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Ukraine — Credit unions lend farmers a helping hand
(David Shanks, Communications Div., CCA)

Ukrainian credit unions are helping farm co-ops in that country flourish.   Farm co-operative expert Murray Bryck says it is a logical step in the evolution of Ukraine’s growing credit union system.  The market and trade development manager at Saskatchewan Wheat Pool recently returned from a three-week mission for Canadian Co-operative Association (CCA) to analyze developments involving the formation of agriculture co-ops, agriculture credit requirements, and joint venture and technology transfer opportunities.

The credit union system in Ukraine has undergone dramatic changes since the break up of the Soviet Union.  Though Ukraine had a long tradition of credit unions, under communist rule they were banned.  Today, they are being reintroduced to Ukraine, in part by the efforts of CCA and its partner, the Council of Ukrainian Credit Unions of Canada (CUCUC) through a CIDA funded five-year bilateral project called "Ukraine Credit Union Development Assistance Program" (UCUDAP).   At present there are over 200 registered credit unions in Ukraine.  CCA and CUCUC are working with 100 of these to create 20 model credit unions, and are helping all the credit unions achieve a high standard of democratic functioning, management and operations.

Agricultural production in Ukraine has declined since the late 1980s, partly because of a decrease in seeded areas, decreased use of fertilizer and crop protection products, as well as shortages of machinery and equipment.  Mr. Bryck says the absence of a proper credit financing system for agriculture is a major problem in obtaining adequate inputs and machinery.  "Overall, Ukraine is now agriculturally self-sufficient but falls far short of its production and export potential," he says.  "However, with its incredibly fertile land and lengthy frost-free weather, that potential is enormous.  Ukraine has the human and physical resources to be one of the world’s major food producers."

He says public policies (privatization of land), agricultural credit (capital and land) and technology transfer are needed to modernize Ukraine’s agri-food sector.

Since gaining its independence in 1991, the country has been going through a protracted process of privatizing land, a process Mr. Bryck describes as "extremely fluid."  A growing number of private farmers have been allotted parcels of land from several hectares to 50 or 100 hectare lots.  Farming profiles vary from private plots to small privately owned farms to others that combine ownership with rental arrangements.

As the shift from state-controlled to privately owned farm enterprises unfolds, credit unions are playing their part in providing needed credit services to their rural members.

Samopomich Credit Union, in the city of Chortkiw in Western Ukraine, has taken on a very special initiative to aid local farmers.  The 1,383-member credit union has created a separate fund to make loans to its private farmer members.  Guiding the loan fund is an advisory committee that addresses farm-related issues and advises whether or not, and under what terms and conditions, to make loans to farm members.  "This fund is over and above our UCUDAP project micro fund at the credit union," says CCA project officer Dennis Kowalsky, who also joined in the recent mission.   "They did this on their own without any prodding from the project team."

Chortkiw is the birthplace of CUCUC president Mr. Petro Mykulak, who is especially proud of the work Samopomich Credit Union is doing.    Established in 1993, Samopomich, which means self-help, is one of the model credit unions in the UCUDAP project.  Of the 61 private farmers registered in the Chortkiw region, 24 are members of the credit union.

Samopomich chairperson Ms. Olga Maksymiv says the credit union has made loans to farmers for a total of 29,900 hryvnia (about $11,000).  The annual loan rate to farmers is 10-12% on the first 5,000 hryvnia of loan, and 24% on the remainder over 5,000.

One typical borrower owns 50 hectares of land and rents a further 260 hectares.  The farmer submitted a business plan detailing how much land he farms and what machinery assets he owns.  He described his farming operation, including what crops he intended to seed, and estimated his anticipated yields.  His collateral for the loan included four tractors, a grain harvesting combine and a truck for hauling grain.

The farmer has received two loans totaling $5,600 from the credit union to plant cereal grains, sugar beets, potatoes, grain corn and other vegetables.  He plans to harvest 500 tons of wheat, 120 tons of barley, 30 tons of buckwheat, 160 tons of corn, 2,700 tons of sugar beet and 90 tons of potatoes.  He also plans to sell three tons of pork meat from his hog operation.

"The success of these private farmers can be attributed to their farm management skills," says Mr. Kowalsky.  "Most are well educated and experienced, having been employed as agronomists or engineers on the state collective farms."

Mr. Bryck says Samopomich Credit Union is responding to a growing need.  "Private family farms and privately owned business enterprises show promise for sustainable co-operative development.  As the credit unions develop and mature, they are able to provide financial services to other co-op sectors."

He says lending to farmers is a challenge for credit unions in Ukraine.  The lack of adequate provisions for collateral increases the risk to the lender.  The larger the farm, the bigger the risk in lending, both from the size of the operation and the risk of crop failure.  "It’s really a situation of trust on the part of the credit union," he explains.  "There are no guarantees, but it shows how credit unions are doing something concrete and very needed in their communities."

Responding to the lack of farm machinery in the area, Samopomich Credit Union has made loans to farmers to purchase a grain harvester combine.   As Mr. Bryck discovered, small-scale private farmers must often resort to ingenious ways to mechanize their farm operations.  "I’ve seen tanks turned into tractors and radar stations used as farmhouses.  One farmer in Odesa has a bakery in his farmhouse.  He said to me ‘years ago we were building rockets when we should have been building combines.’  That summed up to me how they let their farm industry down.  People are doing as much as they can possibly do to get ahead.   And credit unions are lending them a helping hand, as they should."


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