Rural Finance in Tajikistan Current Status and Challenges

1
Rural Finance in Tajikistan Current Status and
Challenges

• Frank Höllinger
• FAO, Rome

2
Background Tajikistan

• Poorest CIS country (GDP per capita US 329)
• Topography and geographic location barriers to
  trade and market integration
• Strong economic growth since 2000
• Macro-economic consolidation

3
The rural economy

• Agriculture dominates rural economy
• 25 of GDP and 70 of total employment
• 700,000 small-scale producers (lt0.3 ha)
• Account for more than half of total agricultural
  output, but only for 2 of the land
• 27,000 Dekhan Farms (1 800 ha)
• Account for 60 of agricultural land, but only
  20 of agricultural output
• Rural non-farm economy poorly developed

4
Main constraints to ag growth

• Cotton sector
• Non-competitive marketing system, production
  quota, farm debt problem
• Incomplete land reform process
• Insecure land rights
• Restrictions for secured lending
• Poorly integrated sub-sectors for non-cotton
  crops and livestock
• In- and output markets, support services
• Outdated farm and processing equipment, lack of
  FDI

5
Current supply Banks

• Features of bank lending to agriculture
• Only 10 of agricultural lending goes to
  non-cotton crops (US 20 mn in 2005)
• Mainly large farms and enterprises
• TMSEF US 8 mn, less than 1 of disbursements to
  agriculture
• Constraints
• Limited branch network in rural areas
• Poorly adjusted products and procedures (no term
  loans, over-reliance on collateral, business
  plans, etc.)
• Poor image among rural producers

6
Current supply MFIs

• Features of MFI lending
• Better presence in rural areas
• US 8 mn total portfolio, 100,000 borrowers, 36
  livestock, only 6 agricultural production
• Non-financial services (e.g., business advice,
  extension)
• Constraints
• Limited product features
• Only suitable for a narrow range of activities

7
Recent trends

• Growing competition in urban and peri-urban areas
• Introduction of indiv. lending and ag. lending by
  MFIs
• New pledge law and registry for moveable property
  
• Enabling legal framework for leasing
• Policy dialogue on cotton debt, land reform and
  trade restrictions with neighboring countries

8
Perspectives

• Two main target markets
• 1) Micro and Small Farms (lt 5 ha)
• Loan sizes lt US 5,000
• Larger individual loans (US 1,000 5,000)
• 2) Small and Medium-Sized Farms (5- 50 ha)
• Loan sizes US 5,000 20,000
• Term loans / leases

9
Challenges product innovations

• Develop new loan products
• Adjust repayment schedules to cash flow of
  agriculture-related enterprises
• Lower costs
• Introduce leasing for farm equipment
• Enhance deposit products and link them with
  lending products
• Build HR resources for ag lending / leasing

10
Challenges

• Support to commercial farming sector and related
  businesses using a value chain approach
• Policy dialogue / conditionality to address major
  policy issues (land reform, collateral, cotton
  sector reform)