Economist: New project to stimulate banks to grant agricultural loans to farmers

The Agrarian Credit and Development Agency (AKIA) under the Azerbaijani Agriculture Ministry will present a new project for farmers through authorized banks.

The new project envisages the state paying part of the interest cost of 1-year loans allocated to agricultural producers for planting costs. Banks will provide loans from their own funds to cover the operational costs of farmers, and the state will partially cover their interest.

The Agency says that the terms of this project have been submitted to the relevant institutions for their opinion. In the near future, after the approval process of the project is completed, the public will be informed about the conditions.

Many believe that this project will help to boost agriculture in Azerbaijan. In a comment to Azernews on the issue, economist Natig Jafarly pointed out that it's a great idea. It has been applied in many countries and has supported the development of the agrarian sector and agriculture because many areas in agriculture need loans, especially long-term loans. He said that as is known, it is impossible to earn income for several years in some agricultural areas, such as horticulture, tea farming, farms, fisheries, etc.

“In these areas, sometimes the farmer does not take income for several years when the farmer starts the business. If the farmer will take it in the form of a loan and pay the interest for several years in a row without receiving income, of course, this will not benefit the farmer. That is why lending in agriculture is very low in Azerbaijan,” the economist noted.

Natig Jafarly said that the state's involvement in this business and intending to refund certain interest will also stimulate banks to grant agricultural loans to farmers. Since banks consider agricultural loans as risky loans and often refuse to grant loans due to the high probability of problems in repaying the interest. He emphasized that if the state takes this risk, it can make a significant contribution to the agricultural sector. However, there is another issue here. It is necessary to solve not only the issue of interest but also the issue of collateral. Because some banks limit farmers' access to credit by asking for collateral. There is a problem with collateral valuation, as well.

“To put it more correctly, there is a problem with liquidity. Therefore, it would be better if this issue is also included in the package of future proposals. Farmers' collateral in banks can be their activity. That is the product, the future harvest, etc., can be evaluated and written into the farmer's asset as collateral. This can also increase access to loans. In any case, this is a positive step. It will be better if this mechanism is fully operational. Also, I think it makes more sense to do it centrally. There are two state-owned banks in Azerbaijan. These are the Azerbaijan International Bank and Azer-Turk Bank. The control package of these banks is in the hands of the state. It is possible that a separate crediting department can be created in the state banks so that it will be possible to solve this problem faster through them. The International Bank of Azerbaijan is the bank with the largest network in the country. There are branches in almost every district. In this way, it is possible to solve these issues faster and more effectively,” the expert concluded.