Agriculture credits project summed up
17 April, 2014
Agriculture credits project summed up
Share of agriculture loans has increased more than five-fold from GEL 59 million to GEL 318 million in loan portfolio of the Georgian banking sector within a year, the Georgian government reported on 10 April. This is a result of the state-initiated Preferential Agro-Credit Project that started on 27 March 2013 and implies state co-financing of banking credits for farmers and agriculture related enterprises in order to boost the sluggish agriculture sector of Georgia.
The agro-credit program aimed to create
cheaper access to credit resources to farmers and entrepreneurs involved in the agriculture industry and started last spring within the framework of the Agriculture Development Fund which is expected to attract and alleviate the Georgian agriculture sector by GEL 1 billion. The program idea is to make credits available for the agriculture sector through co-financing. The Fund was co-financing credit rates in 2013 but this year the state budget is supporting the program. It will be carried on until the national agriculture sector gets strong enough to get along without this much state support as it needs at the moment, Giorgi Chkheidze, Head of Agriculture Projects Management Agency set up with Ministry of Agriculture and put in charge with the preferential credit program, said in his interview with Georgian Journal.
The program started with three components but later this changed in accordance with the needs of the beneficiary sector and now it consists of seven components. The basic three components offer three kinds of credits: free of charge 6-month credits up to GEL 5 000 to small farmers; 2-year credits within the range of GEL 5 000 -100 000 and charged by 8% as a cap are available for middle sized and big farmers; and 7-year credits within the scopes of USD 30 000-600 000 and capped by 3% of ceiling interest are available to enterprises involved in agriculture product processing. The co-financing rate ranges within 9% and 12% for the second and third component respectively. Thanks to the co-financing, the agriculture loans charged by an average of 15-17% normally become available for 3% and 8% thanks to the ongoing project. 13 commercial banks, two micro-financing organizations and two leasing companies have been partners in the preferential credits project.
The authorities seem pretty happy with the results of the project because it increased the interest of banks in agriculture which is one of the significant sectors of the national economy, but remains underdeveloped for it has been neglected by banks which estimated the sector as too risky. As a result, the share of agriculture loans stood under 1% in the aggregated loan portfolio of the Georgian banking sector and totaled only GEL 59 million when the project started. In a year the loan portfolio was enhanced to GEL 318 million and was tailored to the need of farmers and entrepreneurs, officials say. To this end, four components were added to the project such as preferential leasing, preferential credits for grape processing companies, for citrus exporters and processing companies, and for processing enterprises with less economic activity and supported by state grants. Until today 14 100 credits were disbursed in total in more than 30 branches of agriculture, 70 new enterprises were set up and 400 old processing plants were rehabilitated and re-equipped. The major beneficiary was the cattle and sheep breeding sector in the second and third components, and also wine producing. Ten out of 70 new enterprises are in the wine processing sector.
The only blot on the landscape is the big imbalance between the demand from the eastern and western parts of the country, Chkeidze said. According to the statistics, the eastern regions that are richer in pastures, arable lands and orchards took almost 90% of the preferential credits, while the western highland regions took only few. To help close this gap, a seventh component was added to the project two months ago which disburses 10-year special preferential credits up to USD 500 000 and maximum 2% of interest rate to processing enterprises from the neglected regions while 40% of their business projects will also be funded by state grants.

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