1. 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

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

3. Downgrading of commercial banks
Good progress achieved: $ 36m – 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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