LEASE ADMINISTRATION, PORTFOLIO MANAGEMENT AND
REPORTS
INCREASING AGRICULTURAL PRODUCTIVITY THROUGH INNOVATION
AGRICULTURAL MECHANISATION LEASING PROJECT
MODULE CONTENT
►Lease Administration
§ Database
§ Contracts Registration and Management
►Portfolio Management
►Report
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LEASE ADMINISTRATION
DATABASE
CONTRACTS REGISTRATION AND
MANAGEMENT
4/7/22 No 3
LEASE ADMINISTRATION DATABASE
►Purpose: to support Back Office (Lease Administration) Dept. in performing their
duties to high standards and on time:
§ Easy access to important pieces of information related to leases
§ Not missing deadlines
§ Spotting omissions and violations early enough
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LEASE ADMINISTRATION DATABASE CONT’D
►Desirable functionality
§ Centralized database
§ Supports many users simultaneously
§ Tracks and records each user’s actions
§ Limits user’s access and edit rights to screens and fields based on user’s
ID/branch/department/role
§ Automatic backup of data in regular intervals
§ Automatic alarms and reminders
§ Attachment of documents
§ Link with core system to escalate missed payments
§ Generates reports
►IT medium
§ MS Access, MS Excel
§ Core system
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CONTRACTS REGISTRATION AND MANAGEMENT
►Register contract at core system
►Enter the following into the Lease administration database:
§ Contract number
§ Loan officer (Account manager)
§ Lessee contact data
§ Asset type and identification number
§ Supplier
§ Payment/invoice dates and amounts
§ Insurance policy renewal dates and due amounts
§ Regular inspection dates
§ Regular monitoring dates
►Set automatic reminders on each relevant date:
§ Payment date
§ Inspection date
§ Monitoring date
4/7/22 No 6
CONTRACTS REGISTRATION AND MANAGEMENT -EXAMPLE
4/7/22 No 7
NPL MANAGEMENT – EARLY WARNING SYSTEM
PREVENTIVE
ITEMS
COLLECTIONS INSPECTIONS REMARKETING INSURANCE TERMINATION
KEEP EYES
OPEN AT ALL ASSURE IN CONDITION OF
AUTOMATED ROUTINE FORCE ASSET
TIMES
PERSONAL
TOUCH SURPRISE SLV SCHEDULE
DEFICIENCY
8
NPL MANAGEMENT – EARLY WARNING SYSTEM
►Based on information from regular monitoring and collection of information from
other internal or external systems (usually automatic)
§ Non-performing status on other contracts with DBE
§ Non-performing status at other financial institutions from the Credit Bureau
§ Failure to renew asset insurance on time
§ Failure to perform properly the asset’s annual servicing procedure on time
§ Failure to get into contact with lessee after several attempts
§ Failure to host a regular inspection (monitoring) from DBE
§ Deteriorating interim financials
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NPL MANAGEMENT – EARLY WARNING SYSTEM CONT’D
§ Loss of important clients
§ Damage of in important asset
§ Lawsuit
§ Inspection by tax authorities with a negative outcome
§ Showing on any public blacklist of debtors
§ Negative publicity
§ Macroeconomic/political/regulatory concerns related to the specific sector of
industry
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ADMINISTRATION*
►Administration of leasing contracts has its specifics.
§ Lessors keep track of scheduled servicing of the underlying assets and require
proofs from the lessees that it has been duly performed.
§ In addition, lessors make sure that all necessary insurance policies are renewed on
time.
§ Some types of tractors (on pneumatic tires) intended to occasionally use the road
network to move from one farm to another – require to be registered with the road
traffic authority and receive a license plate.
o These are subject to annual re-registration.
►Moreover, all leasing contracts are required to be registered with the appropriate
registration organs at the regional or city level.
4/7/22 No 11
REPOSSESSION*
►Repossession of the leased asset is the ultimate feature which is used when all
other efforts have failed.
►The repossession procedure normally follows the civil procedure code and differs
across jurisdictions.
►Repossession should be easiest in leasing as compared to all other types of lending
since the lessor keeps a share of ownership in the underlying asset.
►In the current political environment in certain regions, it is difficult to repossess
capital goods on defaulting contracts.
4/7/22 No 12
REPOSSESSION (CONT’D)*
►After the asset is repossessed, the lessor has several options: It can either re-lease
it to a new lessee or sell it to the supplier (if there was a buy-back agreement signed)
or send it back to the supplier to include it in its sales campaigns (if there was a
remarketing agreement signed).
►Alternatively, it can be sold on the secondary market (but this will incur additional
time and costs for the lessor).
►However, in all cases, except when leasing the repossessed asset to a new lessee,
the lessor will have to levy VAT on the sale. Furthermore, if the new buyer is not
entitled to duty free privileges, the import duty will have to be added to the price,
making the asset even more expensive.
4/7/22 No 13
SERVICING*
►Under the AMLP, DBE keeps (a part of) the ownership of the asset until the last
payment and always wants the lessee to keep best care of the asset for reasons:
1. If the asset is repossessed, it must be in perfect condition, to achieve the
maximum price possible, as its sale will have to cover the remaining lease
balance.
2. Any unauthorized repair/modification of the asset or even failure to show up for
the regular technical inspection at an authorized garage will void the warranty.
►Lessors should keep track of scheduled inspection dates and make sure lessees
fulfill their obligations.
4/7/22 No 14
PORTFOLIO MANAGEMENT
4/7/22 No 15
PORTFOLIO MANAGEMENT
►Portfolio management is:
§ constantly track/measure lease portfolio and
§ observe limits set forth in Lease (Credit) policy (single lessee limits and group exposure) and
§ take corrective measures when limits are violated
►Limits might be set per:
§ Product
§ Geographical region/branch
§ Underlying crop/animal species
§ Supplier
§ Producer
§ Insurance company
§ Type of machine
§ Type of client – ASP vs farmer, start-up vs existing business, company vs individual, etc.
§ Type of project – irrigation vs rainfall
§ Exposure to a group of connected entities
§ Lease duration
§ And so on
4/7/22 No 16
PORTFOLIO MANAGEMENT (CONTINUED)
►Limits are reviewed and updated at least annually
►In case of violations or when approaching the limits:
§ Market measures to encourage desirable leases or discourage undesirable ones:
o Pricing
o Required down payment
§ Campaigns: actively attracting lessees from desirable
regions/crops/assets/products, etc.
§ Temporary suspension of undesirable leases
4/7/22 No 17
PORTFOLIO REPORTING
►Up-to-date and easy to generate reports which break portfolio by:
§ Product
§ Geographical region, area, zone, woreda or at least branch
§ Loan officer/Risk manager/Underwriter
§ Type of asset
§ Supplier
§ Producer
§ Insurer
§ Price, down payment, grace period
§ Lessee and related parties
§ Type of project
§ Underlying crop/animal
4/7/22 No 18
HOW RISK MANAGERS (ALCO) SET PORTFOLIO LIMITS
►Observe and analyze:
§ Political trends
§ Economic developments, measures, policies, trends, analyses, predictions
§ Regulatory interventions
§ NPL per category
§ Own portfolio for skew, excessive exposures, disproportions
►Decide on desired shares and set maximum limits, taking into account:
§ Current shares in portfolio
§ Correlation between sectors, products, etc.
§ Other strategic or tactical considerations
4/7/22 No 19
REPORTING
►Establish a repossession and resale system (SA)
►KPIs
§ AMLP portfolio
§ AMLP quarterly disbursements
§ NPLs
§ AMLP equipment repossessed (value and number) and re-leased
§ Loss om AMLP equipment repossessed
§ Lease processing time to delivery to lessee
4/7/22 No 20
MONITORING OF LEASES
►Reports from the MIS:
§ Live portfolio by product, currency, maturity, asset type, repricing frequency, etc.
§ Maturity of insurance policies and annual maintenance by contract
§ Maturity of lease instalments prior to each payment date
§ Regular monitoring maturity by contract
§ Lease assets (live and historical)
§ Arrears by lease contract and days past due, grouped by client or related clients
4/7/22 No 21
ACCOUNTING TREATMENT FOR LEASES
ACCOUNTING TREATMENT FOR LEASES
►Class discussion
►Per leasing proclamations
►IAS 17
►IFRS 16
►NBE Reporting formats
AGRICULTURAL CYCLES AND MECHANIZATION
NEEDS
8. AGRICULTURE CYCLES & MECHANIZATION NEEDS (FELIX OR OTHER AGRI EXPERT)
►Dealing with agricultural clients and financing investments in mechanization,
several aspects and planning factors have to be considered:
AGROECOLOGY SOIL CAPITAL BUSINESS MANAGEMENT
REQUIREMENTS ACTIVITY SKILLS
LAND CAPITAL MANAGEMENT
FARM
INFRASTRUCTURE OWN CAPITAL TECHNICAL SKILLS FINANCIAL SKILLS
CHARACTERISTICS
4/7/22 No 25
8. AGRICULTURE CYCLES & MECHANIZATION NEEDS
►Knowledge of the cropping cycle and cropping seasons allows to maximize the
use of agricultural machinery:
Stubble Deep
Cleaning Ploughing
Seedbed
Harvest
Preparation
Plant Planting &
Protection Seeding
Fertilizer
Application
4/7/22 No 26
8. AGRICULTURE CYCLES & MECHANIZATION NEEDS
Stubble Deep Seedbed Planting &
Cleaning Ploughing Preparation Seeding
4/7/22 No 27
8. AGRICULTURE CYCLES & MECHANIZATION NEEDS
Fertilizer Plant
Harvest
Application Protection
4/7/22 No 28
8. AGRICULTURE CYCLES & MECHANIZATION NEEDS
►Combining knowledge of the agricultural cycle, required machinery per work step
and regional differences, enables timely procurement and monitoring:
4/7/22 No 29
8. AGRICULTURE CYCLES & MECHANIZATION NEEDS
►Basic understanding of agricultural features, crop cycles and seasons, all directly
affecting the farmers’ revenue streams, is important for DBE’s underwriting to
mitigate one main risk:
o Credit risk
►Once Understood, DBE can:
o Ensure timely delivery of machinery
o Closely monitor clients to detect potential problems and defaulters early and take
appropriate action
o Consider granting a grace period on a case-by-case basis
o Structure repayment of the rental according to seasonality of the cash flow
4/7/22 No 30
8. AGRICULTURE CYCLES & MECHANIZATION NEEDS – GIZ BUYERS’ GUIDE FOR AGRICULTURAL MACHINERY
4/7/22 No 31
8. AGRICULTURE CYCLES & MECHANIZATION NEEDS – GIZ BUYERS’ GUIDE FOR AGRICULTURAL MACHINERY
►Technical and user-oriented document: Make use of it!
4/7/22 No 32
8. AGRICULTURE CYCLES & MECHANIZATION NEEDS – GIZ BUYERS’ GUIDE FOR AGRICULTURAL MACHINERY
►Useful for a variety of actors:
4/7/22 No 33
8. AGRICULTURE CYCLES & MECHANIZATION NEEDS – GIZ BUYERS’ GUIDE FOR AGRICULTURAL MACHINERY
►How does it work?
§ The guide presents basic principles of various agricultural field operations
§ General properties, functionalities, capabilities and quality aspects of different
agricultural machineries, covering various field operations are explained
§ The guide recommends agricultural machinery specifications for different field
operations, based on tractor classes, suitable for the Ethiopian context.
§ The guide provides an approach for basic economic assessment of agricultural
machinery investments.
§ Machinery suppliers can use the guide to stock agricultural machinery that is
relevant and appropriate for Ethiopia. They can also use the Buyers’ Guide in their
sales talks with potential customers to help them identify the most appropriate
machinery for their needs.
4/7/22 No 34
8. AGRICULTURE CYCLES & MECHANIZATION NEEDS – GIZ BUYERS’ GUIDE FOR AGRICULTURAL MACHINERY
►How does it work?
§ Buyers (where necessary with external technical advice) find recommended
machinery specifications and economic calculations for selecting the appropriate
product on the market.
§ The buyer and the financial institution furthermore use the guide in justifying the
proposed investment, determining its economic viability.
§ Government organisations and development partners can base their support
activities to different stakeholders on the information presented in the guide, in
order to promote quality mechanisation services which will be profitable for
mechanisation service providers as well as smallholder farmers.
4/7/22 No 35
8. AGRICULTURE CYCLES & MECHANIZATION NEEDS – GIZ BUYERS’ GUIDE FOR AGRICULTURAL MACHINERY
►The Guide provides a six step approach towards an agricultural investment:
4/7/22 No 36
THANK YOU
►Open Discussions and Closing
►Post Questionnaire
►Evaluation
►Certificate of Participation
►Group Photo
4/7/22 No 37