Ag Leasing in Russia – Advancements and Remaining Challenges Stephanie Charitonenko Chemonics International, Inc. EastAgri Annual Meeting May 4-5, 2006 Berlin, Germany

Creating an Enabling Environment for Leasing  Situation Pre-1998  1998 Federal “Law on Leasing”  Improvements to the Tax Code  2002 Amendments to the Law on Leasing and the Tax Code

Development and Growth of Leasing Companies in Russia  Before 1998 – few leasing companies  2001 benchmark – more leasing companies, but virtually no interest in ag leasing  2005 benchmark – ag leasing emerges

Advancement of Ag Leasing in Russia  Dominance of the state-owned ag leasing company, Rosagroleasing  Growth of private ag lessors through donor technical assistance and investments

Remaining Challenges of Agricultural Leasing in Russia  Macro - regulatory and tax issues  Meso and micro - industry and firm-level issues

Lessons Learned from Development of Agricultural Leasing in Russia (Top 5) 1. Establishment of an adequate legal/ regulatory and tax policy environment is prerequisite 2. Socially responsible investors and financial institutions demonstrate the viability of leasing as a financing option by investing in leasing companies that develop the industry (use of partial guarantees may be helpful)

Lessons Learned from Development of Agricultural Leasing in Russia (Top 5) 3. Donor interventions in the leasing industry should entail a combination of investment and technical assistance 4. Encourage portfolio diversification as an effective risk mitigation tool for leasing companies to safeguard against defaults

Lessons Learned from Development of Agricultural Leasing in Russia (Top 5) 5. Assist in developing a national leasing association, which can evolve from a strong leasing development facility. This facility can continue to function as both advocate for key stakeholders in leasing policy and legislation and provide training services to industry players and the public.

Use of USAID’s DCA to Expand Access to Ag Credit in Moldova Stephanie Charitonenko Chemonics International, Inc. EastAgri Annual Meeting May 4-5, 2006 Berlin, Germany

Reasons for Using Guarantees and Associated Challenges  Reasons for using guarantees Weak legal/judicial environment Attractiveness of bank investment in government debt rather than in ag enterprises High degree of asymmetric information Lack of experience and risk mitigation mechanisms  Challenges Additionality, moral hazard, sustainability (demonstration effect)

What is the DCA?  USAID’s Development Credit Authority is a partial guarantee program  There are four types of DCA guarantees  Agricultural lending constraints it addresses

Successful Use of the DCA in Moldova  Program background Objectives Participating financial institutions  Program achievements Increased number and amount of ag loans Reduced collateral requirements Development of new products

Lessons Learned from Successful Use of DCA in Moldova  Design is key: Degree of guarantee coverage Targeted participants, beneficiaries, or sectors Fees Links between DCA and other program components and other donor projects  Parallel work on improving the legal/judicial environment is important (for sustainability)  DCA must be complemented with TA and training to participating financial institutions (to help overcome market failures)

DCA Global Reach As of October, 2004 Latin America & Caribbean (31) Ecuador (3) Guatemala (3) Honduras (2) Jamaica (2) Mexico (2) Nicaragua (3) Peru (6) Haiti (2) Panama Regional (7) Africa (26) Ghana (1) Kenya (4) Mali (1) South Africa (6) Uganda (7) Zambia (4) Ethiopia (2) Rwanda Europe & Eurasia (36) Armenia (4) Kazakhstan (2) Bosnia (4) Romania Bulgaria (7) Russia (3) Croatia (2) Ukraine (5) Moldova (6) Kyrgyzstan Georgia Asia & Near East (21) Bangladesh (2) Egypt (2) India (2) Morocco (10) Philippines (2) Vietnam (3) Global (2)