1. General Assumptions
Crediting the primary agriculture in Uzbekistan and Tajikistan, with the exception of livestock farming, remains problematic due to dominance of strategic crops (cotton, wheat) with some subsistence farming mixed in. There is a lack of commercially viable fully private farms and activities that would generate incomes for farmers and, hence, be profitable for commercial banks.
On the contrary, agricultural sector in Azerbaijan is more liberal, commercially viable and relatively free from political influence and government regulation.
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2. Rural (Agricultural) Lending - The LFS Approach
Rural and semi-urban lending in Central Asia is commercially more viable than pure agro-lending
Rural lending will significantly contribute to the profitability of branches in the relatively small towns
It will broaden the client base, generate non-credit income and broaden the refinancing base
From a developmental perspective, access to financial services for rural businesses and households is a high priority. Such include:
Access to reliable savings facilities
Access to money transfers and remittances
Provision of bank cards for easier and safer payments
Provision of different credit products, such as business, consumer, educational and personal credits
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3. Key Concepts for Successful Lending in Rural Areas
Establish rural lending as opposed to agricultural lending
Approximate rural credit product with the lending scheme currently used by LFS
Finance activities more conducive to monthly cash flow
Conduct business/household analysis in addition to business analysis
Avoid financing activities that require balloon payments at the end
Pay closer attention to sources of secondary income of rural businessmen and use the proceeds to “force” monthly payments of at least interest
Establish future cash flow projections for each and every loan regardless the loan size
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4. Key Concepts for Successful Lending in Rural Areas
Keep loan term relatively short to reduce risk
Due cyclicality nature of agriculture, consider issuing credit line financing instead of conventional term loans
Establish frequent monitoring
Consider mobile cash payment centers or cash collectors
Give more importance to collateral
Allow higher loan/collateral ratio
Be more conservative with assessment
Obtain detailed knowledge of agricultural markets, crop/livestock production specificities, production methods and other external factors inherent to farming and ranching
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5. Loan Products
Micro loans: for working capital and investments loans up to USD 10,000 (or the equivalent in local currency
Small business loans: Working capital and fixed asset loans up to USD 50,000 (and higher) to SME clients
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6. Rural Activities Being Financed Today by LFS
Agribusiness
Wholesale
Retail
Storage & warehousing
Commercial construction & equipment purchase
Food processing
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7. Agricultural Activities to be Financed in Future
Production (Livestock)
Animal Husbandry
Dairy
Poultry & Broiler operation
Honey production
Farm implements and on-farm construction
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8. Agricultural Activities to be Financed in Future
Processing, Equipment & Machinery
Ag. machinery and equipment
Agribusiness services (planting, harvesting, processing and etc.)
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