Parmesan as Collateral

Parmesan used as collateral

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Milan
IT Italy
Web http://www.credem.it/Privati/Pagine/Home_Privati.aspx
Maturity

Mature

About the project Edit

Active in the valleys of the Emilia-Romagna region, southeast of Milan, the Italian regional bank Credito Emiliano has been using Parmesan as collateral since 1953. This system allows cheese producers to continue to be financed in northern Italy. Credito Emiliano has two climate-controlled warehouses where approximately 440,000 cheese wheels are worth 132 million euros (204 million USD). Each 36 kg wheel, is worth about 300 euros and it bears a serial number so it can be traced if stolen.

The bank offers loans of up to 24 months, equivalent to the time it takes the cheese to age, at the interbank rate in euros plus 0.75% to 2%. The bank agrees with producers up to 80% of the value of their product based on the current market price. At the end of the loan, the customer gets his wheels, loans for the store or supermarket stalls.

In what ways is this project unique and creative? Edit

The parmesan collateral system is unique in the world, and a great example of how creative financing can be used to support agricultural producers. Wine as collateral already exists, and this model already proved its benefice.

What is the social value of this project? Edit

Although access to credit is a real challenge for cheese shops, which have been living in crisis for several years (particularly due to price fluctuations), using parmesan as collateral offers them a new way to finance. The parmesan bank creates a "win - win situation". As for borrowers, this allows cheese producers to finance their spending at reasonable rates. As for lenders, the bank reduces credit risk since it can always sell the cheese, in cases of non payment.

What is the potential of this project to expand and develop? Edit

The guarantee of a loan by using food as a commodity could be replicated with other products. The only problem - finding products that are suitable. In fact, the bank has already considered taking the prosciutto, another specialty in the region, and olive oil as collateral, but these products are much more difficult to store and to market, as well as much easier to steal or replace.

What was the triggering factor of this project? Edit

This access to credit is a real breath of fresh air for dairies that have been in crisis for several years. Not only does parmesan require a maturation of two years which easily exposes producers to price changes (increased from 9.36 euros per kilo in 2004 to 7.27 euros today), but they permanently immobilize the cheese capital. That social problem was the triggering factor of this project.

What is the business model of this project? Edit

This project uses a traditional business model, but with just a different kind of collateral.


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