|Sector / Subsector
Agriculture, natural resources and rural development
- Agricultural policy, institutional and capacity development
- Agro-industry, marketing, and trade
- Land-based natural resources management
- Small and medium enterprise finance and leasing
|Project Rationale and Linkage to Country/Regional Strategy
Agricultural gross domestic product (GDP) grew at an annual average rate of 9.8% over the period 2010 2013. In spite of its decline during the past 10 years as a reflection of the strong growth in other sectors, agriculture still plays an important role in employment creation and as major source of cash income and wellbeing. During the period 2005 2015, the horticulture sector has witnessed dramatic change and increased importance to the economy. Production areas have increased significantly (vegetable by 41%, melons (and watermelons) by 53%; fruits and berries by 28%). The government aims to enhance the horticulture value chain to increase export of horticulture produces from 0.6 million tons in 2015 to 2.2 million by 2020. It is estimated that this effort will require a budget of approximately $500 million to finance farmers and enterprises to improve and/or set up intensive orchards, cold storages, processing and packaging equipment.
As part of the export promotion strategy, a farm size optimization program targeting horticulture sector announced in December 2015 has resulted in more registered farmers an increase of 57,969 farmers in the horticulture sector alone. Under this program, numbers of registered horticulture and grape producers increased by 196% while for farmers registered as producing fruits and vegetables, the change in numbers was increased by 86%. This program addresses inequities in rural employment and to bring more unemployed people into the workforce as registered farmers.
However, small farm sizes bear risks of inability to attract credit because of issues with levels of fluctuating profitability, available cash flow, lack of suitable levels of security and collateral to access finance as well as inefficiencies of scale. Although bank credit outside the capital city represents about 65% of total credit, universal access to finance for private individuals and small businesses in rural areas is constrained by weak rural branch networks and limited mobile banking services. Also, most available bank loans carry a short tenor of up to one year, which do not match farm cash flows generated by the typical multiyear agricultural product cycles. Farmers and small businesses have limited business sophistication and skills, which impede their growth, with surveys indicating that they lack access to information on market opportunities, suppliers, competitors, technology, and banking products. Low financial literacy of small businesses and low-income households, many of which are led by women, limit their access to financial services and their ability to invest and grow.
Significant cost of funding, perceived risks, and administrative costs associated with lending require banks to charge interest rates that range from 11% 25% for local currency and 6% 15% for foreign currency loans. Especially individuals and small businesses borrow at higher rates. Traditional bank credit processes restrict the use of cash flow-based lending and emphasize recourse to collateral. Insufficient collateral limits the size of loans, thus restricting small businesses from borrowing.
The financial system is dominated by banks, which control 94% of finance sector assets. Eight state-owned banks control 75% of banking assets and provide the bulk of credit to state-owned entities. During 2011 2015, bank credit to small businesses substantially increased from 4.5% to 7.1% of GDP, reflecting a compound annual growth rate (CAGR) of 34.1%. However, lending to small businesses still represents less than one-third of overall bank credit, which is insufficient given their economic significance. Eighty percent of small businesses are still being funded by family and friends and informal resources. Access to finance remains a key constraint for private business growth.