Solutions on Selection and Coordination with Representative Entities in the Pangasius Industry Value Chain

The development goals of each commercial bank are different, depending on the political role of that commercial bank in the rural agricultural sector. The larger the role of commercial banks, the more preferential policies they have on capital, interest rates, loan terms, etc. to contribute to promoting the restructuring of the agricultural sector and building new rural areas. In credit according to the pangasius value chain, the group of state-owned commercial banks has a larger disbursement turnover than other banking groups because the development goal of this group of banks is aimed at the sustainable development of rural agriculture. Therefore, commercial banks, depending on their development goals, build credit policies according to the pangasius value chain and this policy must be consistent with the orientation of the State.

After determining the credit strategy, commercial banks need to develop a process to implement that strategy, specifically in this case, the credit process according to the pangasius value chain. The credit process is important in limiting risks and errors of implementing staff and ensuring that lending is consistent with the credit strategy of commercial banks. Based on documents of the Government and the State Bank on implementing credit according to the value chain, commercial banks conduct research and issue specific processes for credit according to the pangasius value chain, in which it is necessary to clarify the following issues: How to determine the pangasius value chain; requirements on the scale and operational efficiency of the chain; financial requirements of the chain (revenue, working capital turnover, equity ratio, etc.); responsibilities of farmers, production enterprises and banks in the tripartite contract; disbursement and liquidity conditions; regulations on post-loan inspection and loan risk management. In particular, it is necessary to clearly identify the lending object of the bank is not a single customer but the entire value chain of the pangasius industry. The relationship between the participating components is based on the premise of mutual support and implementation according to a common plan, so the production and business plan must be considered comprehensively from the beginning to the end. For this lending model, information transparency is a necessary condition for the bank to monitor the activities of related stages in the chain. However, the financial capacity of each participating member is different, so the repayment ability is also different. At the same time, commercial banks need to continuously update changes in domestic and foreign policies for the pangasius industry to have changes and edits in the lending process according to the value chain in accordance with reality, meeting the capital needs of the pangasius industry value chain while still limiting risks for commercial banks.

4.2.2. Solutions for increasing customer numbers

Value chain is a new form of operation in the pangasius industry. The search for

Maybe you are interested!

Customers borrowing capital under this model also face many difficulties. As analyzed in chapter 3, customers are used to accessing traditional credit sources, so they will find it more difficult to access this new lending method. On the one hand, banks need to have a policy of linking with units supporting the pangasius value chain in the process of implementing this credit model. Linking with organizations, state management agencies, research institutes, etc. is a necessary task for banks in the process of implementing this credit model because these are units that have understanding and grasp of information about the value chain as well as individuals and businesses operating in the pangasius industry. Cooperation agreements to connect supply, production and consumption markets to support customers' production and business are the basis for improving the efficiency of the chain's operations and enhancing the bank's supervision of invested capital; To expand the customer market for this lending model, the bank has increased its efforts to find customers through the support of the government, associations, and cooperatives. At the same time, the bank has cooperated with ministries, departments, branches, and government agencies to select a number of financially capable, experienced, and reputable enterprises to act as focal units, to purchase raw pangasius according to 4C, GAP standards, etc.; to create a stable raw material area for the pangasius industry value chain, to avoid competition in buying and selling, to avoid traders forcing down prices on farmers, and to ensure sustainable development for the value chain; The bank has coordinated with supporting units to provide effective farming technical solutions, food, and good fish fry. Fish fry play an important role in the operation of the pangasius industry value chain. The quality of fish fry directly affects the quality of raw pangasius in the farming stage and the issue of improving environmental quality. Feed costs account for 70% - 80% of the total cost of raising pangasius. Therefore, the issue of researching the type of feed and nutrition suitable for fingerlings and raw pangasius with lower cost or better quality is very necessary. Currently, in the world, there have been many studies and applications of supplementary feeds in the diet of fingerlings and raw fish such as: probiotics, amino acids... to enhance resistance, grow quickly, good meat quality, reduce costs. Based on the benefits enjoyed, banks will attract many customers, especially farming households to participate in this lending model.

On the other hand, commercial banks need to promote value chain credit to customers. Local authorities and banks should cooperate with banks to further promote the Party and State's guidelines and policies on encouraging units operating in the agricultural sector to access loans according to value chain credit through the following forms: leaflets, media advertising, and mobilization through cooperatives. The purpose of this work is to increase

Enhance customer understanding of value chain credit and encourage customers to access loans in this form.

4.2.3. Cross-selling solutions

The characteristic of credit in the pangasius value chain is that all buying and selling activities in the chain are carried out through bank accounts. Therefore, the requirement to open a non-term account and a payment account is a mandatory requirement for customers borrowing capital. From there, the bank increases the term mobilization source from the idle money of customers in the payment account and has no current need to use.

To facilitate the withdrawal of money by small farmers, banks can encourage customers to issue ATM cards for themselves and their families, friends, etc. For production, processing, and distribution agents, the scale of these units is often large, with a large number of employees. Therefore, banks can encourage these companies to pay salaries to employees through accounts opened at the bank to borrow capital and open ATM cards of the bank for easier transactions.

Consumer loans, opening credit cards for employees at companies in the value chain and having salary payments through banks are cross-deployed credit products. By tracking customers' income through bank accounts, banks can support customers in solving capital needs in consumption, building houses, buying cars... through granting consumer loans or opening domestic and international credit cards for customers. On the bank's side, the bank will increase outstanding debt with lower risk than providing consumer credit to other small customers because the bank can control the cash flow and income of customers, while increasing the number of credit cards. On the customer's side, they have access to loan capital to solve their consumption needs in life.

In value chain lending, small retail borrowers often do not have enough collateral to secure their loans and must approach them without collateral. This will lead to great risks for the bank in case the customer cannot repay the debt. Requiring customers to purchase loan insurance and credit security insurance is necessary. This is beneficial for customers because when customers have risks in life that lead to their inability to work, the insurance company will pay this loan at a rate depending on the terms signed with the customer. For banks, this helps to minimize credit risks, especially in unsecured lending.

For companies exporting and distributing finished pangasius products

For easy tracking, banks need to require customers to use international payment products such as L/C, documents, receiving money from abroad, remittances...

4.2.4. Solutions on credit risk management

For the new lending model, bank risk management needs to be implemented more strictly through the following methods:

- Conduct research and analyze the consumption situation of pangasius to develop a credit plan for this lending model. The capital plan is based on the scale of the chain, pangasius farming planning and forecasts of the consumption market. In particular, it is necessary to apply preferential interest rate mechanisms to support and encourage customers in the rural agricultural production sector to participate in this lending model.

- Regularly research, monitor and evaluate the impact of internal and external factors on the pangasius value chain that affect credit quality. Coordinate with ministries and branches to predict fluctuations in trade barriers, fish prices and consumption markets. Strengthen coordination with chain representatives to monitor the fish production and farming process, ensure compliance with international quality standards, and minimize the use of excessive doses of antibiotics and drugs in farming. On that basis, the bank monitors, supervises, warns of bad debts, potentially risky debts, proactively handles and prevents bad debts from arising.

- Implement the improvement of the staff working in credit work. Prioritize hiring experts with experience in implementing this lending model to advise and provide advice on effective risk management methods.

- Strengthen post-lending inspection of the pangasius value chain, including: Cash flow in the chain, loan usage, farming and production activities of actors in the chain, compliance with the signed sales contract between farmers and enterprises. In case of detecting errors in the chain operation process, the bank will coordinate with other supporting units to take timely measures. Strengthen management capacity, handle loan incidents and manage cash flow of the pangasius value chain.

- Review and standardize input data of customer information, collateral information, and related information on the Credit Rating system to ensure good information quality for debt classification, risk provisioning, and risk prevention. At the same time, this database is also the foundation for building a quantitative risk model according to Basel II.

- Collateral in the pangasius industry value chain is diverse, from common assets such as houses, land use rights... to specialized assets such as fish ponds, contracts...

Therefore, commercial banks should hire a specialized appraisal unit to assess the quality, liquidity and value of specific mortgaged assets to ensure objectivity and completeness.

- Develop a roadmap for disbursement to farmers through key enterprises. In the process of selecting key units in the chain, banks need to consult more opinions and information from agencies, departments, and associations operating in the pangasius industry in addition to customer assessment.

4.2.5. Solutions on selection and coordination with representative entities in the pangasius industry value chain

As a representative of the value chain to coordinate with banks in disbursing loans and controlling cash flow, the focal unit is one of the important factors to help the implementation of credit in the pangasius value chain effectively. As analyzed in the current situation, the main cause of bank credit in the Vietnamese pangasius value chain is that the focal unit does not comply with the purchase and sale contracts with farmers and with the bank. As a result, the bank suffers losses in credit capital for investment in both enterprises and small-scale production households. Therefore, banks need to be strict and careful in selecting focal units in the chain. Some suggested solutions are as follows:

- Select a unit at the purchasing stage because the source of money that the purchasing unit pays for the harvested agricultural products to farmers will be the source of the farmers' debt repayment to the bank. In case of selecting a representative unit at another stage, it will limit the bank in debt collection. For the pangasius industry value chain, the purchasing stage focuses on 2 subjects: production and processing units and small-scale purchasing individuals. The bank should select a production unit to be the representative entity. In case small-scale individuals have a need to sell raw fish to this representative entity and can prove the origin and quality of the fish, the representative entity can consider purchasing and paying directly using the unit's own capital or bank loans.

- The representative entity must be a reputable unit in the chain through criteria such as: number of years of operation in the pangasius industry, the brand of the unit at home and abroad, the number of accepted export markets, technical quality of staff, payment history for suppliers and delivery history for buyers, level of coordination with the Department of Agriculture, associations, and pangasius cooperatives locally and nationwide.

- The business activities of the entity are effective, in which the bank needs to pay attention to five indicators that affect the efficiency of the enterprise's loan capital use: cash payment ratio, Total debt/Total assets, Short-term debt/Total debt, Assets

Current assets/Total assets and Profit after tax/Equity. The unit's credit history is good, repaying loans to the bank on time.

- Actively coordinate with banks to provide information on activities in the value chain, support banks in finding other customers to join the chain. At the same time, commit to banks in implementing sales contracts with farmers such as payment terms, purchase quantity, and selling price.

- Ability to forecast domestic and foreign pangasius price fluctuations to warn members in the chain and take timely risk prevention measures, limiting large price fluctuations.

4.2.6. Solutions on bank staff capacity

The capacity of staff - individuals directly dealing with customers is a factor that greatly affects the implementation of credit according to the value chain of the pangasius industry. Therefore, banks need to have policies to improve the capacity of bank staff in lending activities in general and lending according to the value chain of the pangasius industry in particular. Because the value chain of the agricultural industry has its own characteristics, in order to learn and implement credit according to the pangasius value chain well, bank staff need to have in-depth knowledge on this issue, have research, and have a deep and broad understanding of the value chain model that the bank finances. This is very important in chain credit activities, because this is not simply a credit relationship between the bank and a unit but a relationship between the bank and a system of factors from input to output in an industry chain. Basic information to grasp includes: costs, profits and inherent risks.

The survey shows that bank staff with good knowledge of the chain will affect customer satisfaction with the lending model. The work of improving knowledge for bank staff is carried out through forms such as: On-site training, organizing training, organizing training, cross-checking, field surveys... In addition, to increase credit according to the value chain of the pangasius industry, proactively seeking customers, enthusiasm in guiding loan applications, and simplifying loan procedures are skills required for bank staff. These criteria are linked to job performance evaluation and salary payment.

In fact, in rural areas, due to the large number of customers, a credit officer must manage many customers. This also affects the concentration of officers in monitoring, appraising and checking after lending customers. Commercial banks need to have regulations requiring the maximum number of customers that an officer is in charge of to ensure the quality of work. With the characteristics of credit activities according to the value chain, which often includes many customers at different stages in the chain, the number of

The number and form of customers are diverse, the appraisal process involves many stages in a complex chain, so the management of customers borrowing credit according to the value chain requires the participation of many credit officers and managers to ensure strict loan inspection and supervision, ensure mutual inspection and cross-checking, and minimize errors.

4.2.7. Solutions to support the pangasius industry value chain

Understanding the value chain and brand development activities play an important role in developing the value chain. Only when the unit has knowledge about the value chain as well as the goal of brand development, will the value chain activities be sustainable. To achieve this, the bank, in coordination with agencies, research institutes, associations, etc., needs to deeply and widely disseminate to the actors in the chain, especially the actors who are households and individual establishments, to understand the role and benefits of participating in the value chain and brand development.

To strengthen the linkage between actors in the value chain, the bank cooperates with the focal unit to promote the sharing of production experience. The issue of sharing experience in farming plays an important role in limiting risks such as supply-demand imbalance, loss in farming and price instability. Horizontal linkage helps balance supply and demand of raw pangasius due to farming plans and determining selling prices. At the same time, experience plays an important role in pangasius farming activities because this activity is greatly influenced by external factors such as weather, climate, water resources, and diseases. The scope of this linkage does not stop at an economic organization but should be expanded to regional linkage.

Fish fingerlings play an important role in the operation of the Vietnamese pangasius value chain. The quality of fish fingerlings directly affects the quality of raw pangasius in the farming stage and the issue of improving environmental quality towards the sustainability of the industry's value chain operations. Banks need to require customers to comply with international farming standards and have measures to control the quality of fish fingerlings. On that basis, pangasius products will have better quality and output, contributing to improving the quality of the chain. The issue of applying standards such as BAP, Global GAP needs to be included in the seed production units to meet international quality standards right from the input stage.

Feed costs account for 70% - 80% of the total cost of raising pangasius. This is a high rate. To reduce this increase in costs, the bank encourages local agricultural departments, universities, research institutes... to research types of feed and nutrition suitable for breeding and raw pangasius with lower prices or better quality. Currently, there have been many studies and applications in the world.

Use supplementary foods in the diet of fingerlings and raw fish such as probiotics, amino acids... to increase resistance, grow quickly, have good meat quality, and reduce costs.

4.3. SOME RECOMMENDATIONS

4.3.1. Recommendations to the State

- Issue regulations on the implementation of agricultural product purchase and sale contracts, clearly stating sanctions for participating parties.

The purchase and sale contract is the main foundation in the operation of the pangasius value chain and credit along the pangasius value chain. Therefore, non-compliance with the contract is the cause of the breakdown of the pangasius value chain and the emergence of bad debt. When signing a contract along the value chain, the enterprise must be responsible for providing all initial investment costs such as: seeds, technical guidance on farming, providing feed, medicine, etc. However, when it comes to harvest, if outside traders buy at high prices, the situation of "breaking the contract" is very likely to occur and this is a fairly common situation in the pangasius industry. If the farmer breaks the contract and does not provide raw fish as committed, the enterprise will lack input sources, and production and business activities will become difficult. On the contrary, if the enterprise does not pay for raw fish on time, it will lead to a financial shortage for the farmer. Difficulties in operations and financial situation will make the borrower unable to repay the bank loan on time.

- Regulations on insurance in production and farming of pangasius industry

There needs to be a more open and accessible insurance mechanism for agricultural production in general and the pangasius industry in particular. In 2011, the Prime Minister issued Decision 315/2011/QD-TTg on piloting agricultural insurance. The State needs to develop a process for policies, subjects, and a reasonable insurance price system in the direction of designing policies and price frames that are suitable for each subject and region. At the same time, the State needs to develop a mechanism to encourage potential enterprises to participate in this field, not just insurance companies. The Ministry of Finance continues to widely and effectively implement agricultural insurance policies according to Decree 58/2018/ND-CP dated April 18, 2018 of the Government. Research and implement agricultural export price insurance products for key agricultural export products to reduce risks for agricultural export enterprises, while limiting risks for lending banks.

- Implement amendments to the land law towards recognizing assets formed on land in agricultural production.

Current land law does not grant enterprises land use right certificates.

Comment