Agrobank: The Catalyst Of Agriculture
In 2021, green finance is expected to increase at a significant rate. Based on data from the Climate Bonds Initiative (CBI), 2021 green bond issuances might exceed that of last year, with US$219.7 billion issued for the first half of the year compared to the US$290.1 billion issued in 2020.
Bonds issued from the AsiaPacific made up more than a quarter of the first half’s figures, at US$51.9 billion, just a few million short of the US$53.2 billion issued for the entire year of 2020.
China issued approximately US$22 billion worth of green bonds in the first half, exceeding the combined issuances from South Korea (US$5.9 billion), Japan (US$5.5 billion), Singapore (US$5.2 billion and India (US$4.6 billion). Separate from Mainland China’s, a total of US$3.2 billion worth of green bonds was issued from Hong Kong SAR.
The launch of the RM1 billion sukuk programme by Agrobank, which is also a green and sustainable effort, has set forth a new standard in both Islamic finance and the instruments to raise funds by the local bank under the leadership of Covering President / Chief Executive Officer (CP/CEO), Khadijah Iskandar.
Funds raised through the Sukuk would go towards the working capital for its new or existing businesses and projects, that promote any of the Sustainable Development Goals (SDG), including those with regards to mitigating climate change, the CP/ CEO said in an exclusive interview with BusinessToday.
“The sukuk is a hybrid sukuk which means we can issue the sukuk for shariah compliant purposes only or for purposes that are aligned with Sustainable Development Goals. RAM Sustainability Sdn Bhd (RAM Sustainability) has already rated us, and we met all the necessary requirements,” says Khadijah.
In addition, Khadijah highlights that the proceeds may also be used for future business expansion. She does not discount the possibility of using the proceeds for acquisition, takeover or merger in future.
Customer Growth
Aside from issuance of sustainable sukuk, the Bank has developed various initiatives that would gain traction amongst farmers, investors and small businesses. While Agrobank is known for its agriculture financing, it also offers other products and services such as deposit taking and takaful products.
“Through the Sukuk programme, we hope to create visibility and awareness especially with regards to our developmental roles that are far more than just giving out financing. Deposit placed with Agrobank will also mean that depositors do participate indirectly in our financing business. Those who advocate sustainability are always welcomed to place deposit with us and be able to satisfy their sense of purpose,” Khadijah says.
Reviewing the banking operations and the type of assistance that it renders and wishes to render its customers, she says that as a DFI, the Bank’s priority is to nurture and improve the “bankability” of its customers at competitive cost.
Agriculture is generally perceived as high-risk sector and may not be within the risk appetite of commercial banks. Being a DFI with agriculture focus, not only do we understand the industry and the risk, we are also in the position to offer low-rate financing by channelling the suitable government funds to these customers. This kind of support will help the entrepreneurs to build their business and improve their credit standing gradually, she says.
“One of the Bank’s mandated roles is to coordinate and supervise the funds for agricultural purposes. The financing cost for this fund is below the market rate to help the business owners to keep their cost at manageable level especially at the beginning of their business cycle. In this way, we hope we can eventually ‘migrate’ them to another level of their business growth phase”.
“This is in line with our mission in advancing agriculture beyond banking which is to assist them to progress from micro business to small, medium and large-scale businesses. If for some reasons they are being refinanced by commercial banks, that is a positive signal because it means that they have improved their bankability and we have successfully delivered one of our mandates. For us, if our customers have become successful as large corporations, they can be the anchors to our programme to provide guidance to other micro customers, and the relationship can still continue.”
When the Bank first started in 1969, our financing portfolio was primarily related to commodities. When the Bank was later corporatised in 2008, the portfolio was further diversified to focus on all activities in the value chains of agriculture and food industry.
“When we first started, our financing was RM900 million, and this amount has been raised to RM8.7 billion in 2008. We became a full-fledged Islamic bank in 2015, where we have new products, a new team, and a new strategic business plan. By 2020, our gross financing grew to RM13.2 billion with a growth rate of 10%.
“In the primary agriculture sector, we also focus on other sub-sectors other than oil palm namely crop, livestock and fishery which are also known as agrofood sub-sectors. These are sectors that commercial banks might not understand the risk and therefore would not want to tread in, and we have rendered assistance in this sector” she said.
Agrobank is well known in rural areas where primary agriculture activities are concentrated at. This also explained why close to 70% of our branches are in the rural areas.
On its market share, she said the Bank plans to specifically increase the market share in primary agriculture. For the period between 2016 to 2020, she said that the overall market share for agrofood was about 22.5 percent.
Due to the importance of this sector to the country’s food security, the Bank hopes to increase its agrofood market share to 32.2 percent in the near future, forecasting the growth rate to average 10 percent in the next five years.
In the agricultural processing sector, the Bank’s current market share is about 1.8 percent. Since most of the businesses in the sector are already with the commercial banks, the Bank plans to increase this to 4.1 percent in the next 5 years.
Pandemic
On the pandemic and how Agrobank has stepped up to assist its customers, Khadijah commented that as a DFI, Agrobank is expected to continue to provide financing to the targeted customer group as part of its counter cyclical role. To date, Agrobank has approved RM1.3 billion financing under various stimulus funds.
“We have different customer segments where they have limited exposure to technology. Prior to COVID-19 pandemic, their utilisation of digital platform such as internet banking and the various e-channels was relatively low. However, because of the pandemic and MCO, we can see our customers have become more receptive towards these alternative channels.
Khadijah further says that during the pandemic where the operating hours of branches are restricted, the application for payment assistance programme was done digitally. The customers need only to fill the application forms online. This helps the Bank to respond to the need of its customers fast during this challenging period.
Digital Initiatives
On its digitalisation plans, she said the Bank was readily embracing technology and with a few initiatives in the pipeline.
Among the projects they have in mind is the introduction of e-wallet which is currently under discussion.
“Right now, our customers are comfortable using debit cards and have embarked on cashless payment.
“As part of our efforts to further reach out to our customers in the rural areas, we have recently launched Mobile ATM for various remote locations of Sarawak, she says”.
Additionally, the mobile ATMs would also give the rural populace an opportunity to have easy access to cash.
Having the rural populace’s accessibility to ATMs would also mean that we would be able to educate them on financial literacy and we can introduce them to various financial products that are affordable.
Recently, Agrobank launched its first mobile ATM to nine districts of southern region in Sarawak and among the first in Malaysia to provide such service. The launch is part of Agrobank’s continuous commitments to support the unserved and underserved community.
With the agricultural sector given due prominence, it would be paramount that adequate support is extended to farmers, through our bank, to scale up their business as opposed to going to different financial institutions.
Towards achieving this, the Bank has various innovative products to support the need of its customers from the traditional project financing to equipment financing and even trade financing for export businesses, said Khadijah.
“In fact, Agrobank’s products and services are at par with those of commercial banks. We target different customer segments and ensure that our customers get value for the services that we offer. That’s how we differentiate ourselves”.
On the government’s thrust to encourage the young generation to get into farming, Agrobank has been working closely with various business partners and government agencies to develop programmes where these young business owners can participate and get technical and funding assistance as well as access to market their produce.
“We help the youth in many ways beyond financing; firstly, they will be matched with experienced anchor companies which will act as their mentors. They will also receive technical advice from seedling process up to marketing of their products. We also collaborate with technological providers to encourage the participants to modernise their farming practices”.
She stated that the initiative is designed to be particularly appealing to the youth since the Bank feels that the youth are the best pioneers of agricultural modernisation.
This is aligned with Agrobank’s vision of advancing agriculture beyond banking.
“In our 5-years strategic business plan for 2021 to 2025 period, we have developed a transformation plan which includes product innovation to complement our traditional banking products and services. One of them is crop protection plan which will be the first in the country. With this new product, it will provide ease of mind for farmers or those who want to embark on agriculture projects that they will be compensated in the event of disaster for instance and enable them to re-start their projects. We also learned from the pandemic that many businesses are faced with cashflow issues. The problem gets worst if they are heavily dependent on debt that prompts the government to intervene. The situation may be different if these businesses were funded by equity investment rather than financing. Because of this, part of our plan is to provide investment platform for investors to participate in agriculture projects.
“Towards achieving this, it is important that our employees are ready for the new challenges, and the Bank is organised efficiently to improve productivity. We took the opportunity to perform organisational health check during the pandemic period. One of the primary changes is the splitting of business units to focus on commercial and development banking businesses. This is our first step towards achieving sustainable financial condition.