Wednesday, May 4 2011 16:54
Ardshininvestbank: Agriculture output to grow by 6-8% in 2011
Interview of Head of Retail Crediting Development Department of Ardshininvestbank David Arakelyan with ArmInfo News Agency
Mr. Arakelyan, the bank participates in the program of preferential crediting of farmers. Would you assess the effectiveness of this program? Will it be demanded among the farmers, taking into account some of its difficulties?
The government and the Central Bank of Armenia have already jointly assessed the effectiveness of this program in several aspects, the most important of which is based on the quantitative indicators of this program. For instance, under the program of support to farmers, the government will subsidize the interest rates of 4-6% by a total of 250 mln AMD. This is the market potential in the segment of small farm entities.
Do you agree with such estimation?
Yes, I do. Nevertheless, it is difficult to estimate the potential capacity of this market. One can state with confidence that there is a high demand for agricultural credits. As known, we have to import most of food commodities today, including meat and milk powder. The local production is, unfortunately, not competitive against the background of the imported products. The reasons of that are the high prime cost and the high interest rates. The given program is solving the problem of high interest rates to some extent, as it allows the farmers to make use of affordable loans. It is also important that the loans will be provided to the farmers in Armenian drams.
And are the interest rates for agricultural loans very high in Armenia as compared to those abroad?
I wouldn’t like to draw any parallels between the foreign scheme of provision of agricultural loans and the domestic scheme. The developed countries have quite different macroeconomic laws. Our economy has specific peculiarities and quite a different structure, therefore, even the most successful mechanisms abroad should be applied here with due regard for the local peculiarities.
What risks is the crediting of the agrarian sector connected with?
The crediting of the agrarian sector is fraught with some risks, the most important of them is the investment risk, which may arise due to the lack of equal conditions for all players in this sphere and lead to a low prime cost in the large entities and to a high prime cost in small entities. Thereby, the small entities may be ousted from the market. The second risk is connected with the big dependency of small entities on the prices of suppliers, the third risk is connected with possible growth of communal payments, which also may lead to difficulties in loan servicing among small farmers. According to the banks, the risks of provision of agricultural loans are the natural-climatic risk and the risk of the lack of agriculture production skills among the farmers.
If we try to estimate the effectiveness of this program from the farmers’ position, doesn’t it lose its relevance against the background of the problems with mortgage security? You cannot deny that many farmers really have a problem with the lack of the required pawn, can you?
I do not deny that farmers have some problems with mortgage security today. In general, according to Ardshininvestbank’s monitoring, the overwhelming majority of farmers have the necessary pawn to receive a small loan. Moreover, our bank will consider agricultural equipment and property – land plots and housing – as a pawn.
And what should the farmers do with the problem of low liquidity of lands in Armenia?
Any land has liquidity; everything depends on its cost. You should not forget that the loan amount is not big and even in case of low value of lands farmers can receive a small credit in the bank.
How many loans is the bank going to provide under the program on support to the farmers?
Under the program initiated by the Armenian government, our bank is going to provide about a thousand micro-loans. The average amount of the loans will be 1-1.2 mln AMD. As you see, the amount is not big; therefore the redemption period – up to 2 years – is quite acceptable. These loans are meant for micro business.
By what principle will the bank select projects for financing?
In this respect, the program is very flexible. We can finance any projects connected with the agrarian sector, including those on acquisition of seeds, fertilizers, fodder, as well as on equipping farm entities with heating facilities, installing irrigation systems in greenhouses, etc.
How do you think the situation in the agriculture sphere will change by the end of 2011?
According to our estimations, the agricultural output will grow by 6-8% in 2011. Such growth will be ensured thanks to successful implementation of the government’s program.
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