Financing Agriculture in the Kyrgyz Republic Issues, constraints and perspectives by Michael Marx, Rural Finance Officer, FAO Investment Centre EastAgri Seminar - Berlin - 5 May 2006 Financing Agriculture in the Kyrgyz Republic

Small financial sector Loans = 13% of GDP EastAgri Seminar - Berlin - 5 May 2006 Financing Agriculture in the Kyrgyz Republic

Downgrading of commercial banks Good progress achieved: $ 36m – 20000 clients – PAR +30 days below 1%) More profitable than corporate lending No collateral for loans below USD 1000 Quick loan processing (2-15 days), depending on loan size EastAgri Seminar - Berlin - 5 May 2006 Financing Agriculture in the Kyrgyz Republic

Financial sector Key constraints: Low confidence into banks Inadequate mobilization of deposits (efforts and products) Inadequate legislation on collateral and collateral substitutes Insufficient lending experience EastAgri Seminar - Berlin - 5 May 2006 Financing Agriculture in the Kyrgyz Republic

Financing of agriculture Modest level of funding agriculture (≈ $ 48 million ≈ 16% of total loans) 8% of EBRD SME Finance Facility used for agricultural lending after only 15 months EastAgri Seminar - Berlin - 5 May 2006 Financing Agriculture in the Kyrgyz Republic

Financing of agriculture Poor experience in the past with agricultural finance (high debts in 1990s) Perceived often as high risk + low return Insufficient experience by staff on new approaches Growing interest due to govt. pressure and search for borrowers Absence of more innovative concepts beyond direct lending, such as contract financing or structured financing in supply chains EastAgri Seminar - Berlin - 5 May 2006 Financing Agriculture in the Kyrgyz Republic

Perspectives Development of collateral substitutes, such as warehouse receipts, pledging of future harvest + secured sales, livestock, personal guarantees Increase threshold of zero collateral lending (currently $ 1000) for good clients Revision of land laws to permit banks accept farm land as collateral, more security for buyers of agricultural land Revision of collateral legislation EastAgri Seminar - Berlin - 5 May 2006 Financing Agriculture in the Kyrgyz Republic

Perspectives Assist banks to identify profitable supply chains and finance supply chain actors; this goes beyond the mere financing of processors to fund contract farmers This requires more investments in building permanent, mutually beneficial relationships between producer and processor, and eventually the facilitation of equity participation by farmers in the processing sector EastAgri Seminar - Berlin - 5 May 2006 Financing Agriculture in the Kyrgyz Republic

Perspectives Assistance to build the capacity of farmer associations and cooperatives to manage their role in supply chains Experimentation by banks to provide structured finance in supply chains New products linking savings and credit and more cross-selling EastAgri Seminar - Berlin - 5 May 2006 Financing Agriculture in the Kyrgyz Republic