Rural Credit Guarantee Schemes: A Financial Instrument for Agriculture and Rural Development-Summary Report

This is a report on the proceedings of a seminar that focused on the problems faced by the agricultural sector during transition to market economies and the lessons learnt from western European institutions. In CEE transition economies, farmers/business entities that do not qualify for bank loan are referred to the guarantee scheme.The key topics that the participants discussed included:

• Causes for the problems faced by rural businesses and need for guarantees;
• A review of the experience of the financial institutions providing credit guarantee;
• Public policies for moderation of structural risks.

The discussions revolved around:

• The need to sustain rural investments;
• The role guarantee schemes play in boosting enterprenuership and compensating for the lack of collateral;
• The need for public support and state aid;
• The need for marketing.

The seminar concluded by saying that rural credit guarantee scheme (RCGS) is an effective policy instrument and plays an important role in:

• Reducing information asymmetry and transaction costs;
• Bridging the gap between farm businesses and financial institutions.

The policy recommendations it suggested include:

• RCGS should strive to become financially sustainable without state support and strike a balance between its tasks and operational feasibility;
• There should be harmonization with European Commission legislation during expansion.

The seminar also listed the follow up steps which are as follows:

• Continued collaboration through establishment of a network;
• A sub-sectoral site dedicated to RCGS on the east agri website;
• A proposed survey to asses the utility and impact of RCGS.