EastAgri Network seminar on Rural Credit Guarantee Schemes - A Financial Instrument for Agriculture and Rural Development
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An EastAgri Network seminar on Rural Credit Guarantee Schemes - A Financial Instrument for Agriculture and Rural Development took place in the FAO Sub-regional Office for Central and Eastern Europe Budapest, co-organized by European Mutual Guarantee Association, Hungarian Rural Credit Guarantee Foundation and the FAO Investment Centre. FAO has recently organized and supported a number of meetings and capacity building projects to help maximize investment in agriculture and food processing in Central and Eastern Europe, seen as a way to ensuring an integrated approach to agricultural development. The EastAgri Network is a unique neutral umbrella under which the various funding and technical assistance institutions and organizations come together for constructive dialogue, to share experience and lessons learned and chart future actions and projects.
The seminar agenda includes a review of the experience of national rural finance institutions providing credit guarantees, technical sessions on relevance and financial additionality of guarantee schemes for rural development and assessment and monitoring of specific risks in agri-business, and public policies for moderation of structural risks in rural development, as well as discussion of how much state support is recommended. The seminar analyzed if credit guarantee schemes can help resolve problems caused by the underdevelopment of the rural financial systems as well as the issue of support to credit guarantee schemes from the state budget.
Some policy and rural finance issues have beed reviewed during the seminar with focus on the practical experience of rural credit guarantee schemes included:
 Why farms and rural businesses have problems in obtaining loans and why guarantees are needed, in particular in transition economies;
High risk, low profitability of production, stagnant markets and lack of collateral are given as reasons for the reluctance of commercial banks to lend to farmers; can credit guarantees help alleviate these barriers;
The period of transition to a market economy has seen an upsurge of interest in credit guarantee schemes, viewed as an instrument to improve access by Small and Medium Enterprises to loans; the emerging dual structure of farms in a number of Central and Eastern Europe and Commonwealth of Independent States countries, with large-scale commercial farms on one end, and very small subsistence farms on the other, poses a major challenge for rural lenders;
The other challenge is the need to provide financing for diversification of farms and generation of non-farming related incomes as well as creation of new jobs in rural areas by economic entities that in most cases do not qualify for a standard bank loan. The transaction costs for this group of farms or rural services, often in the grey area, are extremely high.
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