the role of the PCG IN increasing access to finance to small farmers ECA AGRI-FINANCIAL SERVICES Leah Soroka Program Manager

PREPARING FOR ACCESS TO FINANCE TO HELP SMALL FARMERS BE ABLE TO PURCHASE LAND BIG FARMERS SMALL FARMERS have accountants have lawyers know how to deal with banks do not have layers/accountants lack experience with banks lack financial literacy and records face higher transaction costs face higher risk premiums The lifting of moratorium will initiate a demand for land purchases by agricultural producers of all sizes, but not all farmers will be able to finance their demand

ASSESSMENT OF THE AMOUNT OF FINANCING REQUIRED The value of land is estimated based on the cost of the lease The value of land is estimated on the basis of net profit of producers Millions Millions Limitation: Limitation: Limitation: Trade of land enables enormous access to finance through land as collateral

PARTIAL CREDIT GUARANTEE (PCG) SCHEME OBJECTIVE OF PCG: to support the development of long term farmland financing in Ukraine by covering some portion of the losses incurred by lenders when SME borrowers default on loans. INITIAL TARGET GROUP LEGAL FORM ADDITIONAL VALUE family farms with total cultivated area as of the end of the previous year below 100 ha independent non-for profit financial company with state participation under the supervision of Non-bank Financial Sector Regulator could be used for capital cost acquisition and working capital finance requirements of small farmers PCG scheme will enable access to finance for small farmers and facilitate the purchase of land by allowing 8 hryvnas of investments by the banking sector for each hryvna of public funds invested in the capital

CREDIT GUARANTEE SCHEME (CGS) CGS PROVIDES third-party credit risk mitigation to lenders with the objective of increasing access to credit for SMEs through the absorption of a portion of the lender’s losses on the loans made to SMEs in case of default, typically in return for a fee PCG IS AIMED TO: substitute or enhance borrower’s collateral reduce bank’s risk of landing to the target group create incentives for banks to get engaged with small farmers CGSs CAN PLAY AN IMPORTANT ROLE in countries with weak institutional environments by: improving the information available on SME borrowers in coordination with credit registries building the credit origination and risk management capacity of lenders

AVERAGE PROFITABILITY SMALL FARMERS CAN BE PROFITABLE BUT THIS SECTOR IS NOT UNDERSTOOD BY BANKS Untapped profitable, low risk, lending opportunities amounting to UAH 1.6 B exist with small farms PORK BEEF DAIRY EGG BROILER FRUIT VEGETABLES AVERAGE PROFITABILITY OVER 15% Extensive analytical work showed 1,900 profitable SME livestock farms that are bankable and seeking to expand but are still underfinanced

IFC SMALL FARMER PROGRAM IFC has determined that small farmers in the livestock sector are very profitable but not understood by banks. IFC has developed an in-depth training program for banks to adapt to small farmers in an efficient way through understanding the business model of key profitable small farmer value chains II IFC has determined that small farmers need assistance in understanding the necessity, development and use of: business plans financial statements what banks look for in granting credit the language of bank documentation necessity of security IFC has developed an in-depth training program for selected farmers to be more bankable and to improve their farm financial literacy to help them communicate with banks Farm producers will receive financial training and tools to successfully gain access to financing and take the fear out of approaching banks

SUMMARY Access to finance remains limited for Ukrainian farmers, especially for small agriculture producers The lifting of moratorium will initiate a demand for land purchases by agricultural producers of all sizes, but not all farmers will be able to finance their demand PCG scheme will enable access to finance for small farmers and facilitate the purchase of land by covering some portion of the losses incurred by lenders when SME borrowers default on loans In addition to the introduction of the PCG, an intensive program for banks to understand the livestock and other business models and a program to improve these farmers’ farm financial literacy to help them communicate with banks, will facilitate increased lending to small farmers The establishment of PCG scheme, training and capacity building in agricultural finance sector in the country will boost agricultural development in Ukraine

ECA Agri-Finance Project THANK YOU! ECA Agri-Finance Project Kyiv, 01010, Ukraine 1, Dniprovsky Uzviz, 3rd floor Tel. 044 490 64 00 Fax. 044 490 64 20 Leah Soroka Program Manager LSoroka@ifc.org Picture to add