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Macedonian Bank for Development Promotion
Agricultural Credit Discount Fund
Bringing finance to rural
people – Macedonia’s case
Efimija Dimovska
Istanbul, October 2010
Agricultural Credit Discount Fund
ACDF Mission
Raise the standard of living of the rural population
through increased economic activity responsive to and
sustainable in the emerging market
Objectives
 Establish institutional and financial basis for
sustainable agricultural financial services which are
commercially viable and yet appropriate and
affordable by the target groups
 Integrate the rural population in the banking
system
 Reduce the risk to agricultural sector financiers
Refinancing Facility
 On-lending trough selected financial
institutions
 Matching of capital

(ACDF + PFI + borrower)
PFIs pay interest for the discounted amount
at a level of 0.5% annually
 Credit risk on the PFI
 PFIs apply their own lending policies to subloans, except the interest rate
 Controlled use of the loan funds
ACDF Impact
Institutional (PFI) impact
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increased agricultural lending portfolio
enlarged number of rural clients
softer collateral introduced
improved overall PFI performance
Smallholder impact
 connection with the formal financial sector
 access to affordable financial services
 economic impact on household level
Macedonian rural border areas
 Highlands and mountainous areas
 Agrarian economy
 Poor transport and telecommunication
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infrastructure
High transaction costs of conducting business
Official unemployment rate of more than 40%
Aging population
High migration from rural settlements to bigger
towns
Low incomes and living standard
Lending to rural border areas
 Profitability of agricultural and rural operations is
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poor and can’t generate the cash flows needed for
adequate debt-servicing
High delivery cost
Poor transport and telecommunication
infrastructure and difficulties to reach the clients
Collateral issue (no property lists, low value
property)
Difficulties in obtaining building permits for
investments in production facilities
High real lending risk
No documented trade between cross-border
villages
Lending to rural border areas
Problem: Profitability of agricultural operations is poor
and can’t generate the cash flows needed for
adequate debt-servicing
Recommendations and policy direction:
 Diversification of the local economy – support the
development of an alternative businesses to
agriculture
 Increase competitiveness of the agro-production by
strengthening the regional identity - support the
production of highly specific and traditional
products
Lending to rural border areas
Problem: High delivery cost
Recommendations and policy direction:
 Support (Ex. ACDF) aimed at reducing
lenders’ transaction costs on short to
medium term, reduced over time and
eventually eliminated
 Adoption of laws and regulations that will
enable establishment and operations of
“grass level financial institutions” such as
small MFI’s , Credit Unions, etc.
Lending to rural border areas
Problem: Poor transport and
telecommunication infrastructure and
difficulties to reach the clients
Recommendations and policy direction:
 Increased capital investments for
infrastructure in rural regions
 Regional Development Strategy
Lending to rural border areas
Problem: Collateral
Recommendations and policy direction:
 Improve the legal and regulatory framework
in property titling and registration
 Improve the efficiency of the judicial and
enforcement systems
 Expanding the list of items that can be used
as collateral
Lending to rural border areas
Problem: High real lending risk
Recommendations and policy direction:
 Support rural diversification
 Crop insurance
 Credit Bureaus
Conclusions
 Combined measures in place will enhance
provision of financial service to the rural
areas
 In developing economies financial
institutions are interested in expanding their
client base
 On the long-term rural clients should be
served wholly with the banks’ own
resources
Thank you for your
attention!