THE DUAL APPROACH – SUPPORTING AGRICULTURAL VALUE CHAIN FINANCE IN TAJIKISTAN

For almost a decade now, AFC has been implementing two phases of the Rural Finance Programme of the KfW Development Bank and the Ministry for Economic Development and Trade in Tajikistan. Since April 2021, we resumed our work with both partners, implementing the new Financial Sector Programme “Value Chain Agri-Finance” which focuses on the dual approach in supporting on the one hand the financial institutions in value chain finance and on the other hand agricultural small and medium-sized enterprises (SME).

For a period of three years, the competitiveness within the agricultural value chains shall be enhanced by offering working capital finance and by increasing the availability of long-term finance for agricultural equipment and machinery. In total, EUR 8.6 million will be provided to selected financial institutions ensuring access to finance for agricultural SMEs in Tajikistan.

Following the dual approach, partner financial institutions (PFI) and SMEs of the agricultural sector will benefit from the project. Based on requirements such as long-term and sustainable lending practices and at the same time providing other financial services to the population, five PFIs have been selected to participate in the project. They are supported in the development of financial products for agricultural value chain finance and receive capacity building and training measures to improve their agricultural business model and SME credit technology.

In August and November 2022, a series of trainings on SME lending in the agricultural sector were held, which 150 employees of PFIs, 26 of whom were women, attended. The training courses were conducted at two levels – from basic knowledge about SME lending specifics to advanced knowledge and skills on SME appraisal by applying comprehensive financial tools and crosschecking methods to verify the financial information. The training courses were targeted to loan officers, risk managers, branch and service centre managers, heads of lending units, likewise other personnel involved in the SME lending.

“АFС rеliаblу supported us in designing appropriate аgriМSМЕ lоап products, in imрrоviпg оur agricultural business models, and introduced credit risk assessment methods. Jointly, we successfully implemented ап епvirоnmеntаl and social mаnаgеmеnt system. They furthеr provided us very insightful trainings in credit risk mаnаgеmеnt methods fоr agri-lending. ln addition to that, АFС is соntinuing to support us in implementation of the ongoing project bу conducting monitoring, defining eligible sub-borrowers, mаnаging disbursеmеnt апd rерауmеnt рrосеssеs of lоаn tranches”.

(Testimonial from one of our PFIs)

In February and September of 2022, PFIs were skilled in developing the Agricultural Value Chain Finance Product targeting small and medium businesses along the value chain for the purpose of working capital or fixed asset financing. The product was piloted and then adapted to the existing market features. By the end of last year, more than 358 loans worth more than EUR three million were disbursed in local currency by financial institutions; 50 of them in the amount of EUR 615 thousand were issued for investment purposes to agri-SMEs.

From August to November 2022, our team assisted in formulating and introducing Environmental and Social Management Systems at the PFIs, contributing to the sustainable extension of long-term loans. Subsequent trainings were held for all PFIs on the implementation of environmental and social issues in the assessment processes of potential funds for sub-borrowers.

For many years, Mahmaliev Ahmadjon has been cultivating different crops and vegetables on an area of five ha. Recently he built a greenhouse to grow lemons. The purpose of the loan is to purchase farm inputs such as mineral fertiliser, pesticides as well as seedlings. The current cold winter affected the trees in the greenhouse, but Mahmaliev still expects an ordinary harvest this year. He is very happy that he got the opportunity to take a loan at a subsidised low interest rate.

The service provider Azizkhojaev Ashurali is engaged for ploughing of lands with his agricultural machines. He previously owned a tractor from 2003. With the new loan, he was able to buy the latest model, offering his services with the newly bought equipment. The project partner bank offered him the opportunity to take a loan with the subsidised interest rate. Azizkhojaev gave his old tractor to his brother, so they can now jointly provide their ploughing services.

Ensuring SMEs’ access to affordable funds in local currency, increasing their competitiveness and building capacities to enter new markets, are the main goals of the project. A new approach to financing SMEs as well as the new knowledge and skills of PFI employees for providing loans to the agricultural SMEs, allow achieving the goals.

In the subsequent stages of the project, workshops on risk management, corporate client financing, and training of trainers, will contribute to the capacity building of PFIs. Through the provision of trainings in business planning and credit application to agricultural SMEs and entrepreneurs, we will further strengthen the agricultural value chains.

For further information, please contact:

Mareike Decker Project manager mareike.decker@afci.de

Sigitas Bubnys Team leader sigitas.bubnys@afci.de

Firuza Safarova Deputy team leader firuza.safavora@afci.de