IFC UKRAINE AGRI FINANCE STUDY

1. IFC UKRAINE AGRI FINANCE STUDY Kiev January 2008

2. Objectives of the Study • Review of the existing situation with regards to the possibility to get access to finance in the agricultural sectors • To prepare solutions to improve the situation

3. Main Observations From the banking perspective: • Small enterprises lacking collateral • The interest subsidy does not mitigate credit risks • Lack of possibilities to provide long term financing due to funding problems From the farming perspective • Small farmers no access credits and Gov. Support • No possibilities to replace obsolete equipment • Leasing underdeveloped and lacking understanding of benefits of leasing

4. Proposed Solutions • State to fulfill supportive role to promote leasing • Continuation of awareness programs for all participants in the agribusiness finance schemes • Establishment of bankable farmer cooperatives • Development of integrated agribusiness finance schemes • Establishment of a Credit Guarantee Fund • Proposal to improve possibilities for banks to provide long term financing

5. Supportive Role of the State • Creation of stable legislative framework for leasing • Cancel discriminatory tax provisions for leasing operations compared to banking services (VAT on interest and commission at financial lease transactions) • Introduction of tax incentives such as accelerated tax depreciation on the fixed assets acquired through financial lease • Improve agricultural statistical data collection • Stop state interference in markets

6. Awareness training • Continuation of awareness training for all participants in the agribusiness finance schemes • To the clients to understand the financial products developed and offered by the banking sector • To the loan officers in banks and leasing companies to better understand and evaluate the agricultural risks

7. Establishment of bankable Farmer Cooperatives • BUSINESS PRINCIPLES • ORGANISATION • GOVERNANCE • MANAGEMENT • FINANCING & CAPITALISATION • LEGISLATION

8. Development of Integrated Agribusiness Finance Schemes Main benefit of this scheme is the fact that banks/leasing companies share risk at farm level with off-taker/processor of the farmer’s produce

9. Development of a Credit Guarantee Fund • Japan established in 1937 • Netherlands 1951 • Germany 1954 • Belgium and France in the 1960s • Also schemes operating in Finland, Norway, Denmark, Greece, Ireland and Turkey. • Starting from the beginning of the nineties CEEC countries in transition started with the establishment of Credit Guarantee Schemes

10. Objectives CGF • Assist SMEs and Agribusiness Enterprises with good cash-flow but lacking collateral to attract finance • Operate to best practice standards with good risk management strategies in such way that Fund more than covers its operating and risk control costs • A risk sharing formulae between banks, agribusiness enterprises and the CGF

11. Proposal to provide long term funding to banks • To establish a similar scheme as at the moment in place in the mortgage industry • Banks offer mortgages for 5 years and are re-financing these activities through a State Agency that attracts funding by issuing bonds guaranteed by the Government