On Lending

Recently, at an extended meeting of the Government, the Head of State addressed the issue of lending to the real sector of the economy. The President's remarks included two initiatives that I have previously promoted in various forums. Both are very important and could produce a quick effect specifically in lending to the real sector.

The first initiative concerns grain receipts, and the second concerns subsoil use contracts. Today I want to write specifically about grain receipts. After the large shortfalls and falsified entries in grain receipts uncovered in cases involving major agroholdings, grain receipts lost their status as highly liquid collateral. This sharply reduced a large segment of lending in the country, because the system of grain accounting and control is not organized at the highest level. In fact, with properly organized accounting and control, grain receipts are 100% liquid, since grain is an exchange-traded commodity. The President has instructed that grain receipts be digitalized. This is not a difficult task at the scale of a country, but the devil is in the execution, and good execution is clearly something we lack. Without going into detail, we need to select a single operator, create a unified accounting system, accredit grain elevators and establish a physical system of control and storage at the elevators themselves. To minimize risks, at the first stage it would be possible to begin insuring grain stocks. Bringing grain receipts into collateral circulation will allow farmers to sell grain evenly throughout the year rather than at harvest time, which will enable them to sell at the best price.

To develop agricultural lending further, we need to establish supply chain financing, since this too will give an additional boost to the sector. In practice, the difference between the prepayment price and the deferred-payment price offered by suppliers is 10-30%, which is far higher than the cost of money, even at current rates. Therefore, with a mechanism for lending through supply chains, it is possible to reduce procurement costs for the agricultural sector and increase lending. It is important to involve suppliers in this process, because they know their customers quite well and can take on risk themselves, thereby widening the channel for lending to agriculture. At present, the operators distributing state funds are second-tier banks and microfinance organizations. If distributors are also brought into the process through supply chain financing, overall coverage of producers will increase and risks will fall, because risk is shared not only by the farmer but also by the supplier.

Such fine-tuning of lending mechanisms makes lending more efficient.