Agricultural Credit Market Institutions: A Comparison of Selected European Countries
An efficient capital market is a precondition for any firm. Without access to capital, it is impossible to make necessary investments. When access to credit is less than the perceived need in a sector it said to be credit rationed, which could be a problem if profitable projects are not implemented. This problem can occur in any business, and the question is if agricultural firms are different from other firms.
In this paper, we describe and compare the institutional framework of the agricultural credit markets in selected European countries. The study is based on a questionnaire sent to agricultural financial experts in selected countries. The case studies show that credit regulations are typically general, with no specific regulations for the agricultural credit market. On the other hand, several countries support agricultural credit in various forms, implying that the governments do not perceive the general credit market to function in the case of agricultural firms. In a risk assessment, the most frequent reasons for rejecting a loan application are all linked to economic performance and the situation of the farmer. Personal characteristics, such as educational level or lack of experience, were generally perceived as less influential. To get an idea of the availability of credit, the loan-to-value (LTV) ratio was calculated, and it showed remarkably low values for Poland and Slovakia. For all the countries, the calculated value was lower than what the financial experts would have expected. This might imply credit rationing in agriculture in some of the countries studied. At the same time, the financial experts all judged the possibility of an agricultural firm obtaining a loan as higher than that for other small rural firms, implying that the latter are also credit-rationed.
The project is part of the pan-European project “Factor Markets Comparative - Analysis of Factor Markets for Agriculture across the Member States” financed by the Seventh Framework Programme. To find out more about the project: http://www.factormarkets.eu/home