MODULE 3: AGRICULTURAL MECHANIZATION LEASING

OPERATIONS

INCREASING AGRICULTURAL PRODUCTIVITY THROUGH INNOVATION

AGRICULTURAL MECHANISATION LEASING PROJECT
MODULE CONTENT*

►1. AMLP Processes Flow

►2. AMLP Processes Documents
►3. AMLP Product Features
►4. Market Research
►5. Lessee Business Case: Technical and Financial Viability
►6. Marketing Strategy

4/7/22 No 2
 1. AMLP PROCESS FLOW* NO
Application rejected

5. Forward due-
3. Undertake LEC, Due
1. Receive lease 2. Screen 4. Is Due Diligence diligence report and
Diligence and YES
application Documents acceptable? other documents
Proforma Evaluation
for appraisal work

10. Forward
9. Sign lease contract 7. Forward lease
document to CGPSD YES 8. Is the lease 6. Undertake lease
and lessee blocks appraisal report to
for machinery acceptable? appraisal
20% down payment LAT
procurement

NO Application rejected

13. Ensure Tripartite

11. Check with agreement and CA are 14. Forward commercial 15. Supplier clears
16. Lessee/Lessor
EFCMD whether forex YES documents to the machines from
signed, 20% down secures insurance
is available supplier for customs customs and prepares
payment available. cover
Open LC facilities. IBD settles LC to deliver

NO
12. CGPSD to discuss with
EFCMD to solve the issue

19. Register 18. Issue 17. Delivery,

20. Periodic lease
machinery and acceptance installation, testing
payments
contract certificate and commissioning

4/7/22 No 3
 AMLP PROCESS CONTINUED*

20. Periodic lease

payments

Employ an action plan for

lease project to identify
22. Continue 24. Transfer
options to resolve default: YES 21. Has the lessee NO 23. Settle lease
monitoring and ownership rights
Collection, rehabilitation, defaulted? payment
follow-up to lessee
repossession

Take legal action on the original

Transfer equipment to third
lessee if the lease is
party or remarket to buyer or
Service reminder Repossession unrecoverable or if loss
new lessee. Dispose if
occurred through remarketing or
remarketing is unsuccessful
disposal

4/7/22 No 4
2. AMLP PROCESSES DOCUMENTS* (DISCUSSIONS BASED ON ORIGINAL DOCUMENTS)

►Lessee Eligibility Criteria (LEC)

►HP Lease agreement
►Supplier Minimum Eligibility Criteria (SMEC) and SDD
►Cooperation agreement
►Tripartite agreement and Procurement of capital goods
►Indicative list of machinery and implements

4/7/22 No 5
HP LEASE AGREEMENT
►Key items on the lease agreement:
§ LEASE CONDITIONS
o DESCRIPTION OF CAPITAL GOODS,
o CURRENCY, COSTS,
o CONTRACT AMOUNT
§ PRICE VARIATION AND ADDITIONAL
COSTS
§ LESSEE’S CONTRIBUTION
§ LEASE SERVICE
§ LEASE PERIOD AND REPAYMENT
SCHEDULE
§ SERVICE CHARGE AND PENALTY
§ PAYING IN ADVANCE
§ PURCHASE OF THE CAPITAL GOODS
AND HANDOVER PROCESS
§ EVENTS OF DEFAULT
§ OBLIGATION OF THE LESSEE
§ AVAILABILITY OF OPERATION SPACE
(SHED)
§ OPENING CURRENT ACCOUNT
§ INSURANCE
§ OBLIGATION OF THE LESSOR
§ OWNERSHIP OF CAPITAL GOODS
§ TRANSFERABILITY OF TITLE
4/7/22 No 6
AMLP SUPPLIER DUE DILIGENCE EVALUATION RESULT

►AMLP eligible suppliers in green

3. AMLP PRODUCT FEATURE* (DISCUSSIONS BASED ON THE AMLP PRODUCT GUIDELINE DOCUMENT)

Feature Aspects ►Grace period

►Target market ►Interest rate/pricing/Service charge
►Eligible lessees ►Lease rentals payments structures
►Eligible assets ►Legal and Usufruct Ownership
►Pre-approved suppliers ►Additional collateral
►Procurement of machinery and ►Servicing and maintenance
implements
►Insurance
►Lease ticket size
►Other charges
►Total cost of machines and implements
►Exclusions
►Amount financed ►End of term
►Down payment
►Event of Default
►Tenor

4/7/22 No 8
3. AMLP PRODUCT FEATURES*

►Target market
§ SMEs with registered capital of ETB 500K to ETB 10.0.M and 6 employees
§ Throughout Ethiopia
§ willing to provide agricultural mechanization services to famers, who would otherwise not have
access to such services
§ Farmer unions/cooperatives with paid up capital above Birr 10 million who apply for agricultural
mechanization service will be catered through the AMLP
►Eligible lessees
§ Taken the mandatory business management training by DBE
§ Undergone a screening of their applications using the AMLP LEC form
§ Are any of the following:
o agricultural co-operative/union/federation, youth groups, service providers, farmers and others
registered as sole proprietors, share companies, partnerships and so on
§ Are able to show a viable and sustainable business, technical and financial model

4/7/22 No 9
AMLP PRODUCT FEATURES CONTINUED*

►Eligible assets
§ Agricultural mechanization machines and implements mentioned in the approved Cooperation
Agreement (CA) and the Machinery Blueprint.
§ Machines and implements manufactured in Brazil and Italy will be assessed with particular care.
§ Machines and implements from China and India are excluded.
§ All assets will be procured brand new.
§ Re-lease of repossessed second-hand machines and implements will be authorized.
►Pre-approved suppliers
§ All eligible suppliers under the AMLP will undergo a rigorous selection process following the
approved SMEC document and the SDD Framework.
§ Pre-selected suppliers who pass the SMEC and SDD test, have to sign an approved CA with DBE.

4/7/22 No 10
AMLP PRODUCT FEATURES CONTINUED*

►Procurement of machinery and implements

§ The lessee selects the supplier from the list of DBE pre-approved suppliers
§ The supplier issues a pro-forma invoice (final or amended)
§ Lessor and lessee sign the AMLP HP Lease Agreement
§ Lessee blocks 20% of the total costs of the machines and implements in an account with DBE
§ DBE, the supplier, and the lessee sign the “Tripartite Contract for Purchase and Lease of Capital
Goods”
§ The Capital Goods Procurement and Supply Directorate (CGPSD) undertakes the procurement of
machinery and implements and instructs the International Banking Division (IBD) to open the Letter
of Credit (LC)
§ LC is settled upon receipt of import documents
§ If in order, import documents are remitted to the supplier for customs formalities and delivery to the
lessee

4/7/22 No 11
AMLP PRODUCT FEATURES CONTINUED*

►Lease ticket size

§ The lease ticket can be of any size, so long the exposure of any single lessee at any time remains
between ETB 2 million and ETB 35 million. The minimum lease ticket size for a new mechanization
project shall be ETB 2 million.
►Total cost of machines and implements
§ Free on Board (FOB) cost
§ Marine insurance
§ Freight, forwarding agent’s costs, customs clearance
§ Import duties, if any
§ VAT on import duties
§ Cost, Insurance and Freight (CIF) value
§ Value Added Tax (VAT) on imported capital goods (if any)

4/7/22 No 12
AMLP PRODUCT FEATURES CONTINUED*

§ Local costs
o Local transportation,
o Insurance on transportation
o Installation, testing and commissioning costs,
o Training of employees,
o 3 years maintenance contract, if available
o First year insurance premium (on machines and implements)
o Reasonable spare parts for first year repairs
o Reasonable consumables for first year
o Warranty, extended or otherwise
o Total machines and implement costs
o Other local costs may be added, as required and identified
►Amount financed
§ 100% of CIF value of the machines and implements

4/7/22 No 13
AMLP PRODUCT FEATURES CONTINUED*

►Down payment
§ 20% of the total cost of the machines and implements, at delivery (CIF value plus all local costs).
►Tenor
§ The tenor will be based on useful life of the machines and implements.
§ The average useful life of a tractor is between 5 and 12 years,
o depending on the quality, capacity, and technology level and if used according to the
manufacturer’s recommended usage instructions and manuals, maintained, and repaired as
recommended.
§ The useful life of implements varies between 4 and 14 years,
o depending on the quality, capacity and technology level, soil type and if used according to the
manufacturer’s recommended usage instructions and manuals, maintained, and repaired as
recommended.
§ On average the AMLP HP Lease will have a tenor of between 5 and 7 years

4/7/22 No 14
AMLP PRODUCT FEATURES CONTINUED*

►Grace period
§ The period between the partial disbursement made to the supplier (at the time of order by DBE) or
signing of the Acceptance certificate and effective date of state of operations, which shall not
exceed six (6) months and during which time the lessee pays only interest monthly.
►Interest rate/Pricing/Service charge
§ The annual percentage interest rate/price at which DBE charges the lessee for the AMLP HP Leasing
facility is currently fixed at between 11.00 % p.a. and 11.50% p.a. and is subject to change without
notice.
§ All AMLP HP Lease contracts will bear fixed interest rates.
§ Interest rates may be changed at the sole discretion of DBE.

4/7/22 No 15
AMLP PRODUCT FEATURES CONTINUED*

►Lease rentals payments structures

§ Determined based on the cash flow of each project and the economic life of the capital goods:
o Consider the seasonality aspect of the cash flow cycle of the lessee
o Consider stage in the development of its business life cycle
►Legal and Usufruct Ownership
§ DBE has legal ownership of the equipment throughout the tenor of the lease
§ The lessee has right of use of the machines and implements, therefore, usufruct ownership.
§ The lessee will have full legal ownership upon payment of the last rental, plus any costs, penalties,
interests, damages, and compensation, in case there is a repossession.
§ The lessee’s right to have proportional ownership on the capital good upon payment of each lease
payment shall not jeopardize the right of the lessor to repossess and take any measure necessary to
recover the cost of the capital goods, service fees and penalty charges
§ The lessee loses all its pro-rata legal ownership and usufruct rights in case there is a termination of
the lease contract

4/7/22 No 16
AMLP PRODUCT FEATURES CONTINUED*

►Additional collateral
§ DBE does not request any additional collateral from the lessee
►Servicing and maintenance
§ The Lessee shall undertake timely repairs and maintenance
o Lessee shall bear all costs associated therewith
§ DBE branch managers should ensure this is done, documented, and reported
§ Lessees may buy advance yearly maintenance contracts with the suppliers

4/7/22 No 17
AMLP PRODUCT FEATURES CONTINUED*

►Insurance
§ The lessee is responsible to take full comprehensive all risks insurance cover plus public liability
insurance, against the machines and the implements
§ In case the lessee cannot oblige, DBE will do it with an insurance company of its choice and will
charge the lessee (out of the 20% down-payment)
§ Insurance shall be made on full duty paid basis
§ It is the lessee’s responsibility to renew the insurance policy on the leased equipment on time
o If it fails, DBE will insure the machines and claim the insurance premium from the lessee.
o Failure to reimburse the insurance premium to DBE, may result in termination of the contract and
repossession of the equipment.
►Other charges
§ DBE reserves the right to demand the payment of other fees and costs like:
o legal fees, court fees, valuation fees, inspection fees, unpaid insurance premiums, other admin
fees, if and when they occur.

4/7/22 No 18
AMLP PRODUCT FEATURES CONTINUED*

►Exclusions
§ Projects not complying with DBE’s Environmental, Social Management System (ESMS) are excluded.
►End of term
§ At end of the lease term and final payment of the lease, full ownership rights of the equipment will
be transferred from DBE to the lessee.
►Event of Default
§ As per AMLP HP Lease Contract.

4/7/22 No 19
4. MARKET RESEARCH*

►Exemplary market research in the regions of Arsi and Bale.

►Field research work confirmed that there is huge potential for agricultural mechanization services.
►Both in terms of diversifying and expanding the existing services.
►Demand for mechanization services only in the regions of Arsi and Bale to exceed ETB 266 million.
►Estimated average package lying in the range of ETB 1.2 million (implements only) and up to ETB 11.6
million (combine harvester, tractor and implements).

4/7/22 No 20
5. LESSEE BUSINESS CASE*

►When applying for a lease under the AMLP, the lessee should amongst others:
§ Submit a business plan for projects less than ETB 10 million or
§ A feasibility study (prepared by a professional) for projects exceeding ETB 10 million.

4/7/22 No 21
LESSEE BUSINESS CASE CONTINUED*

► Technical Viability
DBE Lease Appraisal Team (LAT) will continue using the existing process, procedures, and templates,
considering factors like:
§ Soil type
§ Region
§ Type of crop
§ Weather and rainfall patterns
§ Capacity and technology levels, amongst others
The machines and implements should be:
§ From machinery blueprint
§ Of good quality and acceptable origin
§ Caution will have to be exercised while dealing in machines and implements from Brazil and Italy
§ Those from China and India are excluded

4/7/22 No 22
LESSEE BUSINESS CASE CONTINUED*

Other technical criteria include:

§ Availability of sheds
§ Utilities and infrastructure
§ Environmental assessment
§ Proforma evaluation and assessment
§ Expected output/yield per hectare
§ Availability of trained and experienced staff and operators and so o

4/7/22 No 23
LESSEE BUSINESS CASE CONTINUED*

►Financial Viability
Financial viability depends on a lot of factors amongst which some are:
§ Demand for agricultural mechanization services in the region
§ Type of crop
§ Desired mark-up and market price for agricultural mechanization services
§ Type of technology package
§ Useful life of the machines
§ Annual percentage interest rate
§ Fixed and variable costs
§ Tenor of the lease
§ Cash flow and profitability

4/7/22 No 24
6. MARKETING STRATEGY*

►There are two key levels of AMLP marketing strategy:

§ 1. The Product Level:
o Supporting DBE in creation of a marketing concept and marketing tools, tailored to the Ethiopian
context and the AMLP’s target groups
o Creation of a visual and conceptual identity, which is acceptable in Ethiopia, and which highlights
the important roles of DBE and MoA in the AMLP framework
o Ensure that there is a pipeline of viable lessees that meet the AMLP lessee eligibility criteria
o Development and implementation of marketing tools supporting the promotion of AMLP leasing
product
o Supporting DBE in project identification of potential clients and lending opportunities

4/7/22 No 25
MARKETING STRATEGY*

§ 2. The Programme Level:

o Awareness raising about the benefits of leasing as innovative financing product for agricultural
mechanization through promotional activities
o Support DBE, MoA, and intermediaries (e.g., suppliers) in the planning and implementation of
promotional events.
o Informing farmers, agricultural mechanization service providers, youth groups etc. about the
benefits of leasing and the economic benefits of upgrading their machinery
o Ensure that the widest range of stakeholders relevant to the topic of mechanization in Ethiopia is
informed about the AMLP

4/7/22 No 26
MARKETING STRATEGY*

►Marketing Materials and Tools

§ It is advised to design marketing materials that can support the AMLP promotional efforts and be:
o Hand-out during the awareness raising events to trainees, farmers’ associations, suppliers,
chambers of commerce, trade associations, repair centers, SME bureaus, extension service
bureaus, GIZ offices and training centers (e.g., notebooks, folders, flyers, brochures, etc.)
o Placed at the physical locations/stores of the selected machinery equipment suppliers,
cooperating with DBE under the AMLP (e.g. flyers, roll-up banners)
o Disseminated in DBE branches to ensure awareness of new clients for the AMLP and the
beneficial product design (flyers, brochures, roll-up, notebooks)
o Presented at fairs and promotional events (all promotional products).

4/7/22 No 27
MARKETING STRATEGY*

►Direct Marketing through AMLP Supplier

§ Suppliers agree to serve as active marketing channels for the AMLP. This entails:
o Active promotion of DBE’s AMLP product to existing clients and new walk-in-clients
o Active promotion of the AMLP in fairs, events, and other external activities the supplier
participates in
o Creation of awareness among clients about the benefits of leasing in general and the AMLP in
particular
o To facilitate direct AMLP marketing through the selected AMLP suppliers,
o AMLP promotional materials to be displayed and disseminated in the supplier branches,
o Disseminate AMLP success stories through their social media and online communication
channels.

4/7/22 No 28
IDENTIFYING TARGET MARKETS FOR AMLP

►AMS providers in areas where:

§ Large number of smallholder farmers
§ Fertile land with generous yields
§ Preferably irrigated land
§ Farmers generally well educated
§ Farmers generally apply modern seeds and agrochemicals
§ Availability of service centers and garages
§ Good infrastructure of roads, electric grid and water supply
§ Preferably areas where extreme weather events are rare
►Larger-scale farmers – all of the above, plus:
§ Preferably members of value chains with long-term relationships with clients
§ Crops which have had stable prices historically
LEADS GENERATION STRATEGIES FOR AMLP

►Sources of leads:
§ MoA
§ Federations, unions, cooperatives, chambers
§ Recommendations from existing clients
§ Commercial fairs
§ Catalogues, membership books
§ Internet web-pages
§ Clients/suppliers of existing customers
§ Related parties of existing clients
§ Accountants/lawyers/tax advisors offices
►Leads generating actions:
§ Sending emails
§ Cold calling
§ Memorandums with institutions or organizations on leasing to their members
KEY CHARACTERISTICS OF A HIRE-PURCHASE TRANSACTION

Kofi is an AMS provider. He has a new client and therefore needs to buy a new tractor and seed drill.
Kofi visits a local supplier and following the supplier’s specialized advice, selects the most appropriate
tractor and seed drill for his needs. As the assets are not available at the supplier’s premises, they will
have to be ordered to the producer in Europe and will be shipped to Djibouti and then transported to
Ethiopia by road. The entire process is expected to take 3 months.
Kofi gets the following offer from the supplier and brings it to you to apply for lease financing of the
tractor and seed drill:
ASSET OFFER

Item Cost (Birr) Share (%)

Tractor, Make…, Model…, Technical characteristics…, FOB Hamburg 3 200 000 62.75
Seed drill, Make…, Model…, Technical characteristics…, FOB Hamburg 700 000 13.73
Freight charge 800 000 15.69
Maritime insurance 30 000 0.58
Terminal handling charges at Djibouti harbour 70 000 1.37
Trucking from Djibouti to supplier 100 000 1.96
Customs duties 0 0
Training of personnel (optional) 50 000 0.98
Prolonged guarantee (optional) 150 000 2.94
VAT at 18%
TOTAL 5 100 000 100.00
LEASE OFFER

►Following DBE’s internal procedures, you ask Kofi to visit 2 other suppliers and get offers for the same
models of tractor and seed drill. Which offer’s value will you take as a basis for your leasing offer – the
cheapest, the middle one or the most expensive one?
►Let’s say the offer on the previous slide is the offer which you choose to use. Which costs will be
included into the lease financed amount?
►Are you planning to offer a grace period to the Kofi?
►Do you expect seasonality in the prospect’s business?
►If you don’t expect any seasonality, you would provide Kofi with the following lease finance offer:
 LEASE OFFER

Period Payment Interest Principal Remaining Principal

Asset's cost 4 900 000 1 85,230.30 35,937.27 49,293.03 3 870,767,97
VAT - 2 85.230.30 35,485.37 49,744.93 3 820,962.04
Down payment
0% n/a 3 85.230.30 35,029.32 50,200.97 3 770,761.07
Lease financed
amount 4 900 000 4 85.230.30 34,569.10 50,661.20 3 720,099.87
Tenor (months) 60 5 85,230.30 34,104.65 51,125.65 3 668,974.22
Grace period
(months) - 6 85,230.30 33,635.95 51,594.35 3 617,379.87
Interest rate p.a. 11% … … … … …
59 85,230.30 1,543.18 83,687.11 168,328.85
60 85,230.30 775.97 84,454.33 0.00
TOTAL 5 113, 817.91 1 194, 005.31 3 920 000.00

►If you discuss the topic with Kofi, and you get convinced that Kofi’s business is strongly seasonal, then
the repayment schedule you offer him will be more flexible, in line with the businesses high and low
seasons.
NEXT STEPS IN LEASE ASSET PROCUREMENT
►If the lessee accepts the lease offer, Kofi and DBE sign a lease contract and a tripartite agreement.
►DBE opens an account for the lessee and lessee transfers the down payment there.
►DBE gives an order to the supplier and opens an irrevocable and confirmed LC in favor of the supplier
or manufacturer.
►Supplier orders the asset at the producer.
►Supplier delivers asset and installs it at the lessee’s premises, if necessary. Lessee signs Acceptance
certificate.
►Lessee starts paying lease instalments as per repayment schedule. With each payment, lessee gets a
proportional share of ownership in the lease asset.
►Lessee services asset at authorized garage.
►Annually, lessee reimburses DBE for the insurance policy which is in favor of DBE.
►After the payment of all lease instalments, the lessee becomes the sole owner of the lease asset
automatically. There is no residual value for HP lease in Ethiopia.
THANK YOU

►Open Discussions

4/7/22 No 36