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A two-day workshop in Dushanbe, organized by the European Bank for Reconstruction and Development (EBRD) and FAO looked into ways of expanding rural and agricultural finance in Tajikistan. Given the importance of the agricultural sector for the Tajik economy, improved access to loans and other financial services is crucial for farmers, food processors and related businesses. Building on its efforts to enhance micro, small and medium enterprise finance in urban areas, EBRD looked into ways to expand rural and agricultural finance.

The Bank requested FAO to undertake a feasibility study assessing the demand for and supply of rural and agricultural lending and to identify options for enhancing such finance. The key findings of this study will be presented and discussed during two workshops on 28 and 29 November 2006. The first workshop for senior government officials, donors and senior management of financial institutions, will be used to share existing experiences in agricultural lending and to discuss issues and options for expanding rural and agricultural finance. Information on current and planned initiatives in rural/agricultural finance and agricultural/agribusiness development will be shared to foster synergies and identify gaps. The second workshop will be more technical, targeting operational staff of banks and microfinance institutions (MFIs) involved in agricultural lending. Participants include branch managers, loan officers and staff charged with practical lending, market research and product design. The aim is to share experiences in rural and agricultural lending, discuss key issues and challenges and ways of addressing them.

The FAO study found a significant gap between supply and demand of rural and agricultural finance, both in qualitative and quantitative terms. Bank lending to the non-cotton agricultural sector is quite limited and mainly directed towards medium and large state and collective farms. Most lending is short-term and thus not suitable for financing much needed investments in productive assets such as farm machinery and irrigation equipment. Most MFIs target the bottom end of the market using group lending approaches. These loans are typically for small amounts, have short repayment periods, frequent instalments and entail high costs. Due to these product features, most MFI loans finance activities with a quick turnover, such as cattle fattening or small trade. However, several MFIs have started introducing larger individual loans for more progressive small-scale producers.

Although more than half of the country’s non-cotton agricultural output has been produced on household plots, future production increases will mainly come from small and medium sized farms. This market segment currently has the least access to loans. To meet this demand, banks have to downscale their lending operations and redesign their products and procedures. Cash flow-based loan appraisal, flexible collateral requirements and streamlined loan application procedures should be key elements of loan products targeting the small and medium farming market. MFIs should continue introducing more flexible loan products with increased ceilings on amounts and more personalized repayment schedules, the study says.

The sustained expansion of rural and agricultural finance requires continued efforts by policy makers and donors to tackle structural constraints beyond the financial sector. Outstanding issues include: reform of the cotton sector and restructuring of cotton debt; further progress in land reform to enhance security and tradability of land rights and to establish viable farm structures; an enabling legal and institutional framework for secured transactions including the mortgaging of rural land; and better integration and coordination of producers, traders, processors and exporters in non-cotton value chains such as fruit, vegetables and dairy.