1. Bringing finance to rural people – Macedonia’s case Efimija Dimovska Istanbul, October 2010 Macedonian Bank for Development Promotion Agricultural Credit Discount Fund

2. ACDF Mission Raise the standard of living of the rural population through increased economic activity responsive to and sustainable in the emerging marketObjectives  Establish institutional and financial basis for sustainable agricultural financial services which are commercially viable and yet appropriate and affordable by the target groups  Integrate the rural population in the banking system  Reduce the risk to agricultural sector financiers

3. Refinancing Facility  On-lending trough selected financial institutions  Matching of capital (ACDF + PFI + borrower)  PFIs pay interest for the discounted amount at a level of 0.5% annually  Credit risk on the PFI  PFIs apply their own lending policies to sub- loans, except the interest rate  Controlled use of the loan funds

4. ACDF Impact Institutional (PFI) impact  increased agricultural lending portfolio  enlarged number of rural clients  softer collateral introduced  improved overall PFI performance Smallholder impact  connection with the formal financial sector  access to affordable financial services  economic impact on household level

5. Macedonian rural border areas  Highlands and mountainous areas  Agrarian economy  Poor transport and telecommunication infrastructure  High transaction costs of conducting business  Official unemployment rate of more than 40%  Aging population  High migration from rural settlements to bigger towns  Low incomes and living standard

6. Lending to rural border areas  Profitability of agricultural and rural operations is poor and can’t generate the cash flows needed for adequate debt-servicing  High delivery cost  Poor transport and telecommunication infrastructure and difficulties to reach the clients  Collateral issue (no property lists, low value property)  Difficulties in obtaining building permits for investments in production facilities  High real lending risk  No documented trade between cross-border villages

7. Lending to rural border areas Problem: Problem: Profitability of agricultural operations is poor and can’t generate the cash flows needed for adequate debt-servicing Recommendations and policy direction:  Diversification of the local economy – support the development of an alternative businesses to agriculture  Increase competitiveness of the agro-production by strengthening the regional identity - support the production of highly specific and traditional products

8. Lending to rural border areas Problem: Problem: High delivery cost Recommendations and policy direction:  Support (Ex. ACDF) aimed at reducing lenders’ transaction costs on short to medium term, reduced over time and eventually eliminated  Adoption of laws and regulations that will enable establishment and operations of “grass level financial institutions” such as small MFI’s, Credit Unions, etc.

9. Lending to rural border areas Problem: Problem: Poor transport and telecommunication infrastructure and difficulties to reach the clients Recommendations and policy direction:  Increased capital investments for infrastructure in rural regions  Regional Development Strategy

10. Lending to rural border areas Problem: Problem: Collateral Recommendations and policy direction:  Improve the legal and regulatory framework in property titling and registration  Improve the efficiency of the judicial and enforcement systems  Expanding the list of items that can be used as collateral

11. Lending to rural border areas Problem: Problem: High real lending risk Recommendations and policy direction:  Support rural diversification  Crop insurance  Credit Bureaus

12.  Combined measures in place will enhance provision of financial service to the rural areas  In developing economies financial institutions are interested in expanding their client base  On the long-term rural clients should be served wholly with the banks’ own resources Conclusions

13. Thank you for your attention!