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

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Bringing finance to rural people macedonia s case

Macedonian Bank for Development Promotion

Agricultural Credit Discount Fund

Bringing finance to rural people – Macedonia’s case

Efimija Dimovska

Istanbul, October 2010


Agricultural Credit Discount Fund

ACDF Mission

Raise the standard of living of the rural population through increased economic activity responsive to and sustainable in the emerging market

Objectives

  • 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


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


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


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


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


Lending to rural border areas

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


Lending to rural border areas

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.


Lending to rural border areas

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


Lending to rural border areas

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


Lending to rural border areas

Problem: High real lending risk

Recommendations and policy direction:

  • Support rural diversification

  • Crop insurance

  • Credit Bureaus


Conclusions

  • 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



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