USAID to provide farm loan guarantees (10/06/02)

USAID to provide farm loan guarantees

by Roman Woronowycz
Kyiv Press Bureau

KYIV - The United States Agency for International Development (USAID) announced on September 29 that it would provide loan guarantees on certain loans to Ukrainian farmers and agricultural suppliers.

The program, to be carried out in cooperation with the Nadra Bank, will provide U.S. guarantees against default by farmers for 50 percent of the worth of each loan. Nadra Bank, a Ukrainian commercial financial institution, is ready to provide the equivalent of $6 million in credits to allow Ukrainian farmers to develop various segments of their business.

"This is a pilot project, a starting point to show whether this is possible," explained U.S. Ambassador Carlos Pascual at the signing ceremony establishing the cooperative effort.

Mr. Pascual said that changes in the Ukrainian economy made the agreement possible: first the realization by farmers that they do not need to farm simply for subsistence, but could transform their work into a valid entrepreneurial activity; and second, the realization by Ukraine's banking system that it cannot continue to survive by bidding for the services of a limited number of large borrowers and that the small entrepreneur can be a valid source of business.

Ukrainian farmers - freed by extensive agricultural reform in the last two years to begin the rebirth of this once mighty Ukrainian economic sector - have remained constrained by a lack of readily available credit. Although some Ukrainian banks are willing to provide loans, they do it at usurious rates. Another problem is that the lack of a land market has not allowed the farmer to use his mightiest resource - the land he farms - as collateral.

The Nadra Bank-USAID cooperative effort, named the Development Credit Authority, will allow the Ukrainian agricultural sector to obtain about 720 low-interest loans in the next year. Farmers, as well as suppliers of agricultural machinery, feed, fertilizers, herbicides and seed, are eligible. Nadra Bank will have exclusive control over the credit committee that decides who receives the loans. It will set percentage rates, collateral requirements and terms of repayment.

"We understand that the guarantees are not a gift, and we will organize our loan-giving in a manner so that the most viable projects and the most honest entrepreneurs are chosen," explained Nadra Bank President Ihor Gilenko.

Nadra Bank was chosen over two other banks that failed to complete the required process, explained USAID Regional Director Christopher Crowley. He said that he hopes the project will allow farmers access to capital to raise the amount and quality of their yields. He also explained that the U.S. government does not consider the program high-risk.

"For all of our small farm loan programs throughout the world, the repayment rate is something like 97 to 99 percent," explained Mr. Crowley.

Nadra Bank has recorded assets of 1.2 billion hrv (about $240 million) with a credit and investment portfolio of 938 million hrv (about $190 million).

Since 1992 USAID has provided over $1.6 million worth of technical and humanitarian assistance in support of Ukraine's democratic, economic and social transition.

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