Today, agricultural loan customers in the Ukraine lack reliable and sustainable access to finance. Banks still have a very conservative stance towards this client segment, especially with small and medium enterprises, citing various challenges in serving the sector.
To get a detailed picture of the main characteristics of the supply and demand patterns for the whole range of financial services in the agricultural sector, the Development Facility of the European Fund for Southeast Europe commissioned the “Potential for Agricultural Finance in Ukraine” sector study.
The purpose of the study is to provide a basis for recommending viable solutions for increasing the supply of agricultural finance. Major findings and recommendations include:
The current agrifinance supply of about USD 3.3 billion falls short of meeting overall demand, estimated at USD 12 billion. This finance gap of USD 8.7 billion effectively has about 35 per cent of all Ukrainian farms trapped in a vicious circle. The study also shows that potential demand would actually exceed current demand if constraints on finance were removed.
It was also determined that assistance for improved access to finance should be based on the following four principles:
- Keep project risk levels low to medium for the first projects in order to build a track record in what is considered a difficult market environment.
- Apply a long-term view on expected impact due to the size of the economy and political and economic uncertainties.
- Seek partnerships with other players with an eye on achieving impact through improvements in interrelated problem areas.
- Provide access to strong technical assistance to the currently underserved agricultural sector.