Small farmers’ access to microcredits – CRPE arguments have convinced the Ministry of Agriculture

Romanian Center for European Policies (RCEP) salutes the adoption of the Government Emergency Ordonance 05/14/2012 on measures regarding the development of family farms, and particularly, on the creation of a microcredit fund. Adopting a series of correct and proactive implementation norms would secure creditation for small and medium producers in Romania – one of the stringent aspects that need to be addressed when defining the development perspectives of the romanian agriculture for the next multiannual financial framework.


The Romanian Center for European Policies has dedicated a series of research activities on the topic of agriculture, focusing on key measures and national policies that need to be adjusted or reformed so as to meet the new challenges on the common agricultural market. Microcredits represent one of the missing links in the system. CRPE’s „EU funds and financing solutions for small farmers in Romania. Microcredits and guarantees” report shows that this type of funding of the romanian agriculture, through non-banking financial institutions (NFIs) is one of the most viable and necessary measures.


Why we need microcredits in agriculture

The European Union has put at member states’ disposal a series of support instruments for the absorption of structural funds dedicated to agriculture.

During the 2007-2013 period, almost 300 such financial instruments have been used by EU member states, among which 43% were credit funds, 36% capital funds and 21% guarantee funds.

So far, the beneficiaries of the Rural Development Programme in Romania could only benefit from the guarranties granted by the Rural Credit Guarantee Fund for bank loans. Many, however, did not have the acapacity to access the measures of the National Rural Development Plan (NRDP) – the vast majority of small producers with their own funding needs for crops and investments. In general, the banking sector fails to meet the capitalization needs of small and medium farmers in Romania.


The advantages of microcredits equally imply costs

Micro-credit institutions have a significant physical presence in the territory, make lending decisions not just relying on some numbers in a balance sheet, but sometimes even by visiting the households, discussing with the farmer, identifying the needs and profitability perspectives of investment to be made. But these advantages come with some costs. NFIs borrow money from international financial institutions at an interest rate of 8%, to which they add operational costs, resulting an interest of up to 25%.


What needs to be changed – CRPE reccomendations

CRPE therefore considers that a public policy that would decrease the cost of loans offered by microfinance institutions is much needed.  The CRPE study recommends a series of measures the state could take in order to support (micro) financing for agriculture in Romania in the next Multiannual Financial Framework 2014-2020. Among them we include:

– Creating a credit fund mainly dedicated to micro-financing, accessible to both banking and non-banking institutions;

– Interest subsidies on co-financed loans for projects implemented with EU funds, provided by both banking and non-banking financial institutions (MFIs);

–  Acceptance by the Payment Agency for Rural Development and Fisheries (APDRP) of letters of comfort issued by MFIss for farmers who apply for a grant;

–  Acceptance by APDRP of pledged goods purchased through microcredits from MFIs;

–  For the price of micro-credits to be reduced, it would be appropriate to create a fund for MFIs with Romanian capital that would eliminate the currency risk.

Recommendations resulted from this report have been discussed in the inter-ministerial working groups organized by CRPE on the topic of financial engineering instruments to support lending to small producers and agricultural association. This group includes representatives

from the Ministry of Agricultural and Rural Development, Ministry of Foreign Affairs (European Union Directorate), Ministry of Finance and the Rural Credit Guarantee Fund.

This report has been issued in the pilot program “Rural development through entrepreneurship and association”, an initiative of the Romanian – American Foundation, which, along with organizations with expertise in rural economic development and community facilitation, aim at creating  agricultural associative structures in four different geographic regions in Romania.


What the recent GEO changes for farmers

Shortly after the discussion of this report in the inter-ministerial working group that also brought together experts from the private sector and civil society, the Ministry of Agriculture announced that it has decided, through GEO 05/14/2013 on measures to develop family farms, to create a fund for granting micro-credits in agriculture.

This fund offers farmers up to 75,000 euros for co-finnacing  investments made by family farms, a  maximum of 15,000 euros for investments that are not eligible under the National Rural Development Programme and up to 25,000 for setting up agricultural production. This fund will grant access to both banking and non-banking institutions, to which the Ministry of Agriculture and Rural Development will allocate  funds based on working conventions.

The report is available here.


This report has been published within the pilot-programme  ”Rural development through entrepreneurship and association”, an initiative of the Romanian – American Foundation, which, together with experienced organizations in rural economic development and community facilitation, aim to create functional and sustainable agricultural associations in four different regions of Romania.