INCENTIVES FOR FINANCING THE AGRICULTURAL SECTOR

To Financial Institutions CIRCULAR NO. 113

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Circular No. 113 | To Financial Institutions

Pursuant to Articles 83 and 161 of the Law of May 14, 2012, concerning banks and other financial institutions, and Article 14 of the Law of June 26, 2002, relating to savings and credit cooperatives, the Bank of the Republic of Haiti (BRH) issues this circular to provide incentives for the financing of the agricultural sector.

This circular applies to banks, development finance companies, leasing companies, savings and credit cooperatives, and all financial institutions designated by the BRH.

With a view to contributing to the revival of agriculture and the development of agribusiness, this circular defines a credit facilitation mechanism designed to incentivize financial institutions to meet the credit needs of actors throughout the entire value chain of the agricultural sector in the form of loans. This mechanism aims to facilitate access to credit for agricultural entrepreneurs, any natural or legal person undertaking agricultural, agro-industrial, or agri-food activities, any agricultural cooperative, and any concessionaire or user of agricultural free zones.

Under this mechanism, the loans granted by the financial institutions targeted by this circular aim to finance the following initiatives:

1. The integration and organization of agricultural spaces into duly delimited and authorized "agricultural free zones";
2. The installation, development, and/or improvement works: of essential infrastructure for the proper functioning of agricultural operations (well drilling, irrigation and drainage, watering, etc.) and of agricultural free zones;
3. The acquisition, installation, development, and/or improvement works of agricultural machinery and equipment such as: tractors, plows, crushers, pumps, seeders, combines, mowers, etc.;
4. The acquisition, installation, development, and/or improvement works, and the operation of factories or units for the conservation and transformation of food or agricultural products;
5. The installation, development, and/or improvement works, and the operation of livestock systems (poultry, mammals, fish, and others) and the production of derivative products (eggs, furs, milk, dairy products, etc.);
6. The production of any type of agricultural produce, and livestock, fishing, aquaculture, and forestry products, beekeeping, etc., as well as products from all other sectors related to agriculture and agribusiness.
7. The provision of agricultural services such as plowing, the sale of inputs, seeds, and agricultural materials and equipment, the marketing of harvest and post-harvest services, and the packaging of agricultural produce, as well as agricultural logistics, consulting, standardization, marketing, and insurance brokerage services when applied to agricultural, agro-industrial, and agri-food activities.

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Circular No. 113 | To Financial Institutions

1. Definitions

Under this circular, the following definitions apply:

a) Farmer A person whose activity, usually carried out independently, is mainly dedicated to (1) cultivating the soil to produce plants beneficial to humans and suitable for animal breeding (plant production) and (2) potentially to animal breeding (animal production).

b) Agriculture A set of plant and animal production activities. Plant production activities include, among others: fruit and vegetable cultivation, cereal, oilseed, legume, and tuber cultivation, viticulture, fruit tree cultivation, floriculture, forestry, etc. Animal production activities include, among others: breeding of large and small livestock, fattening, beekeeping, fishing, pisciculture, etc.

c) Greenhouse Agriculture Agricultural production carried out inside a greenhouse, i.e., a fixed or removable glass or plastic structure where optimal growing conditions are met to cultivate fragile or exotic plants, protect delicate seedlings, and accelerate the production of certain fruits or vegetables and flowers.

d) Agri-food (Food Industry or Agri-food Sector) A set of industrial, transformation, and elaboration activities for food productions originating from agriculture or fishing, and their packaging into industrial foods intended primarily for human consumption, generally through appropriate distribution and marketing channels.

e) Agribusiness A sector that, in addition to agri-food, includes all industrial enterprises that supply the agricultural sector with products such as pesticides, fertilizers, and machines. It includes enterprises that transform productions from agriculture, fishing, and forestry into non-food products, such as biofuels (or agro-fuels made from non-fossil organic materials) and industrial biotechnologies (which use new agricultural biotechnologies for environmental protection).

f) Aquaculture The cultivation of aquatic plants and breeding of animals living in an aquatic environment (freshwater, brackish water, marine environment).

g) Agricultural Production Block or Associative Farm An agricultural operation formed by grouping land belonging to several people in the same geographic area to optimize agricultural production activities under the management of an agricultural entrepreneur.

h) Free Zone Concessionaire A natural or legal person who has obtained free zone status by concession from the State.

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Circular No. 113 | To Financial Institutions

i) Agricultural Cooperative A cooperative that undertakes agricultural production activities (plant and/or animal), marketing of agricultural products, or sale of agricultural services, from which members anticipate an economic advantage. It is a grouping of people, not capital. To be authorized to operate, the agricultural cooperative must be approved by the National Council of Cooperatives (CNC).

j) Agricultural Campaign Credit Short-term agricultural credit contracted to meet liquidity needs arising during an agricultural campaign. It is generally allocated to the following operations: plowing/soil preparation, purchase of inputs (seeds, fertilizers, pesticides), sowing/weeding operations, picking or harvesting, grape harvesting, etc.

In the case of animal production, agricultural campaign credit is specifically intended for the purchase of livestock for fattening and the purchase of animal feed, the financing of a broiler chicken production cycle, or the financing of any animal production cycle of less than one year.

k) Hydroponic Culture A soil-less cultivation technique (without natural soil) that uses a specialized environment (consisting of renewed nutrient solutions) for the production, among others, of fruits, vegetables, and flowers.

l) Market Gardening The cultivation of vegetables, certain fruits, certain fine herbs, and flowers for food use. It is a professionally organized culture, often with a profit-oriented perspective.

m) Permanent or Perennial Crops Crops that have a vegetation cycle of several years. As an example, coffee, banana, plantain, pomegranate, passion fruit, cacao plantations, and floriculture are considered perennial crops.

n) Fattening Fattening and grazing of certain types of animals for butchery.

o) Agricultural Entrepreneur A natural person who has obtained a license from the Ministry of Commerce and Industry to undertake agricultural production activities in the context of an associative farm or the management of an agricultural production block.

p) Agricultural Operation An economic and agricultural production unit (plant or animal) meeting the following criteria: (1) it includes "all animals found there and all land used, entirely or in part, for agricultural production, regardless of the type of possession, legal mode, or size"; (2) it represents an operation that "may contain one or more blocks, located in one or several distinct regions or in one or several territorial or administrative regions provided they share the same production means such as labor, farm buildings, machinery, or draft animals used on the operation"; and (3) it is subject to unique management that "may be exercised by an individual, by a household, jointly by two or more individuals or households… or by a legal person such as a company, collective enterprise, cooperative, or state body."

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Circular No. 113 | To Financial Institutions

q) Free Zone User A natural or legal person authorized to develop an activity within a free zone.

r) Orchard Land of more or less large area planted with fruit trees of one or several varieties.

s) Agricultural Free Zone A set of clearly delimited and fully fenced agricultural spaces where a special customs and tax regime applies under the supervision of the General Administration of Customs, with the aim of promoting the production and transformation of agricultural produce, livestock, and the production of derivative products, and the installation of all essential infrastructure for the production or transformation of agricultural produce.

Investments made in agricultural free zones aim at agricultural production for export.

2. Agricultural Credit Facilitation Mechanism

Financial institutions that have approved, according to their policies and procedures, an agricultural credit application, as defined in this circular, will be eligible for BRH financing for said credit. For the implementation of this facilitation mechanism, the following elements are to be considered:

• The BRH will grant advances in gourdes to the financial institution, according to its category, with a duration that may be:
  • Short-term (less than one year) for the financing of agricultural campaigns;
  • Medium-term (from one year to 5 years) for the financing of agricultural activities, the establishment of basic infrastructure necessary for the proper functioning of agricultural operations, the acquisition of agricultural equipment and materials;
  • Long-term (more than 5 years) for the financing of loans for agro-industrial projects, agricultural free zones, greenhouse agriculture, hydroponic agriculture, orchard development, seasonal or perennial crops, the establishment of infrastructure on agricultural operations, etc.
• The volume of credit granted to a client under this program from BRH advances must not exceed the equivalent in gourdes of four million United States dollars (USD 4,000,000.00). It is understood that financial institutions must at all times respect prudential ratios.
• BRH advances for the financing of agricultural production campaign credits will be made on a portfolio basis, with a minimum amount of one million gourdes (HTG 1,000,000.00) per advance.
• For the financing of long-term projects, the financial institution must submit to the BRH the project documents on which it relied to approve the credit application.

Financial institutions must ensure that agricultural operations have the basic infrastructure necessary for production before executing the financing of any production campaign. Consequently, the first refinancing for which an agricultural entrepreneur (as defined in this circular) or a farmer will be eligible under this facilitation mechanism must be mandatory for the installation of basic infrastructure (well drilling for irrigation, irrigation systems, and packaging and/or storage spaces for produce, etc.) if they do not yet exist. The borrower must then benefit from a grace period before repayment, the duration of which is to be determined.

3. Participation Modalities by Category of Financial Institution

3.1. Banks and Development Finance Companies (SFD)

3.1.1 Medium and Long-Term Loans: Banks and SFDs are eligible for advances, under the aforementioned conditions, for medium and long-term loans intended for the financing of agricultural service offerings, agro-industrial enterprises, or projects aiming at:

a) The establishment of agricultural free zones, b) Agricultural production under greenhouse or soil-less conditions, c) The development of orchards or perennial crops, d) Industrial livestock farming, and e) The establishment of medium and long-term agricultural enterprises.

The annual interest rate of BRH advances will be between 1% and 2% at the date of their grant and will be maintained for the entire duration of said advances.

Banks and SFDs will use BRH advances to finance medium and long-term agricultural activities at interest rates not exceeding 6% per annum.

3.1.2 Short-Term Loans or Campaign Credit (Agricultural Production): Banks and SFDs may use BRH advances to directly finance any agricultural campaign loan greater than five hundred thousand gourdes (HTG 500,000.00). The interest rate must not then exceed 6% per annum.

Banks and SFDs may also use BRH advances to lend to non-mutualist microfinance institutions (IMFs) that finance agricultural production campaign activities. Information concerning the list and location of these activities, as well as the duration of the production campaigns to be financed, must be submitted to the BRH when requesting refinancing. This will be approved on a portfolio basis according to the conditions defined in Section 2 of this circular. In this case, banks and SFDs must enter into a formal agreement with non-mutualist IMFs to ensure (1) the application of interest rates not exceeding 15% per annum on agricultural production campaign credits and (2) compliance with the other terms and conditions of this circular.

The interest rate charged by the BRH to banks and SFDs in the context of financing to IMFs will not exceed 4% per annum.

3.2. Savings and Credit Cooperatives (CEC)

CECs may also obtain advances from the BRH which they will allocate to the refinancing of campaign credits allocated specifically to farmers and agricultural entrepreneurs. In this case, BRH advances to CECs will be made on a portfolio basis, and the minimum amount of each advance will be one million gourdes (HTG 1,000,000.00). CECs must at all times respect prudential ratios.

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Circular No. 113 | To Financial Institutions

CECs may also allocate BRH advances to medium-term credits intended to finance the offering of agricultural services as well as projects for the transformation of agricultural produce.

The annual interest rate of BRH advances will be between 1% and 2% at the date of their grant and will be maintained for the entire duration of said advances.

The interest rate to be charged to borrowers by CECs must not exceed 12% per annum.

3.3. Leasing Companies

Leasing companies may specifically intervene in the financing of the acquisition of medium-term agricultural equipment and materials, not exceeding five (5) years.

BRH advances to leasing companies will be at an interest rate of 5% and will be used to finance loans not exceeding 12%. It is evident that the leasing company must at all times maintain a minimum capitalization ratio of 20%.

Given the high capital cost of certain heavy agricultural equipment, their lifespan, and the probable existence of a resale market, financial institutions are authorized to deduct, during the first year only, as a deductible guarantee, 20% of the value of said equipment in the calculation of general provisions.

4. Modalities for the Use of Refinancing of Agricultural Campaign Credits

For the refinancing of agricultural production campaigns, the BRH will grant advances to financial institutions on a portfolio basis, and the minimum amount of each advance will be one million gourdes (HTG 1,000,000.00), disbursed in a single tranche.

Financial institutions, in turn, will advance liquidity to agricultural enterprises according to their usual modalities. However, when a bank directly finances a production campaign launched by an agricultural entrepreneur or a farmer, it may open a credit line in favor of the latter to finance production operations.

At the maturity of any advance granted by the BRH for the financing of agricultural campaign credits, financial institutions will make the payment of interest and the repayment of the principal in a single payment.

At the maturity of any agricultural campaign loan granted by financial institutions, the agricultural entrepreneur or farmer will make the payment of interest and the repayment of the capital in a single payment.

5. Special Provisions

Each fund advance will be the subject of a distinct contract between the BRH and the concerned financial institution.

Fund advances granted by the BRH and not yet disbursed by a bank for borrowers in waiting cannot be considered as constitutive elements of mandatory reserves.

These funds will not be eligible for placement in BRH bonds.

After receiving disbursements from the BRH for the financing or refinancing of agricultural or agro-industrial projects, financial institutions have a period of three (3) business days to allocate these funds.

6. Reports

At the end of the quarter, i.e., on March 31, June 30, September 30, and December 31 of each year, the financial institutions covered by this circular are required to submit to the BRH via the Bank Supervision and Other Financial Institutions Directorate a quarterly report to be drawn up on the dates of March 31, June 30, September 30, and December 31 of each year. They must provide information on new agricultural and agro-industrial credits approved and/or disbursed during the covered period, as well as the status of the agricultural and agro-industrial credit portfolio. The report must be presented in accordance with the attached model.

Regarding banks, this report must be attached to the compliance reports related to Circular 83.4 concerning the concentration of credit risks.

7. Sanctions

In the event of non-compliance with the provisions of this circular, financial institutions are subject to the following penalties:

a) Penalty related to the reliability of information At all times, the amounts declared in the report provided for in point 6 of this circular must be those appearing in the accounting and auxiliary books of the financial institution. Failing to comply with this directive, the BRH may, after an inquiry into the circumstances and nature of the violation, impose a penalty of 10% of the difference between the amounts declared in the reports and the amounts appearing in the accounting and auxiliary books of the financial institution.

b) Penalty related to any delay in the production of compliance reports Any delay in the production of the report mentioned in point 6 of this circular will be sanctioned by a penalty of fifty thousand gourdes (HTG 50,000.00) per day of delay.

Any fine imposed on a defaulting bank will be deducted from the balance of one of its accounts domiciled at the BRH. In the case of a fine imposed on an SFD, a CEC, or a leasing company, payment will be made by a cashier's check payable to the Bank of the Republic of Haiti, at the latest five (5) business days after receipt of the notice informing the defaulting institution of its payment obligation. In the event of non-payment within the deadline, additional late penalties will be applied, namely two thousand five hundred gourdes (HTG 2,500.00) per day of delay, and the defaulting institution will be temporarily suspended from the financing mechanism until the full payment of accumulated penalties.

8. Entry into Force

This circular enters into force on October 1, 2018.

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Circular No. 113 | To Financial Institutions

Port-au-Prince, September 20, 2018

Jean Baden Dubois Governor

Annex: Format of the Quarterly Report New agricultural and agro-industrial credits approved and/or disbursed Status of the agricultural and agro-industrial credit portfolio

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Annex 1 of 2

Financial Institution: _____________________________

QUARTERLY REPORT NEW AGRICULTURAL AND AGRO-INDUSTRIAL CREDITS APPROVED AND/OR DISBURSED From: ___________ (dd/mm/yyyy) To: ____________________(dd/mm/yyyy)

CLIENT NAME	AMOUNT APPROVED	AMOUNT DISBURSED	DATE OF DISBURSEMENT	INTEREST RATE	LOAN DURATION

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Annex 2 of 2

Financial Institution: _____________________________

QUARTERLY REPORT STATUS OF AGRICULTURAL AND AGRO-INDUSTRIAL CREDIT PORTFOLIO From: ___________ (dd/mm/yyyy) To: ____________________(dd/mm/yyyy)

CLIENT NAME	LOCATION (DEPARTMENT/COMMUNE)	NUMBER OF HECTARES (for soil-based agricultural production)	NUMBER OF EMPLOYEES (for a company)	TYPES OF AGRICULTURAL ACTIVITIES	INITIAL LOAN DURATION	OUTSTANDING BALANCE	CREDIT QUALITY *

• C = Current; AS = To Be Reported; F = Substandard; D = Doubtful; P = Loss

Signature of two authorized executives: ______________________ ____________________

Positions/Titles: ______________________ ____________________

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Circular No. 113 | To Financial Institutions

www.brh.ht Angle rues Pavée et du Quai / Port-au-Prince, Haïti W.I. Boite Postale 1570 Téléphone: (509) 22.99.11.64 Fax: (509) 22.99.11.92