1.42 1.25 $ 830.72 $ 999.39 Gombera 1 1557 2.70% 2.2 1.09 $ (115.27) $ 1,757.87 Nzirawa $ 999.39 Sanyika $ 1,403.68 Kudakwashe $ 620.00
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An average Farmer can generate $4,100/yr of cash income for themselves. BGC receives a return of 230%/yr
BG Capital
Revenue (1600 birds @ 5% mortality): $6,047
Less Costs:
Cost of day old chicks $1,200
Starter $682 Grower crumps $552 Grower Pellets $1,104 Finisher $863
Total feed $3,201
Vaccines $13 Poultry medication $108
Transportation-feed $140 Transportation- livebirds $150
Total cost per 1,600 birds $4,811
Profit from chicken rearing $1,235
Less BGC charges:
BGC Management Fee (5% of input costs) $241 Chick commission $160 Feed commission $320
Total BGC charges per 1600 birds: $721
Farmer income: $515
Less infrastructure loan repayments: (paid by farmer for first 12 months only)
$184
Farmer Income after loan repayments: (first 12 months only) $331
Unit economics: representative example of small poultry farm profitability per cycle
• Feed makes up 66% of overall costs for chicken rearing
• Each chicken run consumes 3.7 tonnes of feed for every 5 week cycle
• BGC generates $721 of gross profit per cycle off a base of $4,811 of invested capital
• This equates to a monthly return of 7.2%, or an annual return of 230%
• Each project runs 8 cycles per year – chicken rearing takes 5 weeks and the run is rested for 2 weeks between each batch of chickens
• Bird mortality rate is the key driver of project profitability
• 5% mortality is a conservative estimate, current mortality rates are 4.3%
• Farmers generate $515 of cash income per cycle – equates to $4,100/yr
• Farmer receives a loan of $1,130 to build their chicken run
• The loan is paid off in 8 installments at an interest rate of 2.5%/month – this equates to an annualised return of 34% for BGC on these infrastructure loans
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Agenda
• Background on Big Grape Holdings
• Business overview: Big Grape Micro-Finance
• Business overview: Big Grape Capital
• Big Grape’s Value Proposition
• Appendix
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Our business model is aligned with our goal of financial inclusion for the informal sector
• The two sides of our business harness the potential of the informal market: • Chicken Rearing and Investment Self-Help Project (CRISP) • Traders and SME loans
• Strategic and operational infrastructure in place: • Management team • Operational systems and procedures for credit
assessment, processing, disbursement and collection • Flagship Microfinance Branch • Existing database of small scale farmers and informal
traders
• Raised funding through developmental initiatives • AIZ/Technoserve Award Winner • Create Fund Beneficiary
A proven, integrated business model
The capabilities needed to expand our footprint
Experience accessing low cost financing
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Expansion opportunities for Big Grape
1. Big Grape’s existing poultry farmers provide an immediate consumer pool for other financial services, including: • Asset financing – farm equipment, home appliances etc. • Consumer loan – school fees and medical fees loans, emergency loans • Micro insurance • Transactional services – money transfer and payment services • Savings and investment services
2. Big Grape’s existing informal market trader base provides an immediate distribution channel (and market) for third party products • Database of 315 Mbare traders dealing in fresh and dried food products • Opportunities for micro-consignment models for commodities ranging from timber and
steel, to soya chunks and dried fish
3. Big Grape can extend the CRISP program across the country to other rural districts, targeting the youth, women and the populous at large.
4. Opportunities to invest in the poultry supply and value chains – specifically cold-chain facilities • Invest in abattoir facilities with guaranteed supply through CRISP farmers • Placing 5 farmers/week à 7,752 birds/week à process at least 1,550 birds/day
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Agenda
• Background on Big Grape Holdings
• Business overview: Big Grape Micro-Finance
• Business overview: Big Grape Capital
• Big Grape’s Value Proposition
• Appendix
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Agenda
• Background on Big Grape Holdings
• Business overview: Big Grape Micro-Finance
• Business overview: Big Grape Capital
• Appendix
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Investment risks and mitigation strategies
Risks Mitigation strategy
• Default rates on loans rise above historical levels
• Daily collections through in-house and independent agents
• Prudent provision levels • Credit Insurance
• Inability to find a sufficient number of bankable loan recipients
• Create bankable loan recipients through initiatives such as the CRISP program
• Work with established informal trader organisations
• The Regulator introduces a cap on interest rates
• Raise cheaper sources through developmental funding sources based on the social impact of our projects
• Increase in mortality rates as existing chicken runs age and/or disease outbreak
• Expand the production capacity of existing farmers by funding the completion of new houses
• Bring on new farmers, from different areas on to the program
• Inability to find suitable abattoir facilities for the new birds
• Invest in own abattoir facilities – BGC has current applications for funds with SNV and RVO – Facility for Sustainable Entrepreneurship and Food Security
• Side marketing of birds becomes more prolific
• Conduct autopsies on birds reported as deceased • Provide immediate cash payment on delivery • Alleviate farmer cash shortages by giving them
access to credit facilities
Big
Grape Micro
Finance
Big
Grape Capital
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Sensitivity analysis: loan default rates and bird mortality rates are the key profitability drivers
Bird mortality rate: 12.5% 10.0% 7.5% 5.0% 2.5% 0.0%
CRISP project NPV ($274,687) $157,679 $590,046 $1,022,412 $1,454,778 $1,887,145
CRISP project IRR (3%) 33% 70% 109% 151% 197%
Bird mortality rate: 12.5% 10.0% 7.5% 5.0% 2.5% 0.0% Farmer income
(excluding loan repayment) $37 $196 $355 $515 $674 $833
Farmer income per cycle (after loan repayment) ($146) $13 $172 $331 $490 $649
BGMF loan default rate 12.50% 10% 7.50% 5% 2.50% 0%
BGMF project NPV -$599,603 -$564,643 -$402,596 $61,445 $1,201,595 $3,797,014
BGMF project IRR negative negative negative 37% 232% 490%