Problems with Access to Borrowed Funds for Agricultural Companies Evade Comprehensive Solution

26 december 2017 | Agroinvestor

"On the whole short-term loans have proved to be hardly accessible for small agricultural companies as a support mechanism even though RUB 4.4 billion was allocated to this purpose in the budget," said Analytical Center expert Elena Razumova in an interview for Agroinvestor magazine.

Elena Razumova
Elena Razumova
Department for Expert Analytics

According to the Ministry of Agriculture, by early September some RUB 1.7 billion that had been originally allocated to short-term loans for small agricultural businesses had not been used, this represents about 40% of the target amount. One of the reasons is the higher business loan interest rates for small and medium-sized businesses: about 20–22% while the rates for other borrowers were 14–17% in mid-2017, according to the data cited by the expert. "For loans offered on special terms only the key interest rate of the Bank of Russia gets refunded for the banks, which means that in order to make a loan at 5%, the banks have to charge an effective rate of about 14–15%," Ms. Razumova estimates. In addition, the fact that the number of financial companies authorized to make subsidized loans is very limited (originally only 25 banks get the necessary accreditation and 17 more banks were included in the list in September) and the fact that local agricultural authorities got completely excluded from the process of making the decision about whether or not to offer state subsidies also played a most negative role.

On the whole the growth in loans being offered to businesses both in agriculture and in the related food industry was lower in 2017 than in 2016, according to Ms. Razumova. Thus according to the Bank of Russia data as of October 1 the increase in the amount of loans being issued to agricultural companies was 27.4% compared with the same period of last year. In the meantime, the Bank of Russia's data also suggest that loans being offered in the food industry literally fell of the cliff, dropping by a whopping 49.8% on an annualized basis. "This situation clearly suggests no comprehensive solution has yet been found for ensuring easy access to borrowed funds for agricultural companies and companies operating in related industries," Ms. Razumova summed up.

The Bank of Russia prognosticates that over the next few years the number of loans being made can go up by 7–10%, adding that this rate of growth is enough to prop up economic growth. Back in November Elvira Nabiullina said that the Bank of Russia estimated that since the start of the year the increase in loans had totaled 4.7%.

Source: Agroinvestor