Facilitating Smallholder Farmers’ Market Access
In the OIC Member Countries
102
transaction costs involved in lending to smallholders. 175 Collateral requirements for small
loans are high, and the law limits the use of land as collateral.
The government has sought to create an enabling policy environment for financial
institutions to lend to agriculture. The key players in rural finance are a commercial
agriculture bank (Ayil Bank) with a lending portfolio of KGS 2.5 billion; some 360
microfinance organizations (MFOs) that provide 23 percent of all credit in the financial
sector; and 238 credit unions that provide 2.8 percent of credit in the financial sector.
Even with these advances, most lending still goes to the livestock subsector. In Ayil Bank’s
credit portfolio, for instance, 77 percent of credits were provided to cattle breeding and
only 10 percent to crop production. Similarly, 93 percent of MFOs’ agricultural loans went
to the livestock subsector.
At the same time, Kyrgyz Republic still has the lowest bank credit and loan penetration in
ECA.176 A recent study concludes that agricultural finance could expand through efforts to
encourage competition among financial institutions, improve their access to deposits and
external funds, reduce lending risks (such as disease and weather risks in agriculture,
poor information on borrowers, and weaknesses in collateral systems) in order to lower
interest rates, and expand financing options, such as warehouse receipts. Specific legal and
regulatory measures that need improvement include the Law on Microfinance
Organizations (2002) (which prohibits MFOs from setting interest rates and fees
independently and freely), the Law on Microfinance (which limits the deposit-taking MFOs
to time deposits only, thereby limiting their capacity to offer inexpensive credit);177 and
the Laws on Pledge and Administration of Land for Agricultural Purposes (which prevent
the use of agricultural land as collateral). A legal and regulatory framework is needed for
warehouse receipt financing, as is a new law on sharing credit information.
Kyrgyz Republic, with the lowest level of mechanization in ECA, must alleviate the severe
shortage of agricultural machinery to reduce production costs and losses. Farmers and the
private sector do not invest in mechanization owing to high interest rates, a lack of
collateral, and low availability of lease financing.
FOOD SAFETY
Kyrgyz Republic is a member of the Codex Alimentarius Commission and a correspondent
member of ISO. Human health protection is regulated by the Law on Sanitary-
Epidemiological Safety of the Population (2003) and animal health by the Veterinary
Law.178 The Law on Technical Regulations lists products requiring mandatory and
voluntary certification. In 2013, the Kyrgyz Center of Accreditation (KCA) became a full
member of the International Laboratory Accreditation Cooperation, which allows KCA to
apply ISO standards in accrediting domestic laboratories and certification bodies. KCA
carries out accreditation of testing laboratories for compliance with ISO/IEC 17025.179,180
175 World Bank (2011a).
176 World Bank (2011a).
177 Syminvest (2013) and KyrTag (2014).
178 World Bank (2011a) and FAO (2011).
179 World Bank (2013c).