The establishment of a new Microcredit Fund in the primary sector will be carried out by the Ministry of Rural Development and Food, as the competent minister, Spilios Libanos, announced in his speech at the 7th conference on financial instruments organized by DG-Agri together with the European Investment Bank.
The establishment of the new Fund is deemed necessary, as the banks have not promoted, as they should have, the financing of investments from the Rural Development Guarantee Fund, amounting to 480 million euros, which has been operating for the last nine months.
During this period, despite the increased demand, the supply from the banks began to be clearly reflected at a slower pace than the intended ones. “Banks need even more promotion of the tool, but also faster and more efficient management of applications. Banks must also assume their responsibilities and stand up to the circumstances. To trust the agricultural production, the farmers and the producers, to come with us and to take the risk that belongs to them. Globally – and for Greece – the analysis shows that there is great potential for development of this area. However, it is worth emphasizing that the realization of the investments from the moment their financing is approved is extremely fast “, said Mr. Libanos, who acknowledged that in the nine months small but important investments have been made.
Aiming at the better operation of the Fund, Mr. Libanos noted that “we have adjusted the investment strategy of the Fund, in order to address the increased liquidity needs of farmers and processing companies affected by the COVID-19 pandemic.”
As he explained, working capital loans are provided with the same attractive financing terms and with very flexible procedures that do not require the submission of a business plan.
However, as the Ministry of Agriculture and Rural Development pointed out, “although loans with particularly reduced collateral are provided through the Rural Development Guarantee Fund, a large number of mainly farmers and processing companies are unable to provide such collateral even for very small loans.”
Seeking a solution to this problem, Mr. Libanos announced: “In order to cover this part of the demand, we are taking advantage of the recent legal framework, which established the possibility of establishing microcredit providers. Thus, through the RDP 2014-2020 and with the resources of the Union Recovery Instrument (EURI) we are establishing a new Fund for the provision of shared risk loans. Both Banks and Microcredit Providers will be able to participate in the new Fund as Financial Intermediaries. The investment strategy of the Fund envisages a combination of loans with interest rate subsidies and with technical support of the final recipients “.
With this move, the Ministry of Regional Development and Infrastructure aims “to make this tool attractive to both beneficiaries and financial institutions. Specifically, we aspire to contribute to the development of loan products amounting to 25,000 euros, which will be provided with little or no collateral, with interest rate subsidies for the first years of repayment and with the possibility of supporting beneficiaries who are unfamiliar with such financing. This way, the beneficiaries will be able to develop and execute their business plan properly. At the same time, by attracting as many actors as possible, we encourage the development of an ecosystem of microcredit providers in the agri-food sector and significantly reduce the risk of financial institutions “.
These decisions are taken by Mr. Libanos as he recognizes that access to adequate funding is one of the key issues of concern to the Greek agri-food sector.
According to the data presented in his speech by Mr. Libanos during the last decade, the composition of loans shifted from expansion and modernization to meeting the immediate needs of the production process. It shifted from medium-long-term to short-term loans.
In particular, farms managed to raise financing through micro-loans and short-term loans at a rate of around 24%.
While the success in obtaining medium-long-term loans did not exceed 8%. The picture was similar for small manufacturing companies. On the contrary, a more balanced access to short-term and medium-long-term financing was maintained by medium and large (manufacturing companies). Satisfied demand amounted to up to 25,000 euros for agricultural holdings and up to 100,000 euros for manufacturing companies and was mainly directed to working capital. Satisfaction of demand for larger amounts, which would be directed to equipment and further development of activities, in no case exceeded 18%.
The main source of funding was inflows from the CAP, equity and loans from family and friends. Both farmers and processing companies avoided raising funds from the banking system. This is due to the disappointing financing terms, as reflected in the requirements for equity and collateral as well as the level of interest rates.
The combined result of all the above trends was disinvestment. In addition, the breakdown of trust between banks and businesses has led to a reduction in social capital, which is an equally important measure of economic growth.
It is noted that according to the data presented by Mr. Libanos, the financial gap (the difference, that is, between the demand for financing and the corresponding supply), for agriculture can reach even 14 billion euros in our country.
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