NIB Case study questions:

1. Based on which approach did the bank choose or identify the market

segment? Justify your answer please.

2. What is the bank aim(s) fortargeting this segment in particular?

3. Why are some banks reluctant to support the agriculture sector in Ethiopia?

4. Do you think the bank strategy was successful?Justify your answer please.

5. How can the NIB use the internet for abetter segmentation process?

NIB'S INCLUSIVE BUSINESS MODEL The Ethiopian economy is based on agriculture. In 2010, the sector ac- counted for 43% of GDP and employed 85% of the population. Coffee is a particularly important crop-it represents 35% of all export revenues and employs more than a million smallholder farmers. Ethiopia is currently the largest producer of coffee in Africa and the fifth largest in the world. In 2010, the country's coffee exports were valued at over $500 million. NIB is the market leader of the private banking sector in lending to agri- culture. To maintain and grow this position, the Bank aims to expand its reach into rural areas and to continue to strengthen its risk management practices. In support of these goals, NIB is providing access to finance for cooperatives of smallholder coffee farmers as part of the Coffee Initiative in East Africa. The Coffee Initiative is a $47 million program funded by the Bill and Melinda Gates Foundation and managed by the US-based non-governmental organization TechnoServe. Its goal is to increase the incomes of coffee farmers in Ethiopia, Kenya, Rwanda, and Tanzania by increasing the quality and quantity of coffee they produce. In Ethiopia, participating cooperatives range from 300 to 500 smallholder farmers who average approximately three-quarters of a hectare of land each. Nearly 40% of NIB's bank branches are outside of Addis Ababa, providing a foundation on which to reach these farmers. Beyond physical access, the Bank's inclusive business model hinges upon partnerships for financial risk-sharing and farmer capacity-building. For financial risk-sharing, NIB entered into an agreement with IFC estab- lishing a three-year, up to $10 million facility to provide working capital loans to cooperatives working with TechnoServe. The facility offers up to $250,000 per cooperative, disbursed against cash flow requirements and collateralized by coffee stocks. The program is designed such that cooperatives should be able to repay their working capital loans within one year entirely through the sales of their coffee. However, IFC will cover up to 75% of any credit losses NIB incurs. In order to qualify for the working capital loans, cooperatives must have the capacity to produce high-quality washed coffee that earns a premium in the market-the product of using the wet milling process to remove the skin and pulp from coffee cherries, and then wash and dry the coffee beans. During the coffee harvest, the cooperatives use the working capital from NIB to purchase farmers' fresh coffee cherries and process them through the wet mills. Farmers benefit by receiving a com- petitive price from the cooperative at the time of sale and then a second payment, or dividend, out of the cooperative's net profit (calculated after all exports and debt payments are complete). Combining the first and second payments, farmers typically receive a share of two-thirds of their cooperative's gross revenues. Gross revenues for the 2010 harvest aver- aged $100,000 but in some cases exceeded $300,000 per cooperative. TechnoServe's role is to help the cooperatives make effective use of the wet milling process to produce higher value-added coffee. TechnoServe provides technical assistance in operating and managing the wet mills, as well as close collaboration in the business development and governance of the cooperatives. For instance, it helps them organize and register formally, provides their leaders and farmers with training and technical support, and creates linkages with other players along the coffee value chain. One TechnoServe business advisor works closely with two to three cooperatives at a time, and coordinates local specialists that can provide additional training and agronomy services. In addition, TechnoServe helps the cooperatives negotiate and export their coffee directly to buyers instead of working through intermediaries. TechnoServe's support for the cooperatives not only helps build their ca- pacity, but in doing so, helps mitigate NIB's risk in lending to the coffee sector. TechnoServe also helps mitigate NIB's risk by getting involved at the due diligence stage, using its on-the-ground knowledge and experi- ence to help the bank identify the best cooperatives to invest in. The due diligence process first considers technical aspects, such as the amount of coffee available, levels of competition around the cooperative, suitability of the wet mill site, and availability of labor. TechnoServe then helps the cooperative to develop a leadership team and assesses the leaders' skills and commitment to ensure strong governance. The final stage of due diligence involves supporting the cooperative to prepare a business plan and have it approved by member farmers. At any stage, a cooperative can be ruled out of consideration for NIB's working capital loans, which gives them strong motivation to fulfill its due diligence requirements. Technoserve also plays an important role in ensuring that the coopera- tives comply with environmental and social best practices.

DRIVERS FOR NIB'S INCLUSIVE BUSINESS MODEL Underserved but significant business opportunity in lending to the Ethiopian coffee sector NIB's commitment to support small farmers and promote sustainable growth in the coffee sector Need to mitigate risk in lending to the agriculture sector in Ethiopia Despite the size and importance of the ag- riculture sector, and of coffee in particular, Ethiopian banks are often reluctant to lend due to the inherent risks of weather-dependent agriculture and the challenges of lending to smallholder farmers with no formal collateral or credit history. In fact, the general trend over the last year has been for private banks in Ethiopia to allocate smaller portions of their total loan portfolios to agriculture. Nevertheless, agriculture remains one of Ethiopia's most promising sectors, and NIB's inclusive business model is designed to capture the business opportunity associated with its growth potential while at the same time miti- gating the attendant risks. TechnoServe's analysis suggests that recent years, high-quality washed coffee in has received, on average, a 50% premium to low-quality, unwashed coffee in export markets. Furthermore, global demand for high quality or specialty coffee is increasing, making it the fastest-growing segment of the coffee export market. This represents an untapped op- portunity in Ethiopia, where only 20% of coffee today is produced and sold as high-quality in export markets. Over the life of the risk-sharing facility, the volume of coffee processed by borrowing cooperatives is projected to increase to 4,000 metric tons with an increasing share sold as high-quality-a strong indication that they will be able to repay the loans they take out. Furthermore, TechnoServe's capacity-building is designed to help build cooperatives that are sustainable after the organization phases out its assistance, representing potential repeat busi- ness for NIB.

RESULTS OF NIB'S INCLUSIVE BUSINESS MODEL Working capital loans to 62 cooperatives made up of 45,000 farmers Cooperatives have exported two million pounds of green coffee, receiving an average premium of 40% ($0.75 per pound) above the price of low-quality, unwashed coffee Increase in cooperative revenues of approximately $1.5 million 8% growth in NIB's agriculture lending portfolio in 2010 In 2010, NIB made working capital loans to 62 cooperatives made up of 45,000 smallholder coffee farmers. With TechnoServe's support for the wet mill model, the cooperatives produced and sold high-quality, washed coffee directly to 12 international buyers in Europe and the United States. They received on average 40% (50.75 per pound) more than they previously received for low-quality, unwashed coffee, translating into total of $1.5 million in added revenues. Over 1,500 full- and part-time wet mill jobs were created. TechnoServe also supported the cooperatives to implement a broad set of sustainable business practices by providing trainings in environmental stewardship, transparent economic practices, social responsibility, and operational health and safety. The recommended practices and associ- ated training content were developed through close collaboration between TechnoServe and IFC. Each cooperative received 12 unique train- ings before the start of the coffee harvest, for a total of 744 trainings delivered to cooperative leaders, employees, and farmers in 2010. For NIB, the working capital loans have allowed it to remain a leading lender to the agriculture sector and to expand its portfolio even further, increasing its lending by 8% in 2010 over the previous year.

UPDATED AS OF AUGUST 2012 Nib International Bank COMPANY BACKGROUND batere growing it banks with totalt having grown on the Night of total loan portfolio dedicated to the actor between 2008 and 2010 tamath 400 dan ordnad by chanteuf which o nuance Company Addis Ababa amework of the SC Meplace Trading Co LAN Me Sede AB ve coverage throughout type de 210 the there. The Bake found of Directors.com of about 1.700 people and serves more than 10.000 tomers. do 12 tons who are responsible for formuliting agriculture sector providing newy 29 of lending by pre NIB'S INCLUSIVE BUSINESS MODEL The thon economy bused on 2018 WOW wine from to purchase former fresh coffee cherries and courted to 4 of GoP and employed to the pulation. Come poor them through the wet will formers benefit by receiving.com allery from the cope theme of wanden and employ more than millon holder for those paper or dvided out of the cooperare et protected her the largest producer of coffee in Mica and the largest in the world exports and cut pements we come. Combining the trut and in 2010, the country coffee twee word to millen onderformen typically share of two-third of the Mathematics of the evening houding venues of the 2010 Marvest culture to maintain and growth in the Bank topad rachinoralarengthenet Teter. the cooperate Dracon support of the goal is providing stofnaning process to produce higher value-added coff. Tuchowe Cooperatives of the coffee mers part of the Coffee we providence and managing the na lica The Core 547 no program funded by close cobortion in the bedient and governance the till und Meinde Gates Foundation and managed by the Usb the option for hestum og andre non governmental organization Technols to the formally provides them and formers with training and technical come coffee shop and undanta bort underlages with the pages on the coffee creating the quality and for the pred chan One Trebuie adwords with two to three eriting controm swallow me and coordinates all that can be w who priately there hectare oftendering and prononces nation Technofere nach Meaty o Ni bork branches of Addi bola the compete and other cotle drectly to buy moving foundation on which the famen. Beyond who working harmadik access the Banks induse sess model unges upon partnerships for Techdeves port for the cooperatives not only helps build the pect, but in contending to the core for fishing entered into an agreement with centre els me by ting ved the race to $10 million facity to provide woning the come to the ground wiedge and expert to working with Technolewe. The city for my best to the do to $250.000 per periodisted in a weetie process to consider technical pets, has the amount of and cold by coffre the program de twee of cond they cooperatives tould be able to repay the woning within the walls wity of the reserve the on your entirely through the sale of the cute. How will come we had eam up to any credito and conteng gowman The Beast of nowily to the working at the ty me tumor. At anyaga copie geces supporting the cooperate to prepare a businen plan haw the capacity to reduce high willy wed coffee that can be led to consideration with working capillant, which rem in the market the product of using the weeding them in our de umewe the skin and promowaddy Pechere shop important role in uning tut the coopera the coffee bean Duing the coffee at the cooperates use the comply with bei 46 inclusive Business Model - Guide to the industrie Business Models in Porto CASE STUDY Nib International Bank DRIVERS FOR NIB'S INCLUSIVE BUSINESS MODEL undenerwed but significant businessesport intending the three sector commitment to report for me with coffee sector Need to go in lending to the agriculture et in the Huure sector and of coffee por fueror den for Ethiopian bankare of conducting due to the inherentak dependent the feeling to agriculture and the challenges of lendingexport market. The pedep uithole farmers with no formal color pity in why 20 oco credit history in tact the general trendove the days produced and sold last year has been for private banks in the toalecite maler portion of the town or the othering the portfoliostare Newertheless culture of copot 4.000 Ethiops most promising sectors and merito inclusive Business models that they the business opportunity cited we beste te te growth potential while at the same time to furthermore, the building gating the attendants Technoserves as that berts recent year high qually wed coffee IFCS ROLE AND VALUE ADD Garment of up to 10 Wition with No te france for ou somheder coffee men in Ethiopia Gunthede od with winding to the werdependent agriculture sector and a de tory moment on to france ne of the changes to sing up and improv ing the quality of coffee production in the country Fagement with Ninot only reduces NBS the demonstres clience the producerade of the country's coffee sector de les insepence working mironmental and social best practices insectos durcly large numbers of made mesta particular, TFC has been able to contri than standard in collaboration with Techroeve, help mprove wawa and coffee disposal practices RESULTS OF NBS INCLUSIVE BUSINESS MODEL - Working Capital and to come.000 Coordo milion pounds.com werage premium of 40 150.75 per pound above the price washed coffee increase in cooperative revenues of approximately in - grotingurelending portfolio 2010 In 2010, Ne made working capitale de con concentives made up of 45.000 matole exponible and cond hand coffee farmers With Technics support for at the depois the wet mul model the cooperative produced wedged though and sold high quality, washed coffee decydose collaboration between achieve and to 12 intentional buyers in Europe and the Each cooper 12 United States. They received on wegeing bore te feuiler harvest.fo 150:35 per pound more on the previo de cooperative translating into a total of 15 million in added For Newing around www1.800 and wat miljobs were created sector and expand the Tuchowassaported the camp 2018 implement a broad seto sustainable business proyes pon by groviding trainingen DIFC $10 milion kring facility Inclusiness Model - Guide to the inclusive Bannes de Porto