Farming Too Risky for Banks
Farming Too Risky for Banks
Development in rural Kyrgyzstan depends on farmers gaining access to banking services and loans, but NBCentralAsia economic observers say the financial risks in agriculture are too great unless the government underwrites them.
On July 25, the Central Asian Microfinance Alliance II, CAMFA II, met to discuss how to offer Kyrgyz farmers affordable loans and develop banking services in rural areas. Participants in the meeting noted that there are significant financial risks attached to lending to farmers because the state does not provide insurance for the agricultural industry.
Around 70 per cent of Kyrgyzstan’s population lives in rural areas and 55 per cent work in farming.
The Kyrgyz Agricultural Financial Corporation is currently in charge of issuing loans to farmers, offered at 20 to 25 per cent per annum over a one or two year period. Some commercial banks also offer loans.
Maria Tanshojaeva, head of lending at the Ayil (“village”) Bank, believes that extending banking and other financial services in rural areas will improve rural infrastructure and people’s general standards of living.
“Farmers from remote villages will get access to loans at normal market rates and will learn how to work with them and set up businesses,” she said.
However, the head of the Issyk-Kul Invest Bank, Bolot Baikojoev, says that will not happen until farmers raise their creditworthiness by learning how to manage product sales.
While developing the financial system in rural areas would improve the economy as a whole, whether or not that happens depends on the government’s approach, he says.
NBCentralAsia observers say that the lack of state insurance for agriculture means that few banks will risk financing rural industries.
The head of agricultural policy and investment at the agriculture ministry, Saparbek Tynayev, explains that the high-risk nature of agricultural financing creates a five billion som (132 million dollar) shortfall in available cash every year.
Avazbek Momunkulov, the chairman of parliament’s tax committee, agrees that commercial banks will not expand into rural areas unless the state underwrites such loans.
“Commercial bank loans depend on pledges and state insurance for agriculture, but given the current state of the national budget, there will be no such insurance in the near future,” he said.
Nevertheless, Momunkulov believes that will still be possible to encourage rural banking services by offering tax breaks to banks that invest in this area.
Analysts add that the lack of decent roads and communications and the absence of state registries and notary’s offices in the countryside also hinder the development of banking and financial services.
(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)
On July 25, the Central Asian Microfinance Alliance II, CAMFA II, met to discuss how to offer Kyrgyz farmers affordable loans and develop banking services in rural areas. Participants in the meeting noted that there are significant financial risks attached to lending to farmers because the state does not provide insurance for the agricultural industry.
Around 70 per cent of Kyrgyzstan’s population lives in rural areas and 55 per cent work in farming.
The Kyrgyz Agricultural Financial Corporation is currently in charge of issuing loans to farmers, offered at 20 to 25 per cent per annum over a one or two year period. Some commercial banks also offer loans.
Maria Tanshojaeva, head of lending at the Ayil (“village”) Bank, believes that extending banking and other financial services in rural areas will improve rural infrastructure and people’s general standards of living.
“Farmers from remote villages will get access to loans at normal market rates and will learn how to work with them and set up businesses,” she said.
However, the head of the Issyk-Kul Invest Bank, Bolot Baikojoev, says that will not happen until farmers raise their creditworthiness by learning how to manage product sales.
While developing the financial system in rural areas would improve the economy as a whole, whether or not that happens depends on the government’s approach, he says.
NBCentralAsia observers say that the lack of state insurance for agriculture means that few banks will risk financing rural industries.
The head of agricultural policy and investment at the agriculture ministry, Saparbek Tynayev, explains that the high-risk nature of agricultural financing creates a five billion som (132 million dollar) shortfall in available cash every year.
Avazbek Momunkulov, the chairman of parliament’s tax committee, agrees that commercial banks will not expand into rural areas unless the state underwrites such loans.
“Commercial bank loans depend on pledges and state insurance for agriculture, but given the current state of the national budget, there will be no such insurance in the near future,” he said.
Nevertheless, Momunkulov believes that will still be possible to encourage rural banking services by offering tax breaks to banks that invest in this area.
Analysts add that the lack of decent roads and communications and the absence of state registries and notary’s offices in the countryside also hinder the development of banking and financial services.
(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)
