LegCo Panel on Economic Services

ADMINISTRATION OF LOW-INTEREST LOANS
TO OPERATORS IN THE POULTRY TRADE

INTRODUCTION

This paper informs Members of the administration of low-interest loans to operators in the poultry trade who are directly affected by the order by the Director of Agriculture and Fisheries (DAF) in December 1997 to slaughter poultry and require financial assistance to re-establish their businesses.

BACKGROUND

2. On 9 January 1998, the Finance Committee approved a provision of $80 million to enable the Kadoorie Agricultural Aid Loan Fund (KAALF) to make low- interest loans to affected poultry farmers and a provision of $570 million to enable the Loan Fund to make low-interest loans to affected wholesalers and retailers. The purpose is to offer financial assistance to tide them over the difficult period, to re-establish their businesses and to upgrade their equipment and facilities for the purpose of improving hygiene. Details of the parameters (including qualification criteria of applicants) for the loans to poultry farmers, wholesalers and retailers are at the Enclosure. The loans to poultry farmers and those to poultry wholesalers and retailers are administered by the Kadoorie Agricultural Aid Loan Fund (KAALF) Committee and the Director of Agriculture and Fisheries (DAF) respectively. The application period was closed on 8 April 1998.

3. Processing of the applications basically involves checking and verification of information and documents submitted to determine whether the qualification criteria are met and to assess the repayment ability of applicants. For unsecured loans, payments are generally made in three to four weeks after receipt of applications. For secured loans which involve loan security either in the form of a payment guarantee issued by an authorised bank or by property mortgage, notices of approval-in-principle are issued in four to five weeks after receipt of applications. Actual payment is made upon execution of mortgage or submission of a bank guarantee. To expedite the process, a set of guidelines and a list of information and documents required have been provided to applicants.

PRESENT POSITION

Loans to Poultry Farmers

4. At the end of the application period, DAF received 114 applications from poultry farmers applying for loans amounting to $19.97 million. As at 24 September 1998, of these 114 applications : -

1. 79 applications have been approved totalling $12.66 million, of which loans totalling $9.36 million have been paid out to poultry farmers;

2. 19 applications for loans totalling $3.78 million have been on hold, pending the farms in question to comply with the improved farm hygiene and / or other licensing requirements for resuming production; and

3. 16 applications for loans totalling $2.37 million have been withdrawn mainly because the applicants have decided not to resume production.

5. The estimated loan requirement of $80 million was based on the total number of farms affected (i.e. 160) and the maximum amount of loan (i.e. $0.5 million) to each of them. The actual loan requirement is lower than the estimate mainly because a considerable number of farmers have decided not to resume production and the average loan amount per application is less than expected.

Loans to poultry wholesalers

6. At the end of the application period, DAF received 52 applications from poultry wholesalers applying for loans amounting to $129.45 million. As at 24 September 1998, of these 52 applications : -

1. 36 applications have been approved totalling $56.02 million, of which loans totalling $10.69 million have been paid out to poultry wholesalers;

2. four applications for loans totalling $11.55 million have been on hold, pending provision of loan security;

3. two applications for loans totalling $8 million have been rejected mainly because the applicants do not fulfil the qualification criteria; and

4. Ten applications for loans totalling $22.6 million have been withdrawn mainly because the applicants fail to produce the requisite documents to support their applications or to provide loan security.

7. Of the approved provision of $570 million mentioned in paragraph 2 above, $245 million and $325 million are earmarked for loans to poultry wholesalers and retailers respectively. For poultry wholesalers, the estimated loan requirement of $245 million was based on the number of wholesalers affected (i.e. 90) and their average quarterly turnover (i.e. about $2.7 million). The actual loan requirement is lower than the estimate mainly because the number of applications received is smaller than expected. This is presumably because some of the wholesalers have difficulties in providing loan security.

Loans to Poultry Retailers

8. At the end of the application period, DAF received 170 applications from poultry retailers applying for loans amounting to $30.43 million. As at 24 September 1998, of these 170 applications : -

1. 133 applications have been approved totalling $20.48 million, of which loans totalling $20.18 million have been paid out to poultry retailers;

2. 34 applications for loans totalling $5.45 million have been rejected on recommendation of the Director of Urban Services or the Director of Regional Services mainly because the applicants do not fulfil the qualification criteria; and

3. three applications for loans totalling $0.59 million have been withdrawn mainly because the applicants have ceased operation.

9. For poultry retailers, the estimated loan requirement of $325 million was based on the number of retailers affected (i.e. about 1 000) and the maximum amount of loan (i.e. $0.3 million) to each of them. The actual loan requirement is lower than the estimate mainly because the number of applications received is smaller than expected and most of the applicants did not apply for loans exceeding the unsecured limit of $0.15 million.

APPEAL CHANNEL

10. So far, six appeals have been received (including five from poultry retailers and one from a wholesaler). An independent appeal board comprising three non-official members has been set up to deal with such appeals. The five appeals from retailers have been heard and rejected by the appeal board whilst the one from the wholesaler will be heard later.

Economic Services Bureau
September 1998

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Enclosure

Parameters for the Grant of Loans
to Poultry Farmers under the Kadoorie Agricultural Aid Loan Fund
and to Poultry Wholesalers and Retailers under the Loan Fund

1.	Purpose of loans	To assist those in the poultry trade who are directly affected by the order by the Director of Agriculture and Fisheries (DAF) in December 1997 to slaughter poultry and require financial assistance.
2.	Qualifications of applicants	Applicant must be either - a holder of a valid farm licence and affected by the chicken slaughtering operation ordered in December 1997; or a renter of a poultry stall in the Western Wholesale Food Market or the Cheung Sha Wan Temporary Wholesale Poultry Market and actively engaged in poultry trading during December 1997; or a poultry retailer renting a poultry market stall in a municipal council or Housing Authority market or licensed to operate one in a private building and actively engaged in poultry trading during December 1997.
3.	Number and maximum amount of loans	No more than one loan per applicant is granted. Poultry farmers : Unsecured loan - Maximum of $150,000 Secured loan - Maximum of $500,000 Poultry wholesalers : Unsecured loan - Maximum of $150,000 Secured loan - Three months' verified business turnover subject to a maximum of $5 million Poultry retailers : Unsecured loan - Maximum of $150,000 Secured loan - Maximum of $150,000
4.	Security	DAF ensures that adequate security is provided for the secured loans.
5.	Interest	2% per annum for all loans.
6.	Repayment	Loans to be repaid by 12 equal monthly instalments, the last instalment to include interest accrued. Repayment to start six months after draw down of the loan. Borrower can choose to have the outstanding principal and accrued interest repaid at any time he wishes within the 12-month repayment period. In case of default in repayment, DAF may recover the sum outstanding together with accrued interest from the borrower in such manner as she thinks fit.
7.	Administration of the loans	The Kadoorie Agricultural Aid Loan Fund (KAALF) Committee and DAF administer the loans under KAALF and the Loan Fund respectively. Payment of all loans approved are made by DAF.
8.	Submission of applications	Applicants must submit their applications in the form specified by DAF and submit such additional supporting information and documents as may be required by DAF. Applications by poultry farmers and wholesalers are submitted to DAF. Applications by poultry retailers are submitted through the Director of Urban Services (DUS) or the Director of Regional Services (DRS), as appropriate. DUS and DRS vet the applications and transmit them to DAF with their respective recommendations for consideration and approval. Applications should be submitted within three months from the date of Finance Committee approval of the loan arrangement.
9.	Authority for approval of loans	The authority for approval of any loan up to $500,000 is nominated by DAF and is not lower than the Assistant Director level. The authority for the recommendations from DUS and DRS is nominated by DUS and DRS respectively and also is not lower than the Assistant Director level The authority for approval of any loan exceeding $500,000 is DAF personally

Enclosure

Parameters for the Grant of Loans

to Poultry Farmers under the Kadoorie Agricultural Aid Loan Fund

and to Poultry Wholesalers and Retailers under the Loan Fund

1.	Purpose of loan	To assist those in the poultry trade who are directly affected by the order by the Director of Agriculture and Fisheries (DAF) in December 1997 to slaughter poultry and require financial assistance.
2.	Qualifications of applicants	Applicant must be either - a holder of a valid farm licence and affected by the chicken slaughtering operation ordered in December 1997; or a renter of a poultry stall in the Western Wholesale Food Market or the Cheung Sha Wan Temporary Wholesale Poultry Market and actively engaged in poultry trading during December 1997; or a poultry retailer renting a poultry market stall in a municipal council or Housing Authority market or licensed to operate one in a private building and actively engaged in poultry trading during December 1997.
3.	Number and maximum amount of loans	No more than one loan per applicant is granted. Poultry farmers : Unsecured loan - Maximum of $150,000 Secured loan - Maximum of $500,000 Poultry wholesalers : Unsecured loan - Maximum of $150,000 Secured loan - Three months' verified business turnover subject to a maximum of $5 million Poultry retailers : Unsecured loan - Maximum of $150,000 Secured loan - Maximum of $150,000
4.	Security	DAF ensures that adequate security is provided for the secured loans.
5.	Interest	2% per annum for all loans.
6.	Repayment	Loans to be repaid by 12 equal monthly instalments, the last instalment to include interest accrued. Repayment to start six months after draw down of the loan. Borrower can choose to have the outstanding principal and accrued interest repaid at any time he wishes within the 12-month repayment period. In case of default in repayment, DAF may recover the sum outstanding together with accrued interest from the borrower in such manner as she thinks fit.
7.	Administration of the loans	The Kadoorie Agricultural Aid Loan Fund (KAALF) Committee and DAF administers the loans under the KAALF and the Loan Fund respectively. Payment of all loans approved are made by DAF.
8.	Submission of applications	Applicants must submit their applications in the form specified by DAF and submit such additional supporting information and documents as may be required by DAF. Applications by poultry farmers and wholesalers are submitted to DAF. Applications by poultry retailers are submitted through the Director of Urban Services (DUS) or the Director of Regional Services (DRS), as appropriate. DUS and DRS vet the applications and transmit them to DAF with their respective recommendations for consideration and approval. Applications should be submitted within three months from the date of Finance Committee approval of the loan arrangement.
9.	Authority for approval of loans	The authority for approval of any loan up to $500,000 is nominated by DAF and is not lower than the Assistant Director level. The authority for the recommendations from DUS and DRS is nominated by DUS and DRS respectively and also is not lower than the Assistant Director level. The authority for approval of any loan exceeding $500,000 is DAF personally.