IFAD in The former Yugoslav Republic of Macedonia

IFAD has invested US$16.2 million in two projects (both completed) in the country with a total value of US$28.4 million. In line with the government’s policy, both initiatives focused on providing rural people with improved access to credit and other financial and technical services offered by private institutions. IFAD established credit lines for investment in private agriculture, providing the liquidity needed in the country’s under-monetarized rural economy.

The first initiative funded by IFAD was the Southern and Eastern Regions Rural Rehabilitation Project. It established a revolving credit fund, which was the first credit facility in the country to be specifically directed at rural development. The project showed that there was a strong demand for agricultural credit, that lack of financial services is a major constraint to private agriculture, and that group lending is an effective way to give poor rural people access to financial services.

The second IFAD-funded initiative was the Agricultural Financial Services Project (AFSP). The overall goal of the AFSP was to raise the standards of living of the rural population in the former Yugoslav Republic of Macedonia through increased and sustainable economic activity that is responsive to the emerging market context. The main part of the IFAD loan was allocated to finance capitalization of the Agricultural Credit Discount Fund (ACDF), a refinancing facility that was the core operational component of the project. The ACDF provided capital to Macedonian financial institutions to finance loans for investment and working capital. Loans to smallholders financed improvements in agricultural and livestock production, and loans to associated small enterprises supported their rural processing, packaging, marketing and trading activities. The ACDF was a highly successful feature of the project, which enabled poor people to reap the full benefits of investments in agriculture.

IFAD’s strategy

IFAD’s overall objective is to reduce rural poverty by helping poor rural people increase their incomes and living conditions in a sustainable manner. As a way to achieve that objective, the IFAD Rural Finance Policy Paper emphasizes the importance of responding effectively to poor rural people’s need for credit, taking into account:

• the long-term nature of rural finance market development
• the need to operate through properly regulated and supervised financial institutions and according to commercial principles
• the need to invest in severely under-monetarized and under-capitalized rural economies 

The organization’s strategy focuses on increasing agricultural productivity, improving product quality and creating employment. Strategic actions include:

• providing commercially viable credit for smallholders and small and medium-sized enterprises through private financial institutions
• supporting development of modern agro-processing and marketing activities
• offering farmers and entrepreneurs credit packages that include skills training

IFAD strengthens the capacity of rural financial and microfinance institutions to mobilize savings, cover costs, receive repayment of loans and make a profit, with the aim of increasing their outreach to savers and borrowers and achieving dynamic growth.

The principal objectives of the Agricultural Financial Services Project were:

• to establish the institutional and financial basis for sustainable agricultural financial services
• to upgrade technical and managerial skills among the target population to help them maintain the viability of their agricultural enterprises in the context of emerging domestic and export market needs, which are increasingly influenced by the imperatives of convergence with European Union (EU) regulations governing agricultural practices and food product standards.

To achieve the first objective, the Agricultural Credit Discount Fund (ACDF) was established to expand commercially viable and affordable sources of rural credit and to shift credit risk to commercial banks.

To help meet the second objective, further measures provided support throughout the cycle of agricultural production, processing and marketing, primarily to borrowers from the financial institutions that were eligible to benefit from the ACDF. The Agricultural Investment Centre (AIC) facilitated access to financial and technical services among primary producers and small-scale processors/traders who were potential or actual borrowers from financial institutions participating in the project and whose loans were eligible for refinancing under ACDF rules. The service provided a basis for minimizing production and marketing risks and contributed to enhanced profitability and incomes. The AIC has evolved and has now established private consultancy services that put IFAD’s investment in a sustainable framework.

Source: IFAD