The need for a different window than that offered by commercial banks

Dec 19, 2009 Letters

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Dear Editor,
I refer to a letter by the Chairman, Guyana Association of Bankers, Mr. John Tracey, captioned, “Agricultural banks have not been successful in the past and are not the answer to the sectors’ financial needs” (SN 12-17-2009).
As an experienced and qualified banker and as a friend of mine, Mr. Tracey has made some interesting arguments in his letter, some of which I am in support of; others, I disagree with him at a professional level.
I will only deal with those with which we have divergent views.
Mr. Tracey states that he disagreed with me (quote),” … that the solution to the problem is the re-establishment of an agricultural development bank.”  I did not say this in my letter.
What I wrote is (quote), “…Government must therefore take the bold step to re-establish the necessary support agriculture services, and to re-establish a development bank aimed at supporting credit and financial services at interest rates that ensure financial viability and access, knowing that commercial banks have other priorities and objectives.”
The key concepts in my recommendations above are ‘necessary support agriculture services’; and a development bank supporting credit and financial services at interest rates that ensure financial viability and access.
On the subject of agriculture services, I wrote in my letter that we needed to consider issues “…related to research, extension, storage, transportation, drainage and irrigation, processing, marketing and credit….” This is a package of agriculture support services. Consequently, agriculture credit by itself would be a disaster for agriculture, if these issues were not adequately addressed at the policy and operational levels.
Incidentally, to further support my case, I note the agitation of farmers at No. 58 miles in an SN article (12-17-2009), captioned,” Agri extension officers for No. 58 Miles”.
These farmers were complaining of the lack of agriculture extension officers in the community and the Agriculture Minister making an on-the-spot promise to send extension officers for a visit. Now this is a positive start, but this action would be sub-optimal, as more serious programming is required to improve efficacy, outreach and dissemination. Commercial banks do not engage in these areas, but development institutions do as part of their mandate.
It is apposite to note also that without these support agriculture services, a crop insurance scheme aimed at mitigating risk would be too expensive for the agency responsible, be it privately or publicly owned.
At the same time, too, the expected risk premium to be paid by the farmer in his risk pool would be too high, relative to his potential income.
In short, agriculture insurance, without an effective agriculture support service, will be a non-starter in the private sector and is perhaps one reason why local insurance companies may never venture in because the pay-out for claims will be larger than the pay-off for the investor. It would also be very expensive for Government to undertake as well.
It should also be noted that I stated in my letter “…supporting credit and financial services at interest rates that ensure financial viability and access…” Mr. Tracey missed this important distinction in his reply to my letter.
This is a fundamental difference from what we have learned in the field, after examining traditional agricultural banks.
More importantly, there are special agencies that lend to agriculture and this can be done successfully when right policies are applied.
In this regard, I refer interested readers to the United States Department of Agriculture, Farm Service Agency.
(http://www.fsa.usda.gov/FSA/webapp?area=home&subject=fmlp&topic=landing).
The Farm Service Agency (FSA), among other things, “…provides loans to beginning farmers who cannot qualify for conventional loans because they have insufficient financial resources.
FSA also helps established farmers who have suffered financial setbacks from natural disasters, or whose resources are too limited to maintain profitable farming operations.”
This certainly confirms that there may be farmers who have higher risks, but perhaps good projects, that need a different window than that offered by commercial banks.  Is there a need for such in Guyana? I think the evidence is clear.
Finally, Mr. Tracey mentioned that a financing model exists for the cane-farming industry that has more risk-mitigating features for commercial banks.
This is not only impressive, but it would be unique, as it has targeted a major industry that has very special financial needs at a time of the loss of European sugar price subsidies, very high local costs and low productivity levels, among other concerns.
Mr. Editor, this is something that must be examined in an article in your newspapers and I know Mr. Tracey, the professional that he is, will work through the issues to make this possible for public information.
C. Kenrick Hunte

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