With CNFA support, a quick loan risk evaluation system was developed for the farms in the Republic of Moldova February 8, 2010
CNFA experts have developed a quick loan risk evaluation system for the agricultural businesses in the Republic of Moldova. It allows the financing institutions to analyze the loan applications quickly, complexly and objectively. The system was developed in cooperation with the IFAD Program and is initially expected to be implemented by the institutions that provide agricultural businesses with financing. The system was developed in order to overcome the existing situation, where the banks are offering loans to large producers with significant payment history, but are yet reluctant when lending to small farms.
"The new agricultural risk evaluation system facilitates the decision making process, producing credit decisions which minimize credit risk and maximize the profit potential of the banks", mentions Patrick Norrell, CNFA expert. "When used systematically, the system does not only contribute to the diminishing of the credit risk when making individual credit decisions, but also to managing collective risk in the bank’s entire agricultural loan portfolio." states Patrick Norrell. "As soon as the banks will have a simplified method of application and assessment, enabling them to obtain objective data, we believe the loan application processing will become less time-consuming and thus, the banks will have more reasons to lend to the small farmers", the CNFA expert considers.
The quick agricultural loan risk evaluation system is based on eight components for analysis. They are as follows: cash flow, agricultural commodity price volatility, leverage, liquidity, profitability, loan to value ratio, payment history or length of banking relationship, and the management experience. The first seven elements of this risk evaluation system are based on the historical and projected financial performance of the applicant, while the last one assesses his management experience and moral character.
The system provides an easy mechanism for tracking the historical risk performance of the agricultural loan portfolio and is based on a standard and comprehensive consideration of the primary risk elements contained in any agricultural credit decision. In the same time, the system allows the financing institutions to increase their overall profitability, to strengthen national employment and stabilize the national economy, while maximizing the banks’ profit potential. The same system can be also used as a training tool for farmer applicants, who may be very familiar with farm production operations, but less familiar with business management practices. This system could be easily adapted for use in the industrial/commercial segments of Moldovan banks’ loan portfolios for making quick, sound, consistent credit decisions, and for managing the financing institutions’ collective loan portfolio.
The system developers founded their judgment on the fact most banks of the Republic of Moldova are not actively involved in providing financing to the agricultural sector, given this sector is considered a high credit risk. In the research made by CNFA regarding this situation, this is viewed as a lost loan opportunity, given the existing loan demand on this segment, as well as the significant amount of available funds.
The CNFA-developed system is based on procedures widely used both in Europe and in the U.S. for the non-agricultural loans.
The quick agricultural loan risk evaluation system has already been presented to the representatives of eight financing institutions (of a total number of ten), which are currently cooperating with IFAD in order to provide agricultural businesses with financing. CNFA hopes the same tools will be used on the next stage, within the RISP Program, with the help of the financing institutions this program cooperates with.
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CNFA is an organization for international development from USA, founded in 1985, which is dedicated to increasing rural incomes by empowering farmers and rural entrepreneurs. CNFA activity is focused on agricultural development which is based on the initiatives to facilitate market access, enhance agribusiness competitiveness, increase productivity, and improve access to inputs and credit for businesses. CNFA has a successful track record of performance in Africa, Eastern Europe, the Middle East, and Central Asia, and has managed over $200 million in donor-funded agriculture development programs over the past decade. CNFA is currently implementing the five-year “Farmer to Farmer” Program, worth $2.5 million, and has recently concluded the $12 million-worth Agribusiness Development Program.
For details please contact Nadejda MOCANU, "Farmer to Farmer" Program Coordinator (tel.:240311, 069260005, nmocanu@moldova.cnfa.org, www.cnfa.md) | 
