Ukraine’s partial credit guarantee fund is a win-win for farmers and banks

Ukraine’s agricultural sector faces a pivotal moment, given the unrelenting challenges posed by land reform and Russia’s invasion of Ukraine. Smallholder farmers, the backbone of this vital industry, are grappling with the dual challenge of securing financing and overcoming the aftermath of destruction and economic disruption. The Partial Credit Guarantee Fund (PCGF), an innovative collaboration between the European Commission and the World Bank, has emerged as a beacon of hope offering concrete solutions to these pressing problems.

Historically, smallholder farmers in Ukraine have had limited access to credit, a situation exacerbated by inadequate collateral and a perceived high risk. The introduction of land reform increased the need for financial resources, allowing farmers to acquire land and invest in their operations. However, a significant surge in credit demand in 2022-2023, driven by falling domestic agricultural prices, rising logistics costs, and rising costs of agricultural inputs, including fertilizers and pesticides, creates an urgency for innovative financing solutions. highlighted.

With the Russian invasion, small farmers faced not only the challenge of staying in business, but also the need to rebuild and innovate in the face of adversity. Destruction and damage to agricultural machinery further stimulated demand for investment financing, alongside the need for energy-efficient solutions.

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Recognizing the urgent need for financial support, the PCGF was established as a strategic response. The fund is aimed at smallholder farmers cultivating up to 500 hectares and registered on the Single Agricultural Register (SAR), and provides up to 50% of credit debt for both investment and working capital. Masu. This initiative goes beyond land purchases and covers capital investment, operational costs, and diversification into areas traditionally overlooked by bank support, such as horticulture and livestock.

In its early stages, the fund is strongly capitalized, thanks to a €10 million ($10.8 million) grant from the European Union and a matching contribution from the World Bank. This financial support not only strengthens the foundations of the PCGF, but also underlines collective efforts to revitalize Ukraine’s agricultural sector.

The PCGF is designed to work synergistically with existing development programs and initiatives. By working with programs such as 5-7-9%, crop receipts, regenerative agriculture, and other support mechanisms, PCGF will expand its impact and provide a stronger support system for smallholder farmers.

Less than two weeks after its launch on February 6, the PCGF has already facilitated working capital loans to farmers with 370 hectares of land growing grains and oilseeds, and the fund’s immediate The Fund’s significant impact and the important role it plays in supporting Ukraine. Agriculture.

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Jarosław Bełudowski, Chairman of the Fund Supervisory Board, summed up this sentiment: It brings prosperity, empowers smallholder farmers, boosts economic growth and fosters a resilient agricultural sector. ”

Expanding on the importance of PCGF, Beludovski said: “This initiative not only supports farmers facing current economic challenges, but also paves the way for a sustainable and prosperous agricultural future for Ukraine. ” he added. He further emphasized the critical importance of the Fund given the current reality, saying, “The rapid response to the PCGF initiative highlights the dire need for such financial products, which will continue to persist despite all adversity. It reflects the resilience and determination of Ukraine’s rural communities to thrive.”

Through strategic support and risk mitigation, PCGF not only addresses the pressing financial hurdles faced by small-scale agricultural producers, but also lays the foundation for sustainable growth and innovation. In doing so, it significantly contributes to the national economy and strengthens the welfare of rural society in Ukraine, becoming a typical win-win mechanism for both farmers and banks.

Editor’s note: The opinions expressed in the editorial section are those of the author and do not reflect the views of Kyiv Independent.