Paper

The Use of Structured Finance Instruments in Agriculture in Eastern Europe and Central Asia

Understanding application of structured finance techniques in agribusiness
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This document examines the use of structured finance (SF) in agriculture in Eastern Europe and Central Asia (ECA).

SF refers to the advance of funds to enterprises based on security that is not normally accepted by banks or investors. Effective SF needs:

  • Stable macroeconomic, institutional and legal frameworks;
  • Developed financial system;
  • Supportive cultural and social values;
  • Profitable agricultural sector;
  • Adequate infrastructure;
  • Efficient food production chain.

Reviews of SF usage in ECA countries indicate that it is not widely used in agriculture. Reasons include a lack of understanding of SF, weaknesses in financial markets, legal impediments, perceived risks in agriculture, fragmented nature of value chains and deficiencies in infrastructure. To support SF, the paper recommends:

  • Partnerships between international agencies and governments to improve the legal and operational environment for SF;
  • Supporting development of SF preconditions in weaker countries;
  • Strengthening agricultural value chains and farm-to-market linkages;
  • Developing value chain training and support programs for farmers, agribusinesses and bank officers;
  • Facilitating development of pilots with banks and agribusinesses to adapt SF instruments and approaches into their operations.