State banks of Kyrgyzstan have received 10 billion som (116.6 million dollars*) from the government to implement agricultural projects, which were developed by agribusinessmen. However, farmers complain that they cannot receive this money.
* Hereinafter, all calculations are made at the rate of the National Bank of the Kyrgyz Republic as of April 6, 2022. 1 dollar = 85.7 som
For the first time in Kyrgyzstan, the government allocated the money from the state budget to provide loans to the agricultural sector. Earlier, only a fraction of an interest rate of commercial banks was covered by subsidies so that the latter could grant concessional loans to farmers (6 and more per cent per annum). And now the scope of support has increased several times. In brief, the news should have caused a furore. In fact, it has caused a barrage of criticism.
Dozens of users left their comments saying they could not receive the money under the post about the new project of the government in social media in the open group on Facebook “Fermerler” (from Kyrgyz “Farmers”, it has over 55 thousand registered participants).
Translation:
“They say, there is no money” “I need 5 million, how can I get them?” “They say only a half of the requested amount is granted at 6 per cent, and the rest is at 24-30 per cent. It would be great if officials get this question under control”
Translation:
“They should not deceive people. When you go to them with all the documents, they say you don’t have enough cattle, land. But I have 3 cows, 4 calves, 43 hundred square metres of land. They said I could be granted only 200 thousand som (2.33 thousand dollars). And to get 500 thousand som (5.83 thousand dollars) I have to have 10 cows. I think these loans are for the rich ones.”
Translation:
“We were told that the money had already run out. Or rather, only 30 people received, but they didn’t allocate more money. They say they just advertise it on TV, they play for the public, as an employee of the Aiyl Bank in the city of Balykchy literally said.”
“Are you a farmer? Can you answer in direct message?”
“Hello Saltanat, in rural areas everyone is engaged in livestock breeding and farming. They also wanted to take a loan at a low interest rate for the expansion of cattle, and they coudn’t.”
The ministry of agriculture evaded the direct question about the concessional loan procedures for farmers and noted that commercial banks ensure the transparency of compliance with the order of priority and processing of applications. And the specialised agency, according to its representatives, may only make proposals as recommendations.
“Just recently, the minister has met with farmers in the regions and they have complained about the extra package of documents required by banks. For example, they want to take a loan to buy seeds, and the bank requires the document proving the land ownership from the applicant. By results of the visit to the regions, our management has held the meeting with the management of Aiyl Bank. Basically, all necessary measures have been taken, and now the package of documents is more simplified. Our recommendation is being implemented already,” Nurdin Alisherov, first deputy minister of agriculture, water economy and regional development of the Kyrgyz Republic, said.
However, he confessed that the specialised agency is aware of what farmers write in social networks. According to him, the ministry of agriculture has recently opened the media centre that was created to monitor information on various websites, to receive feedback from representatives of local communities, and to respond quickly to their issues. However, how it works in practice remains to be seen.
According to the request addressed to Aiyl Bank (it has most of the budget money allocated under all state farm loan programmes), the list of documents has not changed virtually because otherwise the loans will not be repaid.
Package of documents for unsecured loans:
- Copies of ID card;
- Certificate of residence;
- Copies of documents for agricultural lands or lease contract, if the loan is granted for “crop production”.
Package of documents for secured loans:
- Certificate issued by Gosregistr (confirming that the immovable property is free from any security interest);
- Copy of ID card;
- Copy of certificate from the registry office;
- Documents for agricultural lands, lease contract (if any);
- Cattle certificate from the aiyl aimak.
As to the statements of individual farmers about the shortage of funds in the field, Aiyl Bank furnished a brief answer:
“Currently, we are granting loans under the following facilities ‘Financing of agriculture – 10’ and ‘Commodity procurement loan’”.
Moreover, the officers of the financial institution have commented the situation around the order of priority, transparency in concessional loan granting in a like manner.
“Concessional loans under the facility “Financing of agriculture – 10” are being granted according to the electronic queue. A client with an ID card comes to any nearest regional office of Aiyl Bank, where the client’s farm is located, and gets registered in the electronic queue system. One cannot get registered online. Only physical presence is required,” according to the official bank’s letter to CABAR.asia.
“Everyone can yell and scold, but I think we need to demand all documents and grounds for concessional loans from our borrowers. We should admit that farmers do not keep financial records, do not have supporting documents, do not keep accounting records,” said Turat Ukubaev, chair of the board of the Association for Agribusiness Development of Kyrgyzstan.
Loose financial discipline, according to him, is the key cause for decline of a concessional loan, whereas banks should be sure that the money would be repaid in a given period.
“This is nonsense! Now prime minister demands surnames of people receiving the loans. Now aggregators and heads of large agricultural companies will approve these lists, and they do not accept bribes. For example, a sugar mill says, ‘This farmer grows beetroot for me, give him the money.’ In other words, farmers will not receive the money without the aggregators’ recommendation and approval, and the ones who can evade the approved lists will be held liable. This issue will be under strict control from now on,” Ukubaev said.
The main feature of this year state agriculture support programme is that it ensures food security of the country. Large domestic enterprises and farmers have a task to increase domestic production of all nine staple types of foods not to be dependent on their imports during the forthcoming autumn cropping.
This list contains:
- Bread and cereal products,
- Potato,
- Fruit and berries,
- Vegetables and gourds,
- Vegetable oil,
- Milk and dairy products,
- Meat and meat products,
- Eggs,
- Sugar.
Kyrgyzstan can provide itself only with three of them: the gourds, milk and potato. Therefore, cluster approach is applied to get a more tangible effect from the implementation of state agriculture support programmes.
For example, if a farmer grows wheat and wants to get cheaper financial resources, they should consolidate with a flourmill. Or if a farmer is planning to increase the cattle stock, they need to make an agreement with milk or meat processors, and then apply for a concessional loan. Only one question arises here: are there enough funds for all?
“10 billion [som] (116.6 million dollars) is good for a start, but is not enough, in general. Look, the turnover in the sugar industry is 6 billion som (70.012 million dollars), while clusters will be allocated only 4 billion som (46.67 million dollars). And this amount should be divided between 9 types of products. How much will be allocated to the sugar industry? That’s the point… Of course, it will not make a huge difference, but we look at it as the first positive step of the new approach to agribusiness development,” Turat Ukubaev said.
Representatives of the Kyrgyz agribusiness lay great hopes on the public private partnership mechanism, which is the basis for the project finance programme. In this case, according to the Association, state banks that provide collateral for concessional loans will invest in the capital of new enterprises.
So far, the question is about a possible launch of the new vegetable oil manufacturing plant in Kyrgyzstan, which will be built by joint efforts of the state and business. The project is still under discussion and market participants have promised to reveal the details later.
In 2022, there were three such programmes, according to deputy minister of agriculture Nurdin Alisherov. The total amount, according to him, is 26 billion som (303.38 million dollars). This money is allocated to agribusiness representatives on special terms.
- Financing of agriculture (FSH-10)
The total amount of loans is 6.2 billion som (72.35 million dollars), according to the Ministry of Agriculture of the Kyrgyz Republic.
As part of the programme, the budget allocates 520 million som (6.068 million dollars) to back up interest rates. The remaining amount is the funds of commercial banks.
The rate is fixed – 6 per cent per annum.
The loan terms and amounts depend on the field (crop production or cattle breeding).
The total amount is 10 billion som (116.6 million dollars), which is fully allocated from the budget. The money has not been received yet, according to Aiyl Bank.
The rate is fixed – 6 per cent per annum.
Difference – cluster-based funding.
The amount of unsecured loan for farmers is doubled – from 150 thousand to 300 thousand som (from 1,750 to 3,500 dollars).
- Commodity loan (for the purchase of 16 thousand high quality seeds from Russia)
Total amount is 1.5 billion som (17.5 million dollars).
The rate is fixed – 4.5 per cent per annum.
Difference – one more concessional loan may be received under another state agriculture support programme.
It is a reminder that the concessional loan project for farmers was first launched in 2012. First loans were granted at 7 per cent per annum to farmers growing agricultural crops. Literally one year later, cheap resources became available for stock farmers. The total amount at the time was 1 billion som (21.274 million dollars at the average rate of the National Bank of the Kyrgyz Republic for 2012).
In 10 years, the volume of financial support has gradually increased, but tempers around concessional loan procedures are still high. Usually, it happens if money is tight, and those in need of money are too many, or if there’s plenty of money, and the list of borrowers does not change. According to the Aiyl Bank statistics, the number of loans granted has increased, yet unsteadily.
It is difficult to say whether ‘individual’ farmers can now join into cluster as required by the new state programme, and thus increase their chances to get cheap loans. The key problem is poor financial discipline, which allegedly makes banks deny loans to farmers.