The Evolution of Commercial Finance in Russian Agriculture

This case study explores the problems constraining the development of commercial financing sources for agriculture, in Russia. It argues that state interventions to address market failures have undermined the development of these commercial financing sources. The paper:

• Provides an overview of commercial financing in rural Russia;
• Shows how past state interventions, agrarian policies, and weak institutions contributed to fragmented markets;
• Points to the constraints in the development of commercial financing sources for agriculture;
• Shows the interrelation between agricultural input, commodity, and rural financial markets;
• Identifies the factors that could inhibit the development of rural finance in a transition economy.

The paper also lists the challenges in the successful development of commercial funding:

• A regional agrarian policy that does not support commercial financing activities;
• Deficient credit delivery system;
• The lack of bank financing for agriculture and agribusinesses;
• Low profitability of agriculture leading to low demand for commercial financing sources;
• Current donor strategy.

Finally, the paper suggests:

• Development and integration of inputs and commodity markets;
• Institutional improvements in the financial and legal structures;
• Improvement in the liquidity of agriculture through a warehouse receipts system;
• Formation of insurance schemes for farmers and agribusinesses;
• Development of credit cooperatives to enhance competition in the rural areas;
• Increase in transparency in the credit market;
• Development of the marketing and credit systems to provide better credit access in rural areas.