Cheaper Credits for Agribusiness
04 April, 2013
Georgian government starts implementation of promised cheap agro-credits program through 11 banks and 2 micro-financing organizations while skeptics doubt its happy outcome once the profit-oriented commercial sector is involved in it.
The agro-credit program aimed to create an access to cheaper credit resources for farmers and entrepreneurs, involved in agriculture industry, officially took off on March 27, 2013 in frames of the Agriculture Development Fund, expected to attract and alleviate Georgian agriculture sector by GEL 1 billion. The program’s idea
is to cut down interest rates, fixed by commercial sector on agro-credits through co-financing it by the Fund. The program offers three kinds of credits, suggesting free of charge 6-month credits up to GEL 5 thousand for small farmers; 2-year credits within the range of GEL 5 thousand -100 thousand and charged by 8% as a cap, available for middle sized and big farmer; and 7-year credits within the scopes of USD 30 thousnad-600 thousand and 3% of ceiling interest, available to enterprises involved in agriculture product processing. The co-financing rate ranges within 9% and 12% for the second and third component respectively and will be covered by the Fund. Thus, the average interest rates fixed on agriculture credits normally by Georgian commercial banks and standing around 15-17% very likely can be available for 3% and 8% thanks to the underway project.

However, the program does not cover start-up businesses as expected inasmuch as banks, been fully responsible for the capital risks [or pay-back of credits] find it extremely risky. Approval of credits is completely at discretion of banks and micro-financial organizations in accordance with the criteria they normally use to assess a client’s solvency potential and credit-related risks. Involvement of banks in the Program makes sector pundits wary that small farmers will avail of the agro-credit program least of all.
“An ordinary farmer will not avail of this program for banks once fully responsible for pay-back of the credits will ask for similarly huge collaterals as they usually do and it will not be the agriculture product but some other business or liquid property by at least 3-5 times higher in price than the money the farmer asks,” Paata Koghuashvili, agriculture sector analyst, explains. “In the end banks will be at loss and poor farmers will go bankrupt.” Processing enterprises very likely will be a priority for it can provide by more valuable collaterals compared to farmers. “Some banks already said they will join the project only in the processing component while today our key problem is to fill the gap in product producing not processing,” Koghuashvili reminds. He believes the only solution to create an access to cheap credits to farmers is creation of non-commercial special banking system, as the best world experience suggests, founded by the state capital initially with the opportunity to be paid-off by farmers in the end. “All developed countries including Europe and the US created this kind of special credit systems and we should duplicate this example,” he said. “Banks who treat farmers as risky partners cannot solve this problem.” Minister of agriculture however accentuated during the agro-credit presentation that the crediting system suggested by MOA is the very way most countries including Eastern European countries adopted before they joined the EU.
Lia Eliava, a financier, assures only the state-based crediting institute may solve the cheap money problem in agriculture, which due to high risks, is subsidized even in the developed countries like the US and UK and all attempts to solve the problem through commercial sector, is destined to a failure. “Ukraine has also been trying to solve this problem through commercial sector but after many years of futile attempts, it set up a state-based agro-bank,” she said. On the other hand, she fears that targeted beneficiaries in regions who have no information access, no business planning skills and experience with banks, may be misled by the much touted cheap credits and fall victims of unpaid mortgages eventually. “This will be a disaster for farmers who live in rural area and have no alternative dwelling place; they will be impoverished completely,” Eliava elaborated.