Farm communities in the EBRD region are usually poor communities, partly because farmers find it almost impossible to access bank credit to build their businesses. In Serbia, an EBRD-backed lending programme for farmers is booming and is due for replication in other countries in the region where, on average, one in three people live in rural areas – and poverty is rife.

“Our micro-lending programme for farmers through our Serbian partner, ProCredit Bank, has succeeded far beyond our wildest dreams,” says Elizabeth Wallace, director of the EBRD’s group for small business.

Lending to rural communities is challenging because of the vagaries of the farming business, particularly weather, pests and commodity prices. Further discouraging agricultural lending is the fact that most commercial banks are city-based, often lacking the expertise and the interest to build a rural clientele. Many farmers need very small loans: at US$2,700 on average in Serbia, such lending is not very interesting to most commercial banks.

Even the EBRD’s experts in lending to small and medium-sized enterprises (SMEs) doubted they could crack the rural lending conundrum. “Profit on micro-loans is very small, so at least initially, you need to operate in densely populated areas to reach large numbers of businesses required to make the lending programme work,” says Wallace. “We didn’t think that the issue of critical mass could be overcome so quickly in sparsely populated rural areas. We’ve been pleasantly surprised at how fast ProCredit has expanded to rural areas.”

Rural business now accounts for one third of lending by ProCredit, which the bank founded in 2001 under the US/EBRD SME Financing Facility. ProCredit is the only bank catering for Serbia’s agricultural sector. It finances the cost of seed, livestock and machinery, as well as lending to farmers so they can process their own products – an important aspect of rural economic development.

Since it started agricultural lending in 2002, ProCredit Bank has disbursed more than 7,200 agricultural loans, with 5,000 loans outstanding and the number of new loans already at 900 per month. Despite last year’s drought, the repayment rate is over 99%.

ProCredit started operations in the cities of Belgrade, Novi-Sad and Nis. Its success rapidly translated into the establishment of 26 outlets across Serbia, with 11 new locations opened in the first six months of 2004 alone.

“Agriculture is the most difficult sector for bankers because the risk profile is different from other businesses,” says Wallace. “Farming is an outdoor business, so there are a lot of factors over which borrowers have no control.”

To meet the rural challenge, using creativity and building on EBRD’s expertise in SME lending, ProCredit Bank staff came up with a key methodological tool, the ‘technology map’. Based on local knowledge gathered from partners as varied as universities, meteorological centres, veterinarian institutes and statistical offices, the technology map employs 40 parameters in calculating a client’s risk profile. The technology map has proven instrumental in ensuring a high repayment rate in the programme.

To reconcile banking with the agricultural world, ProCredit Bank was innovative in recruiting its rural loan officers from local agricultural universities. Their training was supported by technical assistance from the US government, as part of its overall assistance for the establishment of ProCredit.

To overcome the hurdle of geographical isolation in rural areas farmers, cooperatives and community groups organise meetings so loan officers and potential clients can initiate contact. And ProCredit loan officers are expected to be constantly on the road. “They go out to the markets, to the farms, they look for small manufacturers in their own backyards, they go out and look for clients,” says Wallace. Quick turnaround times in granting credit have established ProCredit’s reputation: small loans of under US$5,000 can be disbursed within two days after the loan officer has met the client. The bank is also starting to issue loans without requiring collateral, further reaching out to economically disadvantaged communities.

The EBRD currently supports rural lending in Armenia, Georgia, Kazakhstan, Kyrgyz Republic and Romania but the programmes have not yet reached the level of ProCredit’s success.
“In Serbia we have come up with a methodology that works and that can be applied elsewhere,” adds Wallace. “It is a matter of educating ourselves and adapting in each location.”