Increasing access to finance is a fundamental condition for the development of the private sector in Kazakhstan, especially when it comes to rural businesses. We talk with the Chairman of the Board of Directors of AKK Aigul Mukhamadieva about how this task set by the Head of State is being solved at Agricultural Credit Corporation JSC.

– Aigul Stakhanovna, the Head of State in his Address to the people of Kazakhstan “The Third Modernization of Kazakhstan: Global Competitiveness” set out the country’s transition to the standards of the member countries of the Organization for Economic Cooperation and Development. Agricultural producers' access to financing is one of the main criteria for assessing the competitiveness of the agricultural sector by the OECD. What is the role of the ACC in this, and what is being done to achieve the given indicators?

– Since 2001, the Agricultural Credit Corporation has been implementing state policy to create an accessible lending system that stimulates the development of competitive entrepreneurship in rural areas. As of December 26, 2017, the corporation financed 6,868 agricultural entities in the amount of 143.4 million tenge. It is worth noting that a year ago, 5 thousand agricultural producers were financed in the amount of 113 billion tenge, which is 27% lower than in 2017.

The main recommendation in the OECD policy guidance on improving access to finance in the agro-industrial complex of Kazakhstan is the development of a system of credit partnerships, which shows positive dynamics. Since 2001, 193 credit partnerships have been created in Kazakhstan, uniting about 16 thousand agricultural enterprises.

The territorial coverage of credit partnerships today is 93%, on average there are 2,800 agricultural entities per credit partnership, while the geographic coverage of banking services in rural areas is limited: in the country there are 130 bank branches per one million residents, which is one branch for every 7,892 person.

Over the 16 years of its existence, more than 40 thousand loans worth 241 billion tenge were provided to farmers through credit partnerships. If in 2001 the average loan amount was 5 million tenge, then in 2017 it was 11 million.

Another important form of increasing farmers’ access to financing is expanding sales channels for credit products. For this purpose, the corporation uses other financial institutions operating in the republic with developed regional infrastructure. We are talking about funding credit partnerships, second-tier banks, numerous microcredit organizations and leasing companies.

Such a policy greatly facilitates and simplifies the path for farmers to the necessary credit resources, and also gives them the opportunity to make an acceptable choice from much more than just the ACC branch of capital market offers. Today, peasants often do not have to travel to the regional center; they can get credit from an institution located in the regional center or in their village on a neighboring street.

– In 2017, a budget loan in the amount of 60 billion tenge was allocated for the main agricultural events. Of these, 40 billion were issued through second-tier banks by the Agrarian Credit Corporation. Have loan rates been optimized and have any special conditions for obtaining loans been introduced? What are the results of lending in 2017?

– This year, 1,811 applications were received for spring field work. The total amount for them exceeded 75 billion tenge. The allocated preferential funds in the amount of 60 billion tenge have been fully utilized.

In addition to budget money, spring field work is financed from other sources, including the corporation’s own funds. Under the Ken Dala program, since the beginning of 2009, ACC has financed farmers for a total amount of over 175 billion tenge.

This year, lending rates for spring field work have been significantly reduced. For direct borrowers of the corporation, they were reduced to 2% (GESV - from 2%), instead of the previous 5%. If the loan through a second-tier bank is 5% (GESV - from 5%), and through credit partnerships and microfinance organizations - no higher than 6% (GESV - from 6%).

It should be noted that in the structure of the KazAgro holding, in addition to the Agrarian Credit Corporation, KazAgroFinance provides significant support to villagers in sowing and harvesting. This subsidiary of the holding, using such a financial instrument as leasing, plays an important role in providing farms and agricultural entities with the necessary agricultural equipment.

This year alone, through KazAgroFinance, agricultural producers of the republic received more than 1,500 units of agricultural equipment.

– The state program for the development of the agro-industrial complex for 2017–2021 provides for the implementation of a funding mechanism for financial institutions on the basis of JSC Agrarian Credit Corporation, following the example of the agricultural bank Rentenbank, one of the most successful financial institutions in the field of development of agriculture and rural areas in Germany. How does ACC plan to reduce direct lending to agricultural entities?

– In June 2017, the corporation and Rentenbank agreed on close cooperation and exchange of experience in financial risk management.

Rentenbank has the highest long-term rating (AAA) according to the world's leading rating agencies - Moody's Investors Service, Standard & Poor's, Fitch Ratings. This indicator coincides with the rating of the entire state - the Federal Republic of Germany.

Since its founding, Rentenbank has carried out a gradual, systematic shift away from budget financing and after 20 years it has become completely independent of public money, attracting funds from international capital markets. Today, Rentenbank does not provide direct lending, but funds financial institutions, thereby stimulating competition in the agricultural lending market. Without financial dependence on the German budget, the bank provides financing in accordance with state policy in the field of agriculture.

In this regard, Rentenbank's many years of experience have become very useful for a corporation lending to agribusiness in Kazakhstan. According to the new development strategy, the Agrarian Credit Corporation intends to minimize direct financing of borrowers by 2026.

In the coming years, ACC will systematically reduce direct lending to agricultural entities, focusing on funding second-tier banks, credit partnerships, microfinance organizations and leasing companies for subsequent lending to farmers.

In 2016, funding through financial institutions amounted to 49%, which is 13% lower than the same figure for the current year. Through credit partnerships, the corporation financed farmers in the amount of 48.2 billion tenge, through funding of second-tier banks - for 31.1 billion tenge, microfinance organizations - 6.7 billion tenge, through leasing companies - for 799 million tenge.

As mentioned above, the corporation has been financing credit partnerships for 16 years. There are several main advantages of developing rural financial infrastructure. Firstly, territorial coverage, since financial institutions are located directly in rural areas.

Secondly, the development of competition in the rural lending market. CT, MFO, STB and LC will reduce loan rates due to the availability of more favorable conditions from competitors. The struggle for the client will lead to the formation of market relations in the field of rural lending.

The rate of reduction in direct lending will also be influenced by the degree of readiness of private financial institutions to replace direct lending to corporations, not only in volumes, but also within the framework of the state-established priorities for the development of the agro-industrial complex.

Today, the credit partnership “Yassy” (SKO) and “Tselinogradskoye” (Akmola region) have an “AA” rating, which provides for the provision of a limit on self-financing for end borrowers, limited only by the size of the credit line.

– Tell us about the launch of an automated system for collecting and processing loan applications for agricultural entities to submit their documents for lending through a convenient service in real time.

– As you know, the holding pursues a consistent policy to expand the availability of credit resources for the country’s agricultural producers. For example, the line of credit products of our subsidiaries is expanding, microfinance organizations and credit partnerships are being funded for their subsequent financing of business in rural areas.

Much work is being done to attract second-tier banks to the agricultural sector. And in this vein, it is quite logical to introduce an automated system for collecting and processing loan applications. What is special about this system? A potential borrower has the opportunity to submit an application for a loan or leasing in the state and Russian languages ​​without visiting the offices of the holding’s lending companies, while significantly reducing time and financial costs.

In addition, the innovation provides the farmer with the opportunity, through his “Personal Account,” to track the application review process and receive feedback. The introduced system will not only ensure convenience and transparency of the process of providing services to the KazAgro group of companies, but will also reduce bureaucratic procedures and eliminate the possibility of corruption factors.

The process of submitting a loan application in electronic format consists of 3 steps: the client selects a goal and program on the KazAgro Internet portal, attaches title documents, checks the selected lending parameters and submits, after which the generated electronic loan application is sent to the appropriate subsidiary organization.

The borrower can monitor the results of consideration of the loan application in the “Personal Account”. In addition, the credit manager will be able to send a notification to the client online, and if necessary, he can supplement the loan application with documents.

The introduction of an electronic system allows KazAgro specialists to automate the receipt of documents in electronic format, minimize the time it takes to review projects, and make the transition to servicing farmers on a “one-window” basis. To help farmers use the system more easily, the holding has prepared a video instruction manual, which can be viewed and downloaded on the KazAgro portal.

– At one time, ACC acted as a driver that helped rural entrepreneurs move from production to the financial sector and become competent managers. Have any new approaches been developed, prompted by life itself? Are farmers of the early 2000s different from those of today? What difficulties does the company face in working with them?

– When 17 years ago farmers first became acquainted with new financial instruments, using which they could significantly improve their business, many problems arose. Moreover, they concerned both poor financial literacy and lack of knowledge in the field of relevant terminology. Most of today's farmers are competent managers who are able to draw up a business plan, calculate risks, and choose the most convenient conditions from lending companies.

Today, farmers are actively studying the market, following the news, taking part in forums and exhibitions, where they exchange experiences, including with foreign colleagues. We see the activity of Kazakh farmers - this is encouraging.

The Agricultural Competence Center of the NCE RK “Atameken” has been successfully operating for two years, which conducts scientific and practical seminars in all regions of the republic for subjects of the agro-industrial complex. The Corporation plans to form a Competence Center at its base in collaboration with international partner institutions, NCEs, associations and other industry organizations.

The main problem for beginning farmers when applying for loans is the absence or low estimated value of collateral. But in corporations and credit partnerships, outbuildings, land, and agricultural equipment are accepted as collateral.

As for the timing of consideration of loan applications, I would like to clarify that the Agrarian Credit Corporation is a financial institution, like second-tier banks. Any bank, before giving a loan, will check the credit history and financial well-being of the borrower. Because there is such a thing as credit risks. There are bad loans and misuse of funds.

Previously, it was believed that working in the countryside was not prestigious. Today, there is another trend when city residents leave big cities and go to the countryside to build a business. I am glad that young, educated people are leaving with new ideas for rural business that require small investments. In 2017, the number of new enterprises in agriculture increased by more than a thousand units. The agro-industrial complex was among the top industries where the most new companies appeared. This is a clear example of the fact that people are increasingly striving to open businesses in rural areas.

The main principle of the corporation’s work, which was developed over the years of the existence of the agricultural lending system, is to always be in direct, open communication with farmers and understand what they need most of all, creating the most comfortable conditions for raising the rural industry of Kazakhstan.

AUTHOR:
Asel Mukanova