TechnoServe - Ghana

. S TU DTUDIES IN RURAL AND MICR4O FINANCE No.2 20323 December 1997 4 T d ech noserve/G ana 4- H __ ~December 1997   TECHNOSERVE / GHANA December, 1997  Contact: Shimwaayi Muntemba, Task team leader Environment Group Africa Region The World bank Tel: 2024587370 Fax: 202 473-8185 Email: SMuntemba@WorldBank.org TechnoServe/Ghana P.O. Box 135, Accra Ghana Tel: 233-21-773873, 773875, 776149 Fax: 233-21-772789 Edited by Lawrence Mastri The World Bank task team wishes to thank Anne-helene Lulling who until January 1997 was a member of the team. The views expressed In this docauent are those of the authors and do not necessarily represent the opinions of the World Bnk or any of its affilated ornizations. Africa Region The World Bank Washington D.C. December 1997 . .  TABLE OF CONTENTS FOREWORD .............................................................. V ACRONYMS AND SYMBOLS .............................................................. VI EXECUTIVE SUMMARY ................................................ VII ESTABLISHMENT AND EVOLUTION .............................................................. VII OPERATIONS .............................................................. VII ACCESS, OUTREACH AND IMPACT .................................................Viii FINANCIAL PERFORMANCE ..................... ......................................... Viii INNOVATIONS AND LESSONS LEARNED .............................................................. Vill 1. BACKGROUND ...............................................................1 INITIAL OBJECTIVES AND EVOLUTION ............................................................... 1 Perceived Population Needs ........................................................................1 Influence of Outside Models on Strategy and Operations ........... ................ 1 Collaborating Institutions .............................................................. 2 Problems and Initial Difficulties .............................................................. 2 INITIAL ORGANIZATION AND RESOURCES STRATEGY ...............................................2 SoClo AND MACROECONOMIC CONTEXT .............................................................. 3 Initial Context ...............................................................3 The Period 1992-1994 ...............................................................4 Policy Environment ...............................................................5 Financial Services in Rural Areas ...............................................................6 2. STRUCTURE AND ORGANIZATION ............................................................... 7 ORGANIZATIONAL STRUCTURE AND CONDUCT ................................................. 7 MANAGEMENT AND INSTITUTIONAL ORGANIZATION ................................................9 HUMAN RESOURCES .............................................................. 10 3. MODES OF OPERATION........................................................................................... RANGE OF SERVICES ....................................................... 1I1 LENDING SERVICES ....................................................... 12 DEPOSIT SERVICES ....................................................... 16 OTHER FINANCIAL SERVICES ....................................................... 16 NON-FINANCIAL SERVICES ........................................ 17 4. OUTREACH, ACCESS AND IMPACT ......................................... 19 SAVINGS ........................................ 19 LOANS ........................................ 20 FINANCIAL RETURNS ........................................ 21 Indirect Economic Impact ........................................ 22 Savings and Credit Awareness ........................................ 23 Risk Factors .................................. 23 SOCIAL IMPACT .................................. 24 Client Participation .................................. 24 Gender Issues .................................. 24 Impact on Institutional Capacity .................................. 25 iii  5. FINANCIAL PERFORMANCE ......................................................... 27 SOURCES AND USES OF FUNDS ........................................................ 27 CHALLENGES AND FUTURE PLANS ......................................................... 29 6. INNOVATIONS AND LESSONS LEARNED ........................................................ 31 APPENDIX I .......................................................... 33 ENTERPRISE DEVELOPMENT METHODOLOGY ..................................................... 33 APPENDIX II .......................................................... 38 THE VIEW FROM THE FIELD - AN EXCERPT FROM A TECHNOSERVE NEWSLETTER ......................................................... 38 REFERENCES .......................................................... 41 iv  FOREWORD The purpose of the World Bank's Action Research Program on Sustainable Rural and Microfinance Institutions in Africa is to strengthen local rural and microfinance institutions and contribute to mechanisms for supporting sustainable grassroots institutions which provide financial services to the poor. Action Research emphasizes capacity-building at the national level, by distilling and disseminating "best practices" and strengthening local networks of microfinance providers. The program adopts a participatory approach to capacity-building or strengthening. Leading rural and microfinance institutions, mainly NGOs, oversee the process through a core group, the "champion", one of which is normally the coordinating agency. In Phase 1 of the program, diagnostic studies of practices in two or three selected institutions are conducted and discussed at a national workshop. During this phase networks are also formed or strengthened. During Phase 2, the network may opt for more in-depth studies, as in Phase 1, or it may focus on one issue or delivery mechanism drawn from four or more institutions. These are discussed at a second national workshop. The program also supports a newsletter and periodic meetings of the network to encourage wider participation, dissemination of international best practices, further sharing of experiences, development of guidelines and policy dialogue with the government. Sub-regional workshops facilitate networking and information-sharing across national boundaries. At the end of three years, networks are encouraged to become self-supporting. This report on TechnoServe/Ghana is one of a series of diagnostic studies being carried out in six countries. It is one of the many efforts by NGOs throughout Africa to reach poor producers normally ignored by the large, commercial institutions. TechnoServe acts as an intermediary between small producers and processors, and commercial banks. It strengthens the capacity of small producers and processors to both manage their enterprises efficiently and sustainably; and it equips them with the technical knowledge for dealing with banks. The Action Research Program is funded by the Swiss Agency for Development and Cooperation and is managed in the Bank by a cross-sectoral team comprising Shimwaayi Muntemba (team leader, Environment), James Coates (Agriculture), William Steel (Private Sector Finance), Alexander Amuah (Consultant) and Liisa Hietala (Assistant). The team has collaborated with a Bank-wide initiative "Sustainable Banking with the Poor," and with a tearn of colleagues at headquarters and resident missions working on micro-enterprise issues and with NGOs. TechnoServe documented their experiences in partnership with some of the small producers and processors that they are supporting. The multi-disciplinary and cross- sectoral nature of the management and research teams have brought strength to this grassroots-focused initiative. Cynthia Cook Thomas W. Allen Sector Manager Sector Manager Environment Private Sector Finance v  ACRONYMS AND SYMBOLS ADB Agricultural Development Bank ASIP Agricultural Sector Investment Program BOG Bank of Ghana CBE Community-based Enterprise CE Cost-effectiveness CIDA Canadian International Development Agency DoC Department of Cooperatives EDCS Ecumenical Development Cooperative Society ERP Economic Reform Program FDB Field Data Base GECLOF Ghana Ecumenical Church Loan Fund GEPC Ghana Export Promotion Council GLSS Ghana Living Standards Survey GoG Government of Ghana GSS Ghana Statistical Service MFI Microfinance Institution MoFA Ministry of Food and Agriculture NGO Nongovernmental Organization RoSCAs Rotating Savings and Credit Associations TIP Trade and Investment Program, funded by USAID TNS TechnoServe USAID United States Agency for International Development Ghanaian currency (cedi) vi  EXECUTIVE SUMMARY This report is part of a World Bank-sponsored applied research initiative which examines best practices in Rural and Microfinance Institution (MFI) development in a number of African countries. The objective of the research is to analyze and document the experience of leading MFIs that have developed innovative approaches to providing financial services to the rural and urban poor. It is hoped that the research findings will provide information that can help MFIs to develop more effective and sustainable operations. The TechnoServe (TNS) case was chosen to highlight the role of a nongovernmental organization (NGO)that seeks to link informal sector entrepreneurs with the formal financial sector. It is expected that lessons from TechnoServe's experience will benefit MFIs in Africa and in other developing regions. ESTABLISHMENT AND EVOLUTION TechnoServe is neither an MFI nor a non-banking financial institution (NBFI). It was established in 1968 with the objective of helping communities develop viable, group-owned enterprises by providing general management, technical and financial training for community members. TechnoServe established its Ghana program in 1971 with the goal of promoting enterprise development in order to increase productivity, incomes and employment within the participating rural communities. OPERATIONS TechnoServe restricts its enterprise promotion activities to a few commodity sub-sectors to ensure acquisition of expertise in the delivery of assistance and also to maximize its impact. The enterprises that TNS supports in Ghana are all in the agricultural sector and involve commodities that are significant for many small-scale producers and processors. The sub- sectors on which the organization currently focuses include palm oil processing, cereal storage and marketing, and non-traditional export crops production, storage and marketing. TechnoServe's operating strategy involves positioning itself as a financial intermediary by creating linkages between the assisted enterprises and local banks. In Ghana, TNS has interacted with a variety of banks but most intensively with the Agricultural Development Bank (ADB). In the process, TNS has evolved its own financial intermediation strategy which incorporates a number of practices that have grown out of its experience in this area. These practices include: focus on post-harvest activities rather than agricultural production (to reduce the risk of loan default); requiring groups assisted to put their own resources at risk in the enterprises; group lending; mandatory savings; use of commercial interest rates; the provision of external guarantees; and the use of produce as loan collateral. While TNS devotes considerable effort to credit-related activities, it views access to credit as a necessary but insufficient condition for enterprise viability. Therefore, it places relatively greater emphasis on the provision of business planning, management, group formation and record-keeping skills through training and technical advice for community groups that meet its criteria for assistance. vii  ACCESS, OUTREACH AND IMPACT As of January 1995, TNS was providing assistance to approximately 60 communities in the country. The enterprises it assisted provided direct benefits to approximately 55,000 people and indirectly to approximately 340,000 additional persons. The organization's role in developing linkages between rural enterprises and the formal financial sector has not only assisted rural communities, but also provided models for several banks to lend successfully to the small-scale agricultural sector. The inventory credit model developed by TNS, which uses stored agricultural produce as collateral for bank loans, has been a particularly successful model which several commercial banks now use independently of TNS. FINANCIAL PERFORMANCE TechnoServe receives significant funding from the United States Agency for International Development (USAID), the World Bank and the Ecumenical Development Cooperative Society (EDCS). Loan funds come primarily from the Agricultural Development Bank and the Ghana Ecumenical Cooperative Loan Fund (GECLOF). Between 1990 and 1994, TNS assisted enterprises to leverage approximately 280 million cedis*. Recovery rates on loans range between 98 and 100 percent. INNOVATIONS AND LESSONS LEARNED Extensive experimentation with sustainable MFI development models has helped TNS to develop some successful best practices in Ghana. These include: specialization in selected agricultural commodities; the use of innovative alternatives to traditional bank loan collateral requirements; provision of initial external loan guarantees to banks to minimize their risk exposure and to increase the likelihood of their participation in new schemes; and emphasis on the provision of training and technical assistance in addition to credit. * Exchange rate in 1990 was 345 cedis/dollar and in 1994 was 1,053 cedis/dollar. Source: International Financial Statistics, IMF. viii  1. BACKGROUND INITIAL OBJECTIVES AND EVOLUTION TechnoServe Inc. is an international NGO founded in 1968. This nonprofit organization has programs in 14 countries in Africa, Latin America and Central Europe, with headquarters in Norwalk, Connecticut, U.S.A.. The Ghana program was established in 1971. TechnoServe's mission is to improve the social and economic conditions of low-income people through the establishment of sustainable community-based enterprises (CBE) that increase productivity, income and employment. TechnoServe's objective is to establish viable rural enterprises by providing general management and financial training and assistance. Although the rural poor often cite lack of credit as their most important constraint, TNS has found that lack of financial experience and poor management skills are perhaps more significant contributory factors to their inability to establish viable enterprises. Perceived Population Needs TechnoServe's methodology is rooted in its desire to create sustainable and financially independent projects. From its inception, the organization has been opposed to the concept of providing relief food supplies, grants and subsidized inputs to communities, in the belief that such assistance creates dependency and is ultimately unsustainable. Instead, TNS believes that rural communities require technical assistance and financial and business management training in order to make sound business decisions and to leam how to create and operate their own enterprises. Influence of Outside Models on Strategy and Operations Initially, TNS believed that in the absence of formal institutional financing, its rural clients needed to leam to save funds to meet their own enterprise-credit needs. Although TNS adhered to this belief for many years, it eventually recognized that credit was a necessary, albeit insufficient, ingredient for community enterprise development. Most communities it worked with lacked sufficient internal resources to raise the funds required to invest in viable enterprises that could achieve economies of scale and generate significant income, productivity and employment benefits for members and their families, TNS, therefore, evolved its own financial intermediation strategy by developing "best practices" in micro-enterprise financing. These included programs based on group lending, mandatory savings, use of commercial interest rates and use of produce as collateral. 1  Collaborating Institutions Collaboration with institutions was limited to: (i) Department of Cooperatives (DoC), which assisted with legal registration of groups; (ii) Ministry of Agriculture (now Ministry of Food and Agriculture) which offered agronomic services. Problems and Initial Difficulties Initial problems and difficulties included: (i) high illiteracy rates among the member-owners of the enterprises being assisted, which necessitated intensive on-site education; and (ii) a general reluctance on the part of clients to accept full responsibility for all aspects of enterprise development, TNS having to perform virtually all tasks. INITIAL ORGANIZATION AND RESOURCES STRATEGY TechnoServe's primary strategy is to identify groups interested in managing rural enterprises. Then it provides training in group formation, leadership skills and basic business management. Finally, it provides continuous technical assistance. The aim is to ensure that the enterprises could continue to run on sound business lines. This approach was designed to build a sense of commitment to and ownership of the enterprise by community members. During the 1971-87 period, TNS' community-based enterprise activities focused on the following interventions: (i) technology improvements and business management training for charcoal producers in the Central Region; (ii) appropriate technology and business management training for extraction of syrup from sugarcane in the Central and Volta Regions; (iii) training and technical assistance for sugarcane and vegetable farmers in the Central Region; (iv) assistance to women's groups for pottery marketing in Eastern Region; and (v) production and marketing assistance to farmers raising rabbits in the Volta Region. During this period, TNS employed a few agronomy and accounting specialists who focused primarily on providing technical assistance and financial/accounting training to groups of small-scale farmers involved in agricultural production and processing. 2  SOCIO AND MACROECONOMIC CONTEXT Initial Context The relatively buoyant economic conditions that prevailed in Ghana between 1957 and 1973 deteriorated dramatically during the mid-1970s. The economy remained depressed until the mid-1980s when the Government of Ghana (GoG) launched its Economic Recovery Program. TechnoServe established its program in Ghana during this difficult period in the nation's economic history. The initial years of its operations were, therefore, particularly challenging given the prevailing macroeconomic conditions and TNS' focus on spurring local enterprise development. Selected national economic indicators showing overall decreases in real per capita GDP from 1980 to 1994 are presented in Table 1 below: TABLE I SOCIOECONOMIC INDICATORS 1980-1994 W4DI~TQR$N AR 19 0 198 1990 1994 AverageAnnual ;Z -tIDATOR S EQ':: OVA 108. . ..... 199' _, An Percntage Growth !.___. ________. __________ 75-84 85- ' 90-94 Real GDP (millions of US dollars) 4654 4613 5791 6854 -0.8 5.1 4.2 Real Per Capita GDP 433 359 386 405 NA NA NA GDP Growth (% annual change) 0.6 5.1 3.1 3.6 NA NA NA GDP Deflator(1987=100) 95.5 97.6 107.5 79.1 85.5 101.2 100.5 Population (millions) 10.7 12.8 15.0 16.9 2.5 3.3 3.1 Population Density 47 56 66 74 NA NA NA Note: The service sector contributes over 45% to GDP while the industrial sector contributes approximately 15% of GDP. Source: The World Bank, African Development Indicators, 1996. A brief historical background may be appropriate at this stage. During 1957-1973, rainfall was generally more reliable than in the decade that followed, and there was also less pressure on the nation's health and educational facilities. The economic deterioration during the period from the mid-1970s to mid-1980s was due to, inter alia, an over-valued exchange rate, deficit financing, monetary expansion, local price control mechanisms and major declines in export prices. Domestic and international programs instituted to reverse the deteriorating trends in agriculture included: Operation Feed Yourself (OFY) and Operation Feed Industry (OFI) which were initiated during the 1970s; and the Managed Input Delivery and Agricultural Services (MIDAS) Program initiated in 1976 by the USAID and the GoG. 3  While the GoG provided most of the physical and social infrastructure and amenities in the rural communities, a few private entrepreneurs and NGOs were involved in the educational and health sectors. The Ministry of Agriculture provided agronomic advice only. With the exception of TNS, no institutions were involved in providing on-the-ground accounting and management training for rural agricultural cooperatives and enterprises. The Department of Cooperatives provided centralized training for cooperative secretaries and audited cooperative societies' records, but did not provide any significant field level assistance. The Period 1992-1994 In 1994, the population of Ghana was estimated to be 16.9 million, with over two-thirds living in the rural areas. The population density was estimated at 74 persons per square kilometer, representing a more than 50 percent increase from the 1980 figure, and twice that of the 1970 figure. Other macroeconomic and financial descriptive statistics are presented in Table 2, below. The main income sources of the rural poor are primary agricultural production, trading and handicrafts. There is gender division of labor, with the off-farm activities (trading and handicrafts) generally being dominated by women. Opportunities are now being created to increase incomes through value-added processing and improved marketing programs being implemented by TNS and a handful of other organizations. However, only a small percentage of the rural population is engaged in these activities. TABLE 2 FINANCIAL DATA, 1992-1994 Inflation Rate (%) 13.3 27.7 23% as of June Formal Sector Annual 19.75- 26.5 23-39 20-35% Interest Rate (%) (Minimum & Maximum) Informal Sector Annual 100 100 100 Interest Rate (Money Lenders) (%) Exchange Rate (Year End 525 780 1035 Figures) (cents per dollar) The most recent Ghana Living Standards Survey (GLSS) report (1988) indicated that 87 percent of rural households live in communities with a primary school; 64 percent live in areas with a middle or junior secondary school; and only 1 I percent live in communities with a senior secondary or technical school. It was estimated that 50.6 percent of the rural population 4  have never attended school. Health facilities are also less available in the rural areas. Only 25 percent of rural communities have health clinics or posts and only about 20 percent of doctors practice in rural areas. To reach a hospital or dispensary, over 55 percent of rural dwellers have to travel more than one hour. About 80 percent of the rural communities have access to motorable roads, which are in very poor condition. Lack of reliable transport not only depresses agricultural production and rural incomes but also restricts access to educational and health facilities. The Ghana Statistical Service (GSS) report of 1993 indicates that 22 percent of rural dwellers live in communities with daily markets, 19 percent with periodic markets and the remaining 59 percent with no market of any kind. The GoG estimates that 82 percent of rural dwellers live in communities where there is no electricity or generator and that 84 percent have no access to potable water (GSS, 1993). Only 18 percent of the rural population have access to a post office, only about 3 percent have access to a public telephone. Since the Economic Recovery Program was launched in 1983, Ghana's economy has grown steadily, with real GDP growing at about 5 percent per annum over 1985-89, led by industry and services (Table 1). Inflation was brought down gradually from over 100 percent to an average of 50 percent per annum during the period. By 1992, the inflation rate fell as low as 13 percent though it has subsequently risen again (Table 2). Formal sector interest rates have moved in parallel with inflation rates in the 1990s, although informal moneylenders' rates have tended not to vary. Policy Environment Current GoG and donor policies relevant to agriculture and essential for the improvement of socioeconomic conditions include: i. increasing private sector involvement in the sale of agricultural inputs and in the marketing of agricultural products; ii. trade promotion with emphasis on non-traditional exports; iii. special projects, such as the collaboration between the Agricultural Development Bank (ADB) and the International Fund for Agricultural Development (IFAD) designed to make credit available to small-scale farmers in the Ashanti, Brong Ahafo and Volta Regions; and iv. the Agricultural Sector Investment Program (ASIP) to finance rural infrastructure. This is, however, hampered by the limited capacity of local institutions to conduct feasibility studies and supervise implementation. The most important external development intervention is the on-going IMF/World Bank-supported Economic Recovery Program (ERP) which seeks to achieve accelerated economic growth. Significant local initiatives include: increased private sector (corporate) involvement in the agricultural sector; 5  * decentralization to devolve authority for planning, decision-making and implementation of programs to local District Assemblies and local communities; * diversification of exports; and * attempts to contain inflation and rationalize the foreign exchange regime. Financial Services in Rural Areas Although 123 rural banks have been established since 1976, only 9 percent of rural households have access to banking services in their communities (GSS, 1993). Formal banks are estimated to devote less than 20 percent of their total loans to agriculture, almost entirely to relatively large commercial farmers. This is because the banks consider their present operations sufficiently profitable and are generally not interested in providing rural financial services which involve higher transaction costs and higher risk (CIDA, 1992). The total combined volume of commercial bank loans and advances to agriculture (including forestry and fisheries) is about 16 percent of estimated production credit demand (Bank of Ghana, 1994). While loans from commercial banks, rural banks and credit unions (the most significant non-bank financial institution in rural areas) to the agricultural sector as of March 1993 was estimated to account for another 19 percent of total production credit demand (Quarterly reports of BOG). But while the demand for agricultural credit clearly exceeds the current supply, a recent study on Rural Financial Institutions (RFI) indicate that RFIs, as a group, lack the resources, operational capacities and human resources to intermediate effectively in the agricultural sector under present circumstances (Ministry of Food and Agriculture, 1995). Historically, the most important sources of funding in rural areas have been friends, family members and money lenders. Funds obtained from these sources were usually not used for productive purposes but to meet unexpected family obligations such as funerals. Bank financing for small-scale agricultural activities has been virtually absent due to: i. the high risk associated with small-scale rural ventures; ii. the high loan transaction costs of such lending; iii. crowding-out by finance to the public sector and high interest on Bank of Ghana bills; and iv. the existence of more attractive (large-scale) lending alternatives. Savings mobilization in the rural sector has also been low and traditionally has been limited to a small percentage of community members who have participated either in Rotating Savings and Credit Associations (RoSCA), Credit Unions or susu collection. The susu collection involves individuals who go to clients to collect daily savings and then return the savings, less one day's savings contribution as a service fee, at the end of each month. The susu is a convenient, forced savings system which enables clients to maintain funds, in the face of family and social pressures and obligations, required to operate their businesses. Participants in these schemes are usually market women, traders and other persons with regular (as opposed to seasonal) sources of income. 6  2. STRUCTURE AND ORGANIZATION ORGANIZATIONAL STRUCTURE AND CONDUCT TechnoServe is registered by the Ministry of Employment and Social Welfare as a Non- Governmental Organization (NGO). It operates in seven out of the ten regions of Ghana. In addition to its offices in Accra, two branch offices have been established in Techiman and Wa in the Brong Ahafo and Upper West Regions because: (i) several of the assisted enterprises are located in these regions; (ii) TNS hopes to widely disseminate its programs in these regions; and (iii) to reduce the cost of providing services to communities in these areas. Enterprises in other parts of the country are visited on a monthly basis by Project Advisors operating from the headquarters in Accra. The distribution of enterprises by region is shown in Table 3. TechnoServe's objectives have always been to increase productivity, incomes and jobs for rural communities through the promotion of sustainable enterprises. In pursuit of these objectives, TNS seeks to increase the scale of its impact, reduce the cost of its services and build local capacity by collaborating with relevant agencies and institutions that provide services to the rural poor. These include: i. Department of Cooperatives (DoC) for legal registration of the groups that TNS assists, and in return, the DoC staff receive training in enterprise management; ii. Ministry of Food and Agriculture (MoFA) for agronomic services to the enterprises; iii. Agricultural Development Bank (ADB) and the Ghana Ecumenical Church Loan Fund (GECLOF) for inventory credit, working capital and fixed capital loans; iv. Ecumenical Development Cooperative Society (EDCS), Bank of Ghana (BOG), and the Trade and Investment Program (TIP) Export Loan Fund for loan guarantees; and v. Ghana Export Promotion Council (GEPC) for assistance with the promotion of non- traditional export crops. Since its inception in 1971, TNS Ghana has maintained an organizational structure consisting of teams of full-time, sector-specific project advisors who provide technical assistance and training to clusters of enterprises. The head office staff in Accra provide credit analysis, research, staff training, and monitoring and evaluation services to help ensure the quality of the program. TechnoServe which initially worked in several sub-sectors at a time (e.g., charcoal, sugar-cane syrup, vegetables, pottery, rabbits) now focuses on a few sub-sectors for maximum impact. It employs 28 Ghanaian career staff and consultants qualified in finance, accounting, marketing, agronomy, engineering, economics and sociology. 7  Table 3 Distribution of Activities by Location Cereals Upper West 3 Brong Ahafo 12 Eastern 1 Edible oil Ashanti 6 Western 6 Brong Ahafo 9 Eastern 1 Central 3 Volta 1 Non-traditional export Brong Ahafo 5 crops Ashanti 2 Eastern 6 Central 2 Greater Accra 2 TOTAL 59 To formalize relationships with clients, TNS typically signs management contracts with enterprise group members. The contract describes the responsibilities of both parties to the agreement and specifies that TNS views the relationship as a business agreement that can be annulled if either party becomes dissatisfied with the other's performance or if the arrangement no longer meets either party's needs. The client groups pay management fees as agreed upon in the management contracts. These fees vary according to the nature and size of the enterprise in question. For example, the cereals groups pay management fees per year at the rate of 10 percent of net profit or