Transcript Rural Finance

Rural and Agricultural
Finance in Tajikistan
Current Status, Challenges and Perspectives
Frank Höllinger
FAO, Rome
Tajikistan - Expanding Finance in Rural Areas
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Overview of Presentation
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Background of study
The agricultural sector
The financial sector
Supply and demand for agricultural finance
Perspectives
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Background of Study
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Purpose:
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Assess structure and size of demand and supply
for rural/agricultural finance
Make recommendations for enhancing the supply
Approach:
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Data collection and interviews with stakeholders
during two field missions (Dec 05/ March 06)
Review of literature and secondary data
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Agriculture and the Rural Economy
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Agriculture: backbone of Tajik economy
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Agriculture dominates rural economy
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Fruits, vegetables, oilseeds, grains, meat, dairy, etc.
Dominant crop: cotton
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Rural non-farm economy poorly developed
Suitable agro-ecologic conditions for a wide range of crop
and livestock activities:
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25% of GDP, 70% of total employment, 26% of exports and 39% of
tax revenues
1/3 of cropped area, 2/3 of total crop output value, 75-90% of ag.
exports, 85% of fertilizer use
Livestock production only accounts for 20% of ag. output
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Recent Trends in Crop Production
Output of the Major Crops
Tons '000
1200
1000
800
600
400
200
0
1988
1992
1995
1997
2002
2003
2004
Year
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2005
Cotton
Cereal Crops a/
Potato
Vegetables b/
Fruits
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Farming Structure
Land Distribution to Different Types of Holdings, 2006
1%
12%
8%
Kolkhozes
Sovkhozes
18%
61%
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Land of Dehkan Farms
Houshold and Subsidiary
Land
Other
700,000 small-scale producers (<0.3 ha) => 1,2% of land
27,000 Dekhan Farms (1 – 800 ha) => 61% of land
Kolkhozes and Sovkhozes still control 25% of land
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Production trends by farm type
Figure 4.
Output
(000 Som)
Trends in Agricultural Output by Farm Type
1,400,000
1,200,000
Total
Production
'000 Somoni (2000 prices)
1,000,000
800,000
Household
Plots
600,000
400,000
Agricultural
Entities
200,000
Dekkan
Farms
0
1991
1992
1993
1994
1995
Total Production
1996
1997
Agricultural entities
1998
1999
Dekhkan farms
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2001
2002
2003
Household Plots
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Share of farm types in crop output
Tons '000
1000
900
800
700
600
500
400
300
200
100
0
Cotton
Cereal Crops
Potato
Main crops
Vegetables
Tajikistan - Expanding Finance in Rural Areas
Fruits
Household plots
DFF
State/collective
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Livestock production
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Trends
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Share of livestock in total ag. output decreased from 40%
to 20%
Recovery of cattle, sheep and goat production
Increased importance of dairy production
Cattle production shifted from collective farms to
households (87%)
Challenges
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Low productivity of household production
Overgrazing of near-village pastures
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Issues
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Poorly integrated value chains for non-cotton crops
and livestock
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Atomized production and marketing structures: high
transaction costs
Processors: Outdated equipment, poor quality and
packaging, limited access to high value markets, lack of
FDI
Lack of liquidity, barter transactions, difficulties in
accessing raw material
Lack of trust between farmers and processors
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Main constraints to ag growth
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Deterioration of farm infrastructure and equipment
Difficulties in accessing quality inputs and services
Cotton: production quota, low profitability, debt
Incomplete land reform process: Insecure land rights,
incentive problems of DFs
Limited management skills
Marketing: limited size of domestic market, access barriers to
export markets, topography constrains market integration
Limited access to finance
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The Banking System
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Structure and performance have improved but
several issues and challenges remain:
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Low levels of financial intermediation
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Deposits 4-5% of GDP,
Credit 14 – 19% of GDP, including cotton debt
Mainly short-term assets and liabilities
High spreads
Weak lending skills
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Bank lending to agriculture (1)
Current features:
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Only 10% of agricultural lending goes to noncotton crops (US$ 20 mn in 2005)
Clients: mainly large farms and processors
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Bank lending to agriculture (2)
Issues and challenges:
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Limited branch network in rural areas
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Poorly adjusted products and procedures
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High transaction costs
Short maturities, over-reliance on collateral and
business plans, etc.
Poor image among rural producers
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Perceived lack of interest
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The Microfinance Sector
Loan Portfolio (US$)
Share in Total Loan
Portfolio (%)
Commercial Banks (TMSEF)
15.197.929
37.0%
MFOs (AMFOT members)
12.800.000
31.1%
First Microfinance Bank
7.000.000
17.0%
UNDP Community Development Funds
2.700.000
6.6%
700.000
1.7%
Public Agencies
1.400.000
3.4%
Other
1.300.000
3.2%
Total
41.097.929
100%
Supplier of Funds
Mountain Areas Development Programme
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Microfinance Organizations (1)
Features:
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4 big MFOs (>US$ 1mn), 9 medium sized MFOs
(>US$ 100,000), many small ones
US$ 12.8 mn total portfolio
MFO lending to agriculture
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Better presence in rural areas
NGOs provide non-financial services (e.g.,
business advice, extension)
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Microfinance Organizations (2)
Issues and Challenges
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Limited product features:
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Only suitable for a narrow range of activities:
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Mainly group loans with highly standardized procedures
Average loan sizes USD 300 – 400
High costs (often 4% per months flat)
36% livestock, only 6% agricultural production
Recent tends
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Growing competition in urban and peri-urban areas
Introduction of indiv. lending and ag. lending by MFOs
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Supply and demand: The Gap
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Currently supply is limited to the top and the
bottom end of the market
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Main underserved market segments:
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Small DFs (< 5ha): loan sizes up to USD 5000
Medium-sized DFs (5 – 100ha): loan sizes USD 3,000 to
USD 20,000 and above
Medium-sized processors (USD 5,000 – 50,000)
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Dimensions of potential demand
700,000 Households:
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Still unmet demand (USD 3-5 mn?), but need for product
diversification
27,000 Dekhan Farms:
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Average working capital requirements USD 500/ha
Example: 10ha farm => USD 5,000, plus investment capital
requirements
But:
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How many DFs are well managed and profitable enough to take and
repay loans?
What is the absorption capacity of markets for incremental produce?
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Perspectives (1)
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Adopt a gradual approach
Link with initiatives in the agricultural / agribusiness sectors
Finance different actors of agricultural value
chains
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Farmers, processors, input dealers, produce
dealers, exporters
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Perspectives (2)
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Downscaling of banks:
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Focus on small- and medium-sized DFs and
processors,
Loan ranges: USD 3,000 – 20,000 and above
Upscaling of MFOs:
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Micro and small DFs
Larger individual loans, up to USD 5,000
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Perspectives (3)
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Innovations in products and procedures:
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Introduce cash flow based lending: grace periods,
irregular repayment installments
Streamline loan appraisal / approval procedures
Introduce flexible working capital finance products for
repeat customers:
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Automatic loans
Credit lines and overdrafts
Be flexible with collateral focusing on cash flow and
long-term relationship with client
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Perspectives (4)
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Medium-term loans and leasing
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Introduce (micro)-leases for farm and processing
equipment and transport
Need for supply chain development to facilitate
access to suitable technology
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Perspectives (5)
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Enhance rural deposit mobilization:
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to enlarge loanable funds
to provide additional financial service to
customers
to gain information on potential borrowers and
strengthen bank-customer relationship
Pilot savings-cum-loan products
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Perspectives (6)
Build institutional capacity for ag lending:
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Recruit / train staff (loan officers, credit committee
members, branch managers)
Elaborate cropping activity calendars, crop budgets and
cash flows as decision support tools
Engage in strategic partnerships with actors in the
agricultural sector (extension services, input suppliers,
farmer associations, processors, etc)
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Perspectives (Gov & Donors)
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Provide technical assistance to Banks and MFIs for
product innovation
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Provide seed funding for introduction of term
finance products
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Enhance and better coordinate initiatives to support
commercial agriculture and agri-business within a
value chain framework
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Perspectives (Gov & Donors)
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Improving legal and policy environment:
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Improve land tenure security, create legal and institutional
framework for land markets and mortgaging of land
Introduce other collateral options (warehouse receipt
system)
Address cotton debt issue and underlying structure of
cotton marketing and financing
Continue negotiations with neighboring countries to
address barriers to trade
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Thank you for your
attention!
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