developing a social business model in rural hubei
TRANSCRIPT
Global Young Leaders Programme February 2011
1
Five-year development plan for Integrated Farmers’ Association of Heshuiping Region,
Jianshi County, Hubei Province, China
TABLE OF CONTENTS
2
Contents Page Number
1. Executive Summary 3
2. Background 10
3. Objectives 21
4. Scope & Approach 23
5. Business Model 28
6. Financial Services 36
7. Governance 46
8. Production & Marketing 60
9. Community Services 72
10. Implementation Plan 76
11. Risk Assessment and Mitigation 80
12. Recommendations 82
13. Appendices 85
EXECUTIVE SUMMARY
3
Executive Summary – Background
• The Integrated Farmers’ Association of Heshuiping Region (IFAH) was founded in 2008, covering six villages, namely Nongke, Fengxiangshu, Yangliu, heping, Chunfang and Cacapo, in Sanli Township, Jianshi County.
• IFAH aims to protect the interests of farmers, enhance the knowledge and skills of farmers, advance agriculture modernization, increase farming revenues and improve the livelihood of farmers, develop rural economy and social business, advance rural community development and bring forth a new rural governance structure.
• IFAH’s mission is aligned both to the Chinese Government’s efforts, and the Sanli Township’s 5 year development plan to enhance living standards and income of the community
• YLP participants were tasked to create a business model that includes rural governance to aid sustainable development in Sanli township.
Executive Summary – Business Plan
• A 5-year plan is proposed, with recommendations made on the governance and financial model for IFAH, changes to crop aggregation and community outreach programmes
• A starting capital of RMB 1,000,000 is needed in the first year for the credit department, and in five years, the cumulative capital will be RMB $169,000,000
• Breakeven is expected in the second year
• Gross Profit of RMB 4,300,000 is expected in the third year eventually extrapolating to RMB 7,100,000 in the fifth year
• Average household income from farming is expected to increase by 25% within 2 years of implementation
• Overall migration from rural to urban areas is expected to decline, based on asset building and enhanced farming income
Demonstrating business viability for future extension of the proposed IFA model
Executive Summary – Operational Recommendations
• Finance – Introduce the Finance & Investment, and Credit Functions as IFAH’s
sole vehicle for provision of financial services – Utilize money remitted by migrant workers to enhance IFAH’s capital
base
• Production and Supply Chain – Review supply chain for pig farming, so as to aggregate and increase
revenue for farmers and IFAH – Review crop/land allocation and expand fragrant rice production
Multi pronged approach to enhance income to farmers
Executive Summary – Operational Recommendations
• Governance – Review IFAH team composition; enhance management bandwidth,
governance, risk management and transparency – Review member leadership structure, from geography based leadership
to functional/crop based groups – Enhance internal checks to ensure benefits to farmers
• Community Services – Set up mechanism to train farmers on more effective farming, with a view
to enhancing the overall average household income – Enhance healthcare awareness and cultural & educational activities – Provide framework for creating positive environmental impact, e.g. waste
collection
Enhance IFA governance and community services
• The 5 year plan aims to: – Enhance the average household income from farming in the Heshuiping
region (year 1 and 2) and eventually to the Sanli township (years 3 onwards) by 25% within 2 years of implementation
– Empower smallholder farmers by building confidence to join the professional groups and support IFA
– Demonstrate that the model can be replicated across townships and eventually at the county level
– Make rural vocation/farming attractive thus reducing the migration of workers to urban areas
– Improve environmental awareness, and have a positive impact on the local environment
Executive Summary
BACKGROUND
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China – A society built upon agriculture
• For over 8000 years, China's smallholder farming agricultural base has played a key role in supporting the growth of what is now the largest population of the world
• Since 1978 and its open market reforms, China has
become the world’s largest producer and consumer of agricultural products; Currently, it produces 30% of the world’s corn, 25% of the world’s cotton, 37% of the world’s fruit and vegetables and half of the world’s pork
• Structural changes to the economy - despite the healthy
expansion of the agricultural sector, the even faster growth of the industrial and service sector during the reform era has begun to transform the rural economy from agriculture to industry and from rural to urban
10
Source: http://www.iiasa.ac.at/Research/SRD/pdf/IR-03-007.pdf
1978 – Decollectivization (free market reforms)
1953 – Commune System
7500 BC – Domestication of rice/ rise of farming communities and accumulation of wealth
Globalization and the growing rural-urban divide
China’s rapid economic development and industrialization has created a growing gap between rural and urban areas
– China’s urban population has increased from
18.96 per cent in 197 to 46.60 per cent in 2009 – Per capita disposable income for urban residents
was RMB 17,175 compared to RMB 5,153 for rural residents
– Decrease of rural labor force – 80% to 50 % in less than thirty years
• The reported urban: rural income ratio is currently 3.35:1 but in reality, the disparity could potentially be as high as 6:1
11
Source: Consulting Center for Farmers’ Associations (CCFA)
Globalisation and the growing rural-urban divide
• To find additional income, there has been an exodus of 200-300 million rural migrants into developed coastal provinces and industrial cities as migrant workers
– The migrants are mostly male and represent over a quarter of the rural farming population; an average of 1 per household
• Rural-urban migration together with the expansion of industry has resulted in the a) Breakdown of traditional village social structures (elderly and
children being left behind), b) Continual decline of economic sustenance (local farming activities
plummet because of lack of labor, knowledge, leadership), and c) Deterioration of the environment (urban sprawl and industry
development impacts) • Families, crops, and land are abandoned for the seemingly more viable
option of urban life
12
A new way forward for rural China
• Currently, smallholder farms have little capacity to benefit from the
opportunities presented by the growth in the agricultural sector because each farmer is allocated only 1.826 mu of farmland (less than 0.1 ha per capita)
• However, if rural communities can successfully scale the collective efforts of
these farmers, the economic potential is over 100M mu of land (1/18 of China’s arable land) and can provide a solution to the widening gap between urban and rural areas
13
A new way forward for rural China
• Current efforts in China:
– Policy support is close to 1 trillion per year of funding coming from central government to improve infrastructure, living condition, production capacity, social services
– Microfinance schemes to address bottom of the pyramid funding for smallholder farmers
– Structural change both in the form of pilot grassroots farming programs and research-led technological innovation
Yet there is still a need for a modernization
model that addresses rural sustainability in a holistic manner, and serves the
smallholder farmers.
14
15
The Integrated Farmer’s Association of Heshuiping (IFAH) was formed in ApriI 2008 as a strategic partnership between:
1. Chinese Academy of Social Sciences Policy Research Center, Consulting Center for Farmer’s Association (CCFA) led by Professor Yang Tuan
2. China Youth Development Foundation 3. Bright China Group 4. China Social Entrepreneur Foundation
With the support of the Integrated Rural Development and Governance Pilot Programme Office, IFAH aims to be the first model of rural governance that:
i. integrates the experience of farmers’ associations in East Asia with the local best practices of asset-based development
ii. acts as an intermediary between government bodies and the farming community that serves the wellbeing of smallholder farmer economies in rural China
Integrated Farmer’s Association of Heshuiping (IFAH)
16
a) Distribution b) production c) Supply
a. Education b. Cultural
activities
Financial services
Social services
The IFA Model from East Asia and its Potential for China
Source: http://www.iiasa.ac.at/Research/SRD/pdf/IR-03-007.pdf
The Heshuiping model is based upon over 5 years of CCFA research on existing IFA’s in Taiwan, Japan and Korea. Current East Asian IFA’s have several core functions including:
• Needs provision – Farmers centered • Social enterprise function – Asset building, separation of authority and function, internal wealth allocation • Collective operation – High efficiency • Agriculture extension and education
The success and adaptation of the IFA pilot program in China can push forward social structural change in China to ensure
• The sustainable development of society • Protect the ecology and environment • Protect people’s health • Curb corruption and ensure the effectiveness of policies • To promote civil society and realize democracy
Core Functions
17
IFAH Membership Overview
• Currently, IFAH covers six villages in the Heshuiping region of Sanli Township, which is part of the 37 townships which make up Jianshi County.
• It has 5000 members from 1320 households which make up approximately 60% of the regional resident population
Heshuiping region
Community IFAH Members Percentage
No. of villages 6 - -
No. of member groups - 64 -
No. of households 2050 1320 64.3%
No. of people 8180 5000 61.1%
Strengths
• Strong support from Govt: Sanli mayor keen on agriculture development
• Existing association and buy-in of farmers
• Support from Consulting Centre for Farmers Association (CCFA)
Weaknesses
• Limited management bandwidth
• Limited financial resources
• Farmers not aware of potential benefits
Opportunities
• Aggregation of products and services, e.g. pig farming produce, to improve livelihoods
• Introduction of additional services like healthcare, insurance
• Expanding beyond 6 villages
Threats
• Scattered progress beyond the initial 6 villages covered
• Lack of demonstrable achievement of IFAH in the immediate future
• Inability to attract and retain talent
• Funding difficulty
SWOT Analysis
Problem Statement
19
Key issues identified:
• Prevalent poverty in the farming community in Heshuiping region, current estimates of average household farming income (excluding remittances) at around RMB 3,000 annually
• Lack of economic progress, accentuated by lack of access to capital, resources and technology
• Limited effective governance framework, management expertise, and weak institutions
• Limited economic opportunities locally leading to an exodus of workers to urban areas and resultant social issues
• Poor environmental awareness, and adverse impact on local environment, leading to long term issues
Need for effective rural governance to help enhance farming income
OBJECTIVES
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Objectives
21
• To alleviate poverty among the rural farmers in the Heshuiping area • To create a framework and mechanism for effective rural governance and
sustainable growth • To create a sustainable rural credit model for smallholder farmers
• To increase local household income from farming by utilizing better practices and by aggregating local produce
• To stem the emigration of workers to urban areas, and to enhance opportunities for asset based growth locally
• To empower smallholder farmers • Create a framework that can be replicated in other townships and counties • To enhance overall societal and environmental development
Creating a sustainable rural economy…
SCOPE & APPROACH
22
Scope
• One farmers’ association for one township • Focus on Sanli Township in Jianshi County • Covers estimated 37 villages
1 Township, 1 IFA
• Four key areas: • 1) Governance 2) Production & Marketing • 3) Finance 4) Community Services & Benefits
• Adapted from the East Asian models of Farmer’s Associations (FA) from across Taiwan, Japan and Korea
5-Year Development Plan for IFAH
• Two main stakeholders: • The government of Jianshi County and the Integrated
Rural Development and Governance pilot programme office
• Consulting Center for Farmers’ Associations (CCFA)
Implementation Plan for IFAH and Stakeholders
23
Scope of the business plan includes the following three essential elements:
Key Considerations for Business Plan Realisation
24
• The Business Plan is a key tool for IFAH to address immediate risks and opportunities and implement the core building blocks to achieve its objectives
• The Business Plan is NOT immediately intended to attract external investors as IFAH do not have the requisite governance structures and resources to move to immediate implementation
• The 5-year plan is focused on incubating the notion of self reliance through existing available financial services by piloting business operations expansion to the 37 Villages within the Sanli Township
• Upon successful realisation of the benefits of the pilot, the model can potentially be tailored to be scaled to Jianshi County as part of the next stage of business expansion
Approach and Methodology
• GIFT scoping & preliminary due diligence for Global Young Leadership Program (YLP)
• Global YLP participants reviewed the background and the current approach of IFAH
• Interviews, meetings and field visits with key stakeholders: – Government Officials (county and township) – Village Heads – Member Group Leaders – Farmers – IFAH Management – CCFA Members – Bank Representatives
7-9 Dec 2010
19-21 Feb 2011
19-23 Feb 2011
• Briefings and brainstorming • Calibration and clarification with key stakeholders • Project planning and mapping • Business plan development
22-23 Feb 2011
22-23 Feb 2011
23 Feb 2011
23-24 Feb 2011
Workshops on global issues
Briefings on background Field visits
Debriefing & Discussion
Final clarification with relevant parties
Organizing & Mapping
Agreeing on Content
Continuing inputs from
stakeholders Business
plan
Inspiring speakers YLP & IFAH Farmers & IFAH
YLP team Various par8es YLP team
YLP team YLP team
Approach and Methodology
YLP team
BUSINESS MODEL Integrated Social Enterprise Performance Indicators Benefits
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A model of integrated and profitable social enterprise
1) Self-sufficient revenue model:
– New credit financing business capitalizing on remittance and deposits from migrant workers
– Collection and distribution of key agricultural output
– Fragrant rice growing investment
2) Supporting governance model to ensure management transparency and farmers interests are protected
3) Delivery of community service for improvement of rural livelihood
Sustainable Livelihood & Social Impact
IFA
Agricultural Supply Chain
Supported by Overarching Governance
Finance Services
Fully Integrated Business Model Across Revenue and Cost Drivers
Integrated FarmersAssociation (IFA)
IFA CreditDepartmentFunding
Sources
1) Current Sources (Shih Wah Ching Foundation and Matching Government Grant2) Consolidated Village Government Grants3) Urban Migrant Income Contribution4) Credit Lending Interest on Re-Payments5) IFAH & Co-Operative Membership Fees6) Project Income7) Other Sources (Rural Credit Union/HSBC/Rabobank etc.)
ManageFund Pool
ProductCo-Operatives /Product Groups
IFA Management
FUNDS
Decision Making,Governance &
Government Support
Social/CommunityServices
Social/CommunityServicesFarmers
Farmers
X% AllocationFor
Lending
X% AllocationFor Projects
Interest onRe-Payments
X% AllocationFor Social/Community
Services
Agricultural ExtensionProjects
Agricultural ExtensionProjects
ProjectIncome
AgriculturalActivities
AgriculturalActivities Agricultural
Products
AgriculturalProducts
BuyersBuyers
Sell ProductsAt Margin
Payments
60% Re-invested into IFA Funds20% Cover off Administration Costs
20% Farmer Benefit based on Shareholdings
Undertake supervisedAgriculture Production
TechologyKnow-How
ProjectsSupport
AgriculturalActivities
ProductsConsolidated
at Co-Ops
…enables positive return in the long term
IFAH’s Main Business Revenue Projections
• Revenue from projects over 5 years:
30
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
1 2 3 4 5 6
Revenue(other)
Revenue(production)
Revenue(credit dept)
Revenue(membership fee)
31
• Annual Net Income Growth in year 4-5: 26% • Breakeven Point: 2 year • Achieving more than RMB 4 million in year 5
IFAH’S NET INCOME GROWTH FOR 5 YEARS
Growth potential is very high
(1,000,000)
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Net Income
32
5-Year P&L Projections of IFAH
Consolidated Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Revenue(membership fee) 31,540 37,540 100,107 162,673 231,497 Revenue(credit dept) 110,000 513,805 2,068,157 5,316,377 10,631,862 Revenue(production) 250,000 1,475,000 5,020,000 5,900,000 6,520,000 Revenue(other) 39,600 105,600 171,600 237,600
Total revenues 391,540 2,065,945 7,293,864 11,550,650 17,620,958 Costs (credit dept) 100,000 622,842 2,235,780 5,167,480 9,711,154 Capex (production) 600,000 750,000 750,000 750,000 750,000
Total costs 700,000 1,372,842 2,985,780 5,917,480 10,461,154 Gross Margin (308,460) 693,104 4,308,084 5,633,170 7,159,804 -79% 34% 59% 49% 41% Expenses
expense(credit dept) 91,600 117,960 272,473 352,491 460,910 expense(community) 2,000 76,000 119,000 241,000 329,000 expense(production) 54,000 258,000 516,000 774,000 1,032,000 expense(HR) 50,000 146,000 146,000 146,000
Total expenses 147,600 501,960 1,053,473 1,513,491 1,967,910 Operating Profit (456,060) 191,144 3,254,610 4,119,679 5,191,894
Other gains or losses 0 0 0 0 0 Income Before Taxes (456,060) 191,144 3,254,610 4,119,679 5,191,894 Dividend (20% of IBT) 0 38,229 650,922 823,936 1,038,379 Net Income (456,060) 152,915 2,603,688 3,295,744 4,153,515
33
Benefits Financial: • Increase average household income by 25% • Increase revenue and productivity through better
utilization of resources and aggregation of products & IFAH Financial Services
Community: • Enhanced and more effective rural
governance • Train farmers to enhance knowledge on
agriculture products and techniques • Improve public health awareness • Greater engagement and social interaction
34
Benefits
Social: • Increase opportunities for enhance living
standards, using local resources effectively • Reduce migration of workers to urban areas
Environment: • Enhance sanitation • Improve river water quality • Enhance soil quality by
promoting use of organic fertilizer
GOVERNANCE
35
Framework
Sustainable Rural Farmer Livelihood
& Social Impact
Board & Organizational
Structure
Risk Management
Social Responsibility
Transparency & Decision Flow
36
.
37
Execu8ve Director
Product Group 1
Product Group 2
Product Group 3
General Assembly
Execu8ve Board
External Auditors
9
Village 1
Village 2
Village 6
Village X … 37 6
… Same structure per
village
Product Group 4
Key: [] – 1-‐2 yr 8meline
[] – 5 yrs 8meline
Headcount
IFA Governance & Communications Structure
Supervisory Board
3 93
Ac8vity Group 1
Ac8vity Group 2
Ac8vity Group 3
Ac8vity Group 4
Ac8vity Based Groups
Audit
Governance & Decision Making
Implementation
81
IFA Group Communication Model
IFA Village Groups
- Not all are IFA members
- Not all belong to an Activity Based Group
- Led by a village head
Activity Based
Groups - All are IFA
members - Bonded together by common goals - Led by a group
head
38
Activity-Based Group (ABG) Who: Self-governance grassroots entity formed by farmers who share the same agriculture product/activity and volunteer to lead in the ABG
What: Facilitating two-way communication between IFA and farmers, between EB and farmers
How: -Financial and community services are delivered to farmers through ABG and EB’s decisions are acted upon through ABG.
-Farmers’ opinions and concerns are pushed up to IFA or EB by ABG.
Why: smaller group size + shared interests = stronger bond among farmers
§ Decision flow § Opinion /product flow § Service flow
FARMERS
ABG
EB IFA
Key:
Roles and Responsibility in IFA
General Assembly
- Elected by village representatives - Elect board of directors - Review and approve annual budget - Vote on direction and major projects of IFA
Executive Board - 9 farmers elected by the General Assembly (GA) - Not more than half can hold village level administrative role - Call general assembly - Reviews the annual budget
Executive Director
- Evaluated by Government, CCFA and one nominated EB member on an annual basis - Government secondee/ Non-IFA member - Leads all IFA projects and initiatives - Review and develop annual plan
Supervisory Board
- 1 farmer and 2 independent directors - Ensure decisions are executed and capital allocated as planned
IFA Election Process
41
42
EXECUTIVE DIRECTOR
Human Resources &
Admin
Finance & Investment
Community Outreach & Environment
Produc8on / Supply Chain
Public Affairs
Credit 2 1 6 1 7 2 4 1
2 1
IFAH Management Team Structure
7 4
[] – 1-‐2 yr 8meline
[] – 5 yrs 8meline
Staff Headcount
Critical to the success of implementation for the 5-year plan, effective utilization of human
resources needs to be made.
Key:
KEY AREA/RESPONSIBILITY CENTER GA EB Executive Director
• Project launch - Approve Review
• Annual Budget Approve Review Implement
• Capital/Asset allocation - Approve Review
• Partnership agreement (with Cooperatives etc) Approve Review Implement
• Dividend payout Approve Review Implement • Social/community investment - Approve Review • Lending rate - Approve Review
• IFA Borrowing - Approve Review
Decision Flow
• Designed to ensure clear and transparent decision making • Ensure Farmers’ welfare is considered in all decisions (General Assembly as the main voice of farmers) • Provides measures to mitigate risk and fraud
Increased executive board empowerment
KEY AREA / RESPONSIBILITY CENTER GA EB ED Investment/procurement * > 50,000 (amounts above)
21,000 - 50,000 (amounts in range)
< 20,000 (amounts below)
√
√
√
Loan Amount > 40,000 > 20,000 > 10,000 (* NB: Range to the start of superior’s)
√
√
√
Audit report √ IFA staff recruitment and layoff √ ED recruitment and layoff √
Authority Flow
• NB: (*) Amounts will increase on an upward adjustable scale and approved by the general assembly with the growth and expansion of IFA
• Highlights key decision makers’ level of authority in specific key areas usually prone to fraud & lack of transparency IFA to take equity stake in
the coorperatives
Process Scenario Decision Making & Approval
For a typical procurement or investment decision to be made, a scenario-based approach is presented to exemplify decision and authority flow. Aim: - To ensure implementation of best management practice
- Keep approval conditions set and properly documented
- Remain mindful of time required for processing and release of funds
NB: (*) Amounts subject to increase as organization grows.
FOR REFLECTION: THE ORGANIC FERTILIZER PLANT CASE
IFA Integration/Partnership with Professional Cooperatives • Common assumptions
– Smallholder farmers can see and benefit from the integration/partnership of IFA and cooperatives
– Both IFA & the cooperatives see value in integration/partnership – Main driver for partnership/integration is financial
• What IFA brings to the table – Access to investment and lending funds – Strong government relationships and support – Robust governance and management structure – Provide economies of scale in production capability (by enabling consolidation of
small holder assets) and access to potentially larger markets
• How IFA can benefit from the Cooperatives – Transfer of technology and know how – Access to current established distribution channels – Access to established brand/marketing – Provide economic benefits for small holder & revenue stream for IFA
IFA Integration with Professional Cooperative as a Shareholder
Executive Director recognizes potential
partnership opportunity
Potential investment/partnership opportunity presented to Executive
Board & General Assembly
General Assembly to decide
whether to participate
Yes
No
IFA injects capital investment into cooperative & becomes a shareholder in
the cooperative
IFA appoints a representative to the cooperative board/
management team, approved by Executive Board
IFA mobilizes smallholder farmers & enables
communication between parties
Farmer benefits by selling produce
back to cooperative
IFA benefits in profit sharing
Gat
e St
age
Beg
inni
ng
Res
ults
Cooperative shares technology/know-how to appropriate smallholder
farmers
Rural Investment by Government: recommended improvement
48
Central Government
Provincial Government
Prefecture Government
County Government
Township Government
Village Committee
IFA
Farmers
Government Project Funding Current funding route for social security projects:
Distribution of project funding through township government and
village committee
Key areas: - Health care - Social security - Pension - Infrastructure development - Education
Proposed funding route for new community related projects:
contract based outsourcing of government projects to IFA
Key areas: - Environmental management, including waste collection, land regeneration - supplies shop - Elderly care - Rural community integrated service center - Health education - Women organisation - Cultural activities
Key benefits: - Improved efficiency - Community ownership - Self-governance : payment by farmers to cover part of the cost -Reduced corruption
FINANCIAL SERVICES
49
FINANCIAL SERVICES - OVERVIEW
• Focus on 5 Key Financial Services to enable a sustainable and profitable Business Model
• Existing Mutual Assistance Schemes in Villages (eg. Ca Ca Bo and Yang Liu) will eventually be absorbed into the IFA Financial Services Model
• Undertake Central Claims Processing for Tobacco Farmers
• Supported by sound supporting processes for Financial Accounting, Financial Controls and overall IFA Governance Model
• Enables effective collection, analysis and management of key demographic information to support the Public Affairs Function
50
FinancialServices
Micro-Finance
SavingsScheme
Capital MutualAssistance
Scheme
FinancialEducation &Awareness
Central ClaimsProcessing
Short Term Services (1 to 2 Years)
Services provided progressivelyover 5 years
Creating Value-Add and Streamlining Current Financial Services
51
FINANCIAL SERVICES – CAPITAL MUTUAL ASSISTANCE SCHEME
• Short Term (1-2 years) Financing Scheme to fund Start-Up Capital
• Pooling together smaller amounts from farmers (approximately RMB500 to RMB2000) with matching funds (up to RMB500) from the government
• Funds used for Micro-Finance without collateral at an annual interest rate of 7 to 10%
• Loan Term up to 12 months
Critical Step To Achieve Economic Self Reliance
• Micro-Finance Loan amount RMB 5,000 to RMB 50,000 (without collateral)
• Loans > RMB 50,000 will be secured through the Rural Credit Union under a strategic partnership with IFA (with collateral)
• Adjustable Interest Rates based on Credit & Income Profile of Farmers
• Term Loan of approximately 1 year to 5 years structured through short term repayment
• Providing convenience through empowerment of the IFA Group Heads
52
FINANCIAL SERVICES – MICRO-FINANCE
Credit Function
FarmersFarmers
Group Heads
Credit Processing CreditDisbursements
Credit Control
Credit Manager
Submit ApplicationsFor Approval
After Credit ChecksCompleted Approved
Applications
Offer andSigning of Offer
Letter & Agreement
FundsDisbursement
(Cash/Remittance)*
Submit ApplicationForms for Processing
Provide andCollect
Application Formsand Provide Education
& Awareness
Provide andCollect
Application Formsand Provide Education
& Awareness
Credit Monitoringand Control
FUNDS
* Cash/Remittance to be used for Short Term. Once IFA obtains licence to receivedeposits the amount will be remitted directly to the farmers IFA Savings Account
53
FINANCIAL SERVICES – SAVINGS SCHEME
• Key integrator of Product Co-Operatives into IFA Business Model through means of investment and shareholdings
• Facilitates establishment of strategic relationships with Commercial Banks/Credit Unions
• Receive Deposits from farmers and migrant workers paying out an annual interest rate of approximately 2.6%
• Providing convenience through aggregation of savings accounts maintained with multiple financial institution
• Pooled Deposits to contribute to micro-financing and investment opportunities
• Providing farmers visibility and transparency of summary financial status and other activities through technology enablement (e-Farmer Kiosk)
• Longer Term (> 5 years) scale to promote IFA as Integrated Service Centre i.e. provide services to farmers such as direct debit facilities for bill payments
IFA as an Integrated Financial Service Provider
54
FINANCIAL SERVICES – SAVINGS SCHEME
Migrant WorkersMigrant WorkersIFA Banking
AccountFUNDS
FarmersFarmers
Group Heads
Depositsutilised for microfinance
and otherinvestments
IFA Invests inCo-Operative
Product Co-OperativeProduct Co-Operative
Co-OperativeMaintains IFA Banking
Account
Obtain and ReceiveDeposit Instructions & Monies
From Farmers
Deposit Farmers Monies
ObtainDepositReceipt
ProvideDepositReceipts
To Farmers
Withdrawals
PartnerCommercial
Bank
Migrants transact moniesthrough IFA Partner
Public AffairsDepartment
e-Farmer Kiosk
Agricultural SuppliesStore
Agricultural SuppliesStore
Check Financial Status(Savings, Credit)
& Update DemographicInformation
MaintainDemographicInformation
Micro-Finance
AgricultureExtensionProjects
Farmer Sales/Investment
Returns
CommunityOutreach
Programmes
The Savings Scheme is a Key Service Enabler for IFA as it represents the heart of IFA’s business operations in effectively linking farmers, migrant workers, financial partners and co-
operatives in order to achieve supply chain and capital efficiencies and gains
55
FINANCIAL SERVICES – CENTRAL CLAIMS PROCESSING
• Tobacco industry operates as a single monopoly in China through the Chinese National Tobacco Corporation (中国国家烟草公司)
• Central Claims Processing Services provided only to Tobacco Farmers
• Provides scale efficiencies in-line with consolidation of mutual assistance schemes into the IFA structure
• Farmers receive monies faster than if directly interacting with the Tobacco Collection Centres
Finance & InvestmentsFunction
Financial Accounting
Finance Manager
IFA BankingAccount
FarmersFarmersDeliver tobacco crops
and obtain receipts
Deposits moniesdue to farmers
into IFABanking Account Submit
Claims on behalf of farmers
Group Heads
Reimbursement(Cash/Remittance)*
* Cash/Remittance to be used for Short Term. Once IFA obtains licence to receivedeposits the amount will be remitted directly to the farmers IFA Savings Account
Process Claimsand Submit
For Approval
ApprovedClaims
WithdrawReimbursement
Amountsfor Farmers
Tobacco Collection CentreTobacco Collection Centre
Hand over claimsto Group Heads
56
FINANCIAL SERVICES – FINANCIAL EDUCATION & AWARENESS
• Key Service Component which underpins the Financial Services Model and is a key input in the Risk Management Process
• Integral part of Community Outreach Programme by:
– Providing Financial & Debt Management Awareness
– Assisting Farmers to safeguard and take control of ownership over their financial security
– Promote and Provide Education on the Benefits of IFA’s Financial Services
57
FINANCIAL SERVICES – SUPPORTING PROCESS
Financial Accounting • Day-to-Day Financial Operations • Organize Incoming Investments
(Grants etc) and IFA Investment • Manage Disbursement of Funds to
Farmers, Projects, Community Services or other initiatives based on the direction and approval of the IFA Executive Board
• Budgeting & Forecasting Activities • Periodic Financial Reporting
FINANCIAL SERVICES – SUPPORTING PROCESSES
• Organization Structure provides for clear segregation of duties to mitigate risks of fraudulent activities
• Establishment of a Delegation of Authorities Framework
• Supervisory Board and External Auditors provide “check and balance”
58
• Undertaking Stringent Credit Checks (Financial Needs, Family Members, Size of Land, Monthly Income etc.)
• Short Term Repayment of Loans and Credit Profiling
• Monitoring Controls over Loan repayments
Risk Management & Financial Controls Finance Manager
Finance & Investments Function
Financial Accounting
Funds Disbursements & ManagementCentral Claims Processing (Tobacco)
Financial ReportingOperations Finance Management
Savings & DepositManagement
Personal DepositsInvestor/IFA Deposits
Credit Function
Credit Control
Credit DisbursementsTo Applicants
Credit DisbursementCredit Processing
Credit ApplicationProcessing
Demographic InformationManagement
- Maintains Relationship with Financial Institutions - Financial Reporting to IFA Executive Director, Supervisory and Executive Boards - Preparation of IFA Annual & QuarterlyReports - Central Claims Approvals
Credit Monitoring(Loan Defaults,
NPL etc)
Credit Manager
- Credit Application Approvals - Maintains Relationship with Credit Union - Credit Reporting to IFA Executive Director, Supervisory and Executive Boards
PRODUCTION AND MARKETING
59
Production and Marketing Strategy
• Heshuiping is a unique place due to the diverse products it can produce
• In consideration of building community confidence and building up IFAH’s management experience, the five year plan will initially focus on providing support and strengthening the capabilities of farmers going (or already) into breeding pigs and farming rice
• As IFAH’s operational capacities are strengthened and it gains know-how, the organization can refine the model in order to focus on other products
60
Pigs Rice Vegetables Rapeseed
Kiwi Fruit Green Tea Chestnuts Konjac
Potato Tobacco Mandarin Oranges
Develop successful examples of farmers and breeders in high margin products
Key Focus
Improve farmer’s livelihood and IFAH’s profitability through: • Investment in Fragrant Rice production and production volume increase
• Set up of pig farming supply chain collection and sales network
Supply Chain Improvement
Develop IFA brand as quality agricultural produce • Develop Township level branding for Sanli agri produce • Branding transition and inclusion of key commercial produce under single umbrella
Branding Development and Marketing
Effective supply chain and brand awareness to provide new revenue stream for IFAH and farmers
Fragrant Rice: The Potential
• Current fragrant rice production is constrained by lack of processing and warehousing facility
• Limited funding and investment impeding further expansion of Professional Fragrant Rice Cooperative
• Untapped potential of smallholder farmers (3570mu uncultivated land and 1500mu regenerated riverbank area)*
• Positive market condition and return (RMB480/mu for normal fragrant rice, and up to 5-8 times for organic fragrant rice)
* Suitability of rice growing subject to detailed land utilisation study
Fragrant Rice – A key starting point for IFAH demonstration
Fragrant Rice: Enablement of Supply Chain
• Capital investment of RMB 900K for processing and storage investment – Funding: Profession Rice Coop RMB300K + IFAH RMB600K
• Smallholder farmers to venture into fragrant rice growing • Seeding, agriculture technical services assistance, and sales
and distribution through Professional Cooperative • Expected return:
– Breakeven by Year 4 – Profit of RMB 912,000 over 5 years
63
Pig Farming: The Supply Chain
IFAH owns a pig breeding farm. Formation of a supply chain would help the smallholder farmers to strengthen their capacity in pig farming:
• To provide quality piglets for farmers to raise • To provide the logistic services to collect the
pigs from the farmers and sell to the market • Can afford to buy the pigs from the farmer at
a higher price because it is able to get better pricing from consolidating the volume
• This will help to increase the revenue of smallholder farmers
64
Improved revenue of IFAH and smallholder farmers through the scale of economy
Pig Breeding Farm
Pig Farmers
Collection and Distribution
Market
Pig Farming: The Untapped Market
• IFA to provide the new breed of pigs: – Improve the pig’s quality to increase the lean meat and reduce fat – To provide branding and awareness to the consumers on the
benefits of the new pig • Brand the New Breed Pig as Lean from Year 2:
– Able to price the pig 10% above market rate • Brand the Pig as Traditionally-grown from Year 5:
– Able to price the pig 30% above market rate – Requires quality checks to ensure that
the pigs are grown traditionally • Expected return:
– Profit from Year 2 – Profit of RMB 4m over 5 years
65
Branding Strategy for IFAS Products
• Rebranding IFA to Township level inline with expansion plan
• Change the name from IFAH (Heshuiping) to IFAS (Sanli Township)
• Year 1 and 2: transition period – Relying on the existing well known brand,
like 三里香 rice, to promote IFAS. IFAS just appear as an endorsement
– Building a new brand for the Pig farming business
– Introducing IFAS and their products to Government, market and famers through different channels
– Building name awareness gradually
66
Option 1
Option 2
Remark: Logo just for reference only.
Branding Strategy for IFAS Products
• Year 3 – 4: Brand build-up period – Building strong awareness for IFAS – Logo will be used on all products,
Supply stores and other area – Build IFAS website to promote IFA
and all productions – Beginning to establish an affinity and
loyalty to IFAS brand and the products under its umbrella amongst those customers
• Year 5 and onwards – Brand maintenance
67
IFA Logo
IFA + Rice Logo
Sales & Marketing: Target Markets
• IFAH Stores (supply stores and grocery stores) • Local (supermarkets, hotel / restaurant, deeply process factory, and
direct delivery to consumers) • National markets (supermarket / organic food chain outlets in
Wuhan/Shanghai and other cities via strategic partners, such as Carrefour & Wal-Mart)
68
Prioritization of Projects and Allocation of Resources: Long Term Success
69
• Focus on immediate value and business necessities. • Keep the implementation simple, focused on value, and structured
with a plan • Review the existing initiatives • Governance structure must be in place to review the project viability
and business case prior to each investment.
IFAH needs to show results now and any project that could be taking away resources and focus from the organization in delivering value, should either be put on hold or terminated
The Production of Organic Fertiliser as a Revenue Source for IFAH: Further Review Required
70
• IFAH is in the process of setting up a pilot organic fertiliser production facility that converts local organic agriculture waste into organic fertiliser through a fermentation process
• Full-lead Bio Tech in Taiwan is the project partner providing the technology, however they do not have prior experience in China and have not obtained organic fertiliser certification in China
• The technology and design of the production facility needs to be reviewed in accordance with the organic fertiliser certification standard in China to meet all the quality, health and safety requirements. At present, the setup and management of the pilot production facility have not addressed all the requirements. Upon initial assessment, the plant does not appear to be appropriate for the villages.
The Production of Organic Fertiliser as a Revenue Source for IFAH: Market Development in the Future
71
• The organic fertiliser produced by the current technology needs to be sold as a high-end organic fertiliser at RMB 1500-2000 per tonne to justify its cost of production with high-energy demand
• The target market for high-end for organic fertilisers are organic fruits and vegetables producers
• However, the development of a high-end market in Heshuiping region is still in its infancy. Sales channel needs to be developed to market the fertiliser to other places in the county where the fruits and vegetable industry are more mature, but this is not practical or a priority at this stage
• IFAH can play a role in developing the local fruits and vegetables industry through organising production and marketing groups and providing the needed technical assistance and practical know-how in organic farming and supporting farmers to obtain government subsidies for using organic fertiliser.
The Production of Organic Fertiliser as a Revenue Source for IFAH: Next Steps
72
• The project needs professional consultation, and IFAH needs to consider alternatives, including seeking other technology providers in China, and consider other more affordable technologies such as biogas reactor and composting. Field testing needs to be done with professional design and implementation, funded by the technology provider, with third party certification
• Key questions to be answered: - What type of organic waste can be used as raw material? - Are dead animals permitted? - What is the energy needs? - What are the emissions? - Is the fertilizer in solid, liquid or semi-liquid state?
COMMUNITY SERVICES
73
Training Infrastructure Healthcare Cultural Services
Community Services: Aim • Increase yield of production & average household income • Fill crucial knowledge gap on product pricing, technology,
machinery, financial management and business opportunities • Attract migrant workers back to and retain youth in the villages • Improve healthcare awareness and health status • Initiate cultural activities to help engage villagers and improve
livelihood • Enhance environmental awareness and overall living conditions in
the villages • Support innovation in agriculture production and natural farming
74
Create better living conditions through economic and environmental enhancement
Community Services: Actions • Training on agricultural know-how in each village at least twice a year • Training for young generation: highlight the value and opportunity of
livelihood in farming, and learning Chinese and English terms at the same time
• Cultural extension: identify 4-5 volunteers from each village as well as Action-based groups to coordinate activities
• Free healthcare sessions and home visits for members • Waste management initiative: to collect garbage and clean the river
75
Community Services: Resources Needed • 1 coordinator for agriculture extension and administration
– Budgeted for in overall IFAH structure • Budget for agricultural training by specialists/consultants:
– Allocation of 20% of IFAH revenue for community services, membership fees and potentially training grants from banks
• Logistics for rubbish collection (e.g. vehicle maintenance & delivery) – Suggest government to provide funding as part of public service delivery
• Nominal amount as incentive for cultural activity volunteers – ~RMB 2500 per year
• Budget for healthcare, waste collection and miscellaneous training (e.g. healthy aging, farm health tips, cooking a healthier meal, etc.): – Government funding support to be discussed
76
Details available in appendix
IMPLEMENTATION
77
Commence deposit taking & mature to final financing model
Implementation Plan
Setup of credit mutual assistance scheme
Year 1 2 3 4 5 6
Strengthen Governance and Organization
Preparation for Community Services launch
General Assembly
Gradually extend to the whole Sanli Township
Pig Farming Supply Chain Fragrant Rice Production Expansion
Launch of Community Services continued and enhanced
Community Services continued and enhanced
Five-Year Implementation Timeline
Year 1: 1st Quarter (Month 1-3)
2nd Quarter (Month 4-6)
3rd Quarter (Month 7-9)
4th Quarter (Months
10-12) • Establish Finance Awareness & Education Program • Prepare for agricultural training sessions in the 6 villages • Liaise with primary schools to set out training for young generation • Setup of waste collection stations
• Rollout Finance Awareness & Education Program
• Communicate and promote training plans to members
• Source for seed capital
• Setup governance and functional organization structure
• Executive Board to review new governance, board & management structure
• Establish mutual assistance scheme for farmers with matching funds from government
• Apply for training grant
• Collect data on demographics and crop production
• Appoint cultural extension volunteers
• Establish financial, credit and control policies and procedures
• Fill immediate vacancies for Finance, HR & Credit departments
• Train new IFAH staff
• Set up facility for Fragrant Rice
• Plan for communications on the new IFAH model
• Source independent supervisor
• Initiate implementation of waste management
• Launch training sessions on agricultural extension
• Submit application for license to accept farmers’ deposits
• Launch PR project for membership cultivation & new IFAH model
• Set up activity-based
groups
• Seek approval of new structure & IFAH business model by GA
• Recruit additional IFAH staffs
• Finalize production and marketing investment decision
79
Five-Year Implementation Timeline
Year 2
Year 3
Year 4
Year 5
§ Obtain license for and implement savings scheme
§ Establish and implement savings scheme policies & procedures and operations
§ Ramp down Capital Mutual Assistance Scheme
§ Launch of agricultural and healthcare training sessions in 6 villages
§ Launch of cultural extension initiatives
• Purchase of waste collection trucks
§ Launch of waste collection services
§ Conduct annual audit of IFAH business
§ Recruit additional IFAH management (to support expansion)
§ Integrate professional cooperatives
§ Extend fragrant rice production
§ Start cross-bred pig farming & distribution
§ Conduct annual audit of IFA business
§ Introduce waste management program for other villages
§ Review the progress of IFA
§ Extend IFA for another 10 villages
§ Expand agricultural and healthcare training sessions to more villages
§ Elect IFAH executive & supervisory board
§ Seek new sources of funds
§ Conduct training & create promotion materials for other townships
§ Conduct annual audit of IFA business
§ Extend IFA for another 10 villages
§ Evaluate other crops for IFA coverage
§ Seek new sources of funds
§ Review results
§ Conduct annual audit of IFA business
§ Extend IFA to other villages in the Sanli township
§ Seek new sources of funding
§ Implement e-farmer kiosk in agricultural supplies store
80
RISK ASSESSMENT & MITIGATION
81
Risk Assessment Matrix
82
Lack of Alignment of Goals of Executive Board Members
Non-Transparent IFA Administration
IFA Inability to Attract & Retain Talent
Poor Quality of Training
Inability to Attract Farmers to Community Programmes Poor Financial Controls and Risk Management Practices
Capital Reduction Due to High Rate of Loan Defaults
Inability to Secure Funding Poor Quality Agricultural Raw Materials
1
2
3
4
5
6
7
8
9
Pig Livestock Depletion 10
Fragrant Rice Crop Failure 11
5
8
2
3 7
Likelihood
Impa
ct
9
Low Medium High
Low
M
ediu
m
Hig
h
1
4
6 10 11
HIGH Risk
MEDIUM Risk
LOW Risk
The Risk Assessment will enable IFA in prioritising activities as part of the implementation of the 5 Year Plan in order to effectively and efficiently mitigate risks, in a timely manner, which could threaten the viability and sustainability of the social
business venture
KEY RECOMMENDATIONS
83
84
Key Recommendations
1) Introduce the Finance & Investment, and Credit
Functions as IFAH’s sole vehicle for provision of financial services
2) Establish Savings Scheme and utilize money remitted by migrant workers to enhance IFAH’s capital base
3) Provide outreach programmes to promote IFAH’s financial services and assist farmers to safeguard their financial security
1) Review supply chain for pig farming, and develop
business in pig collection and distribution to increase revenue for farmers and IFAH
2) Review crop/land allocation and expand fragrant rice production
3) Seek professional consultation for Organic fertilizer project, and alternatives, including seeking other technology providers needs to be considered
4) Review the business model of agriculture supplies store to ensure long-term business sustainability
1) Set up mechanism to train farmers on more
effective farming, with a view to enhancing the overall average household income
2) Enhance healthcare awareness and cultural & educational activities.
3) Provide framework for creat ing posit ive environmental impact, e.g; waste collection, organic fertiliser.
1) Review IFAH team composition; enhance management bandwidth, governance, risk management and transparency
2) Review member leadership structure, from geography based leadership to functional/crop based groups
3) Enhance internal checks to ensure benefits to farmers
FINANCE PRODUCTION AND MARKETING
COMMUNITY SERVICES GOVERNANCE
Key Success Factor – Government Support • Government may consider working with IFA as its strategic
outsourcing partner to execute government-funded policies/projects because IFA is owned by farmers and acts on behalf of farmers.
• Government outsourcing is on the rise. IFA may consider establishing a company (eg. JV) to undertake some government projects.
• The Central Government just issued the policy of supporting agriculture professional cooperatives last year. IFA may consider how to leverage government support in this area.
• Responsibilities of township and county pilot program office must be clearly defined. Township office works closely with IFA to address IFA’s concerns. Meanwhile county office focuses on seeking more government funding and projects for IFA and refrains from direct involvement in township IFA operation unless requested.
APPENDIX
86
A. IFAH Stakeholder Chart B. Key Assumptions C. Governance D. Finance E. Production & Marketing F. Community Services G. Risk assessment and Mitigation
IFAH STAKEHOLDER CHART Appendix A
87
88
Stakeholder Map Current New
Key:
1) Board/General Assembly 2) Pilot Programme Office (County) 3) Consulting Centre for Farmers’
Association 4) Local Banks/ Credit Union
5) Bureau of Agriculture 6) Ministry of Education
1) Credit Cooperatives 2) Local Banks/Credit Union
3) Private Investors
Advisory & Governance Finance
Partners
IFAH
1) Smallholder Farmers 2) Rice Cooperatives
3) Member Group Head/Village Head 4) Mutual Assistance Cooperatives
5) Employees
6) Other Cooperatives 7) Other IFA
8) Media
KEY ASSUMPTIONS Appendix B
89
Key Assumptions
90
• The scale to achieved within the 5 Year Timeframe is Sanli Township (37 Villages)
• The 5 Year Plan will become an integral component of the Sanli Township 5 Year Plan
• 1 IFA for 1 Township Model will be adopted • Group Heads will be empowered with some administrative and
advocacy/awareness activities • Resource support will be provided by the various partnering
Financial Organisations in the form of secondments and awareness & education
• Farmers will be willing to pay for specialist training for re-skilling and skills enhancement
• Healthcare and Insurance Programmes will be funded solely through IFA Profits
Key Assumptions… Cont’d
91
Assumptions over 5 year timeframe Measurements Land Measurement 0.093 Hectares is equivalent to 1mu
Average Inflation Rate 4.25%
Average Salary Increment 6%
Average Personal Taxation Rate 5-10%
Average % of Asset Costs allocated for Maintenance Costs 5-15%
Capital Mutual Assistance Loan Interest Rate 7-10%
Deposit Interest Rate 0.5%
Loan Default Rate Per Year 1.5% of disbursements
Average Increase in Household Income 17%
Approximate Fee for Skills Enhancement Classes Per Year RMB100
Cost Per Household Per Year for Waste Collection RMB 60
IFA Profit Allocation for Healthcare & Insurance Programme 4% (2% each)
Average Agricultural Taxation Rate 0%
91
GOVERNANCE Appendix C
92
General Assembly*
• Elected by village representatives • 2/3 of the members should be farmers • Term: 4 years • Members are not allowed to be hired/recruited by IFA • Responsibilities
– having the ultimate authority – making and changing IFAH chapter – electing & dismissing executive board members – reviewing business report and financial report – defining and changing membership fees and capital allocated for
social services – reviewing & approving the annual budget
• Held once every year, ad hoc meetings can be initiated by 1/3 of representatives or by Executive Board
93
*Unpaid positions
Executive Board*
• Number: 9 farmers • Term: 4 years and two terms is the max. • Requirement: • -All agri-products and villages must be represented. • Responsibilities:
– calling general assembly and acting upon GA’s decision – electing and dismissing Chair – approving & reviewing performance of Executive Director – reporting to the General Assembly on IFA – hiring external auditors to do annual IFA auditing – reviewing the annual budget – setting the strategic direction for IFAH (social & economic growth) – making investment decisions, – making loan decision on loan amount above 40k RMB
• EB members must meet at least every quarter.
94
*Unpaid positions
Supervisory Board*
• Number: 1 farmer & 2 independent directors • Term: 4 years and two terms is the max. • Requirement: • - at least one independent director is a businessman with no conflict of
interest. The other one can be a NGO representative (eg. CCFA ). • Responsibilities:
– making sure all decisions are executed and capital allocated as planned.
– SB must hire external accountant to do auditing, hiring external auditors to do annual IFA auditing
– act as check and balance for all EB activities and decisions • SB members must meet at twice a year.
95
*Unpaid positions
Group Head*
• Profile: farmer with crop-specific technologies and in-group trust and respect
• Responsibilities: – training group members in agricultural extension – representing the interests of group members – advocating finance and credit awareness (with a key focus on the
saving scheme) – undertaking basic finance and credit administration tasks – coordinating social services delivery on behalf of IFA – passing on key decisions of GA/EB to group members
96
*Unpaid positions
Executive Director
• Requirements: – full time paid position – either recruited openly or a government secondee (paid for by the
government) – non-IFA member
• Term: 4 years & maximum of two terms • Responsibilities:
– acting upon EB decisions – leading IFA work – developing annual plan – recruiting, laying off and training IFA staff – performance evaluation of IFA staff – held accountable to EB
• Performance Management: – Evaluated by Government, CCFA & one nominated Executive Board
member
97
Compensation Guidelines
• Current average monthly per capita income in the area is RMB1500 • Migrant workers have mentioned that they will consider staying if they can
earn at least RMB1500 monthly in their village/home town • Recommended salary guidelines as follows
98
Basic Monthly Variable Bonus~ Entry (eg accountant)
1500RMB 0.5-1 months*
Mid level (eg manager)
2000-2500RMB 1-1.5 months^
Senior (eg Executive Director)
3000RMB – 4000RMB
1-2 months#
~dependent upon IFA’s financial performance *Based on individual performance ^Based on department performance #Based on overall performance
Funding Sources of the County Government
Area Funding Project Development and investment of rural China
40 million RMB • Community infrastructure • Community service
Water utilities 20 million RMB • Potable water • Water irrigation
Soil revitalization 5 million RMB • Riverbank regeneration Livestock 3 million RMB • Pigs, sheep, cattle Infrastructure 12 million RMB • Road Food security 1 million RMB Special industry 2 million RMB
5 million RMB • Vegetable • Fruit
99
FINANCIAL SERVICES Appendix D
100
Finance Services
• Excel reference 1: credit department model credit department financial model_zl_222.xlsx
• Excel sheet 2: combined financial model combined financial model.xlsx
101
Finance and Credit Department - Savings Scheme Awareness Plan • Objective: to raise awareness amongst farmers and migrant
workers of the benefits of making deposits into IFAH • Team: Village Heads and migrant workers will be the ones to
mobilize the Awareness Plan – Village Heads have the connections within the villages i.e. they are on-the-ground – Migrant workers have the money and will understand how other migrant workers
think to encourage them to make deposits
• Incentive: Team is motivated through a commission based compensation plan to attain as much deposit as possible
• Training: IFAH will train the team to promote the Savings Scheme Awareness Plan
• Timeline: IFAH will cover 6 villages for the first 2 years and add 10 villages each year
* Larger resources are needed during Chinese New Year when all migrant workers return to their home.
102
COMMUNITY SERVICES Appendix E
103
1) Training -- Agricultural Extension
• Contents for knowledge enhancement: – Better selection & use of fertilisers, pesticides, machinery/equipments,
soil, water – Improving quality of land, and current crops/animals by technology – More productive land use and environmental management – Raising other crop/animals, off-season planting
• Infrastructure required to start, maintain, harvest & sell to market
• Cost concern – Product pricing, understanding of
market, & avenues to reach market – Work safety (e.g. posture) – Business & job opportunities
104
• How to achieve knowledge enhancement: (a) Conduct “Train-the-trainer” programs for each village:
– Agricultural specialists or local successful farmers àà train village heads & some farmers àà train all farmers
– Quality, effective & affordable (low-cost) program – Approx. frequency of training (depends on type of produce):
• Busy farming season: 1 class every 2 months x 6 villages = 36 classes/year
• Off-season: 1 class every month x 6 villages = 72 classes/year
(b) Sharing of latest best practices & technology among villages: – Regular sharing by all 37 village heads – Sharing sessions to be led by IFA – Non-hostile & non-over-competitive environment is key for sharing
105
1) Training -- Agricultural Extension
• Resources: – 1 coordinator for agricultural extension and administration – 3 contract trainers as specialists from CCFA & Bureau of Agriculture – Training materials from CCFA & Bureau of Agriculture, with input from
local village heads & cooperatives – Training grant from Bureau of Agriculture & Agricultural Bank – Note: the China Social Entrepreneur Foundation is no longer providing
any resource to IFAH
• Timeline: – Year 1: preparation, Year 2: start training at 6 villages,
Year 3-5: expand to cover all 37 villages
106
1) Training -- Agricultural Extension
• Goal: – Expose school children to farming as a profession in a fun way starting
from youth • About:
– Farming as an important profession in society and for the country – Take ownership and respect your land – Science & new technology in farming – Learn simple Chinese & English names of farming products
• How: – Mini-farming time as part of the regular curriculum in Labor Technology
Training course or Chemistry course – Year 1 - 2: Liaison with primary schools for the villages & curriculum
preparation Year 3 - 5: Implementation in schools that serve the villages
107
2) Training – Young Generation
• Reference: – Taiwan IFA model to carry out
similar programs in schools
• Resources: – 1-2 advisors with honorarium
from CCFA & Ministry of Education
– Training materials from IFA & CCFA
– Free for children to attend, as part of regular school class
108
2) Training – Young Generation
3) Infrastructure:
a) Surveillance and healthcare services Problems: Current personal and public health
awareness is very limited How: – Surveillance
• Continue current efforts of annual health checks
• Survey of the health and socioeconomic status of all villagers (via e-farmer kiosk in IFAH Agricultural Supplies Stores)
à Help in data collection & record for future planning with Sanli Township
– Healthcare Training (see next slide)
109
110
Member farmers & their families
IFA
Health awareness
workshops & home visits
Actions: • IFA takes the initiative to organize free sessions on: ü Health promotion & disease prevention ü Waste management ü Farm health tips ü Child-rearing health tips ü Healthy aging • Mobilize participation via announcements of upcoming sessions at IFA General Assembly, agricultural training sessions and supplies stores
To help members & their families develop a healthier lifestyle, and therefore healthier villages
3) Infrastructure: Healthcare training
Timeline: • Year 1: Preparation & promotion • Aim by Year 2: 6 villages • Aim by Year 5: 37 villages
3) Infrastructure
b) Collection of non-organic waste (plastic, cans, glass) – How:
• Provision of waste bins for non-organic waste • Designated day, each week, at each household • Trucks to bring waste to new garbage station in each village • Utilize the 6 small trucks & 2 big trucks already in IFA planning • New village regulations (e.g. no rubbish throwing to river) • Year 1: preparation & station setup; Year 2: start collection
– Resources: • Training housewives & restaurant chiefs to take initiative • Activity-based groups & member group leaders to encourage &
monitor behavior • Cost for trucks & drivers/collectors, garbage bins & building
waste stations • Apply to township as public service program & for funding
111
4) Cultural Activities
• Goals: – Preserve culture of each village, Heshuiping region & Sanli township – Provide a platform in each village for all members to gather &
communicate – Mobilize and encourage participation in village activities
• How: – Organizer: Identify 4-5 women in each village to take the lead in
organizing and promoting cultural activities – Access: Identify 1-3 locations in each village that are convenient to all
village members to go to and participate in the activities – Contents: Regular and fun activities for children, adults and the elderly – Resources: Utilize existing cultural assets (e.g. dresses) in the village
112
RISK ASSESSMENT AND MITIGATION
Appendix F
113
Risk Assessment & Mitigation
114
No. Risk Functional Area
Likelihood Impact Risk Mitigation
1. Lack of alignment of goals of IFA, the Government and Independent Directors
Governance MEDIUM HIGH 1. Define clear roles and responsibilities of each role in the IFA Governance Structure
2. Rotation through election of key roles in Executive Board and Supervisory Board
3. CCFA to play an intermediary role in any disputes or alignment issues
2. Lack of transparency of the administration of IFA
Governance MEDIUM MEDIUM 1. Establishment of a strong corporate governance model, transparency in systems, processes, decision making with clear roles and responsibilities and segregation of duties embedded in the organisation
3. Inability to attract and retain talent within the IFA Management Structure and maintain a healthy attrition rate
Governance HIGH HIGH 1. Implementation of competitive staff remuneration packages & welfare schemes and training
Risk Assessment & Mitigation
115
No. Risk Functional Area
Likelihood Impact Potential Risk Mitigation
4. Poor quality of training
Community MEDIUM MEDIUM 1. Recruitment of skilled trainers through secondments from agricultural institutions, institutions of higher learning
2. Collaborate with Government to establish measurement tools and techniques
5. Inability to attract smallholder farmers to attend training, healthcare, insurance and agricultural extension programmes
Community LOW MEDIUM 1. IFA to promote awareness of benefits through Group Heads
2. Implementation of periodic awareness and training sessions
6. Lack of confidence of investors in profitability of venture and supporting risk management and control processes
Finance & Credit
MEDIUM HIGH 1. Establishment of robust financial and risk management policies and procedures with clear segregation of duties and delegation of authorities framework embedded in the Finance & Investments and Credit Functions
Risk Assessment & Mitigation
116
No. Risk Functional Area
Likelihood Impact Potential Risk Mitigation
7. High rate of loan defaults resulting in progressive reduction of capital
Finance & Credit
LOW HIGH 1. Implementation of credit rating system, robust credit collection & monitoring processes and a short term re-payment model
8. Inability to secure funding to commence implementation of IFA’s business objectives
Finance & Credit
MEDIUM HIGH 1. Secure strong investors with rural financing experience and long term social view
2. Aggressively educate farmers on benefits of contributing to the short term Capital Mutual Assistance Scheme
9. Lack of supply of quality raw materials (e.g.. seeds, agriculture supplies etc.)
Production & Marketing
LOW MEDIUM 1. IFA to source from alternative suppliers and implement quality control over raw materials selection process
Risk Assessment & Mitigation
117
No. Risk Functional Area
Likelihood Impact Potential Risk Mitigation
10. Disease and poor sanitation conditions leading to pig livestock depletion
Production & Marketing
LOW HIGH 1. Implement stringent sanitation and hygiene practices in the pig farms including quality control checks on operational practices
2. Promote awareness to farmers on the need of high levels of sanitation and hygiene
11. Crop failure impacting profitability of fragrant rice business operations
Production & Marketing
LOW HIGH 1. Explore opportunities for insuring against crop failure as pilot programs are currently being implemented in China where such insurance is characterized by material cost-based coverage and government-subsidized premiums
2. Implement robust process for awareness, education and climate/terrain evaluation prior to land utilization for fragrant rice production
118
Acknowledgements This Business Plan has been put together by 21 members of the Global
Institute For Tomorrow (GIFT) Young Leaders Program - Hubei 2011. The GIFT YLP team would like to thank the government representatives
from Jianshi County and Sanli Township, the farmers from Heshuiping region, IFAH, as well as Professor Yang Tuan and her research team at CCFA for their dedication and support.
We hope that in drawing collectively upon our expertise and passion as
a team, we have been able to contribute to the successful implementation of this important and valuable project.
TOMORROW MATTERS.
119