The introduction of crop receipts more than 6 years ago has created a new segment of alternative financing for agricultural producers, who have limited access to traditional credit products due to the lack of eligible collateral assets.
According to the International Finance Corporation (IFC), the ability to attract financing secured by the future harvest on crop receipts has allowed more than 3.5 thousand agricultural producers across the country to timely replenish working capital, buy the necessary material and technical resources, ensuring stable operation and development of their own economy. IFC’s data demonstrates that as of today, 7000 agricultural receipts have been issued for a total amount of more than 42 billion hryvnias.
However, the full potential of the tool for users remains unrealized. Crop receipts, in their current format, cannot meet the financing needs of producers. On the one hand, this is due to the limited own resources of key lenders, which provide financing to their customers during the agricultural season (usually from 6 to 9-12 months). Without refinancing opportunities, lenders reach credit limits and carry significant risks associated with the debt burden. It also has a negative effect on the cost of financing for agricultural producers. On the other hand, the cost of transactions with crop receipts remains too high for micro and small agricultural producers, hindering the entire operation of the tool in the segment and its widespread implementation.
It is proposed to address these and other restrictions on agricultural receipts and to fully realize the potential of the instrument through legislative changes set by Draft Law #2805-d amending the Law "On Crop Receipts" and some other legislative acts on the functioning and circulation of crop receipts (Draft Law #2805-d). The Draft Law aims to improve the legislation on crop receipts that will increase the ease of use, efficiency, reliability of crop receipts, as well as expand the scope of their use, in particular, by:
- transfering of the instrument into the form of an electronic non-issue security in order to increase its reliability and reduce the cost of registration
- functioning of the bona fide purchaser principle. In practice, it means that a bona fide purchaser, particularly a grain trader, will not be prosecuted for debts that arose through no fault of his own
- introduction of an enforcement procedure for “international” crop commodity receipts
Proposed legislative amendments will have a positive impact on both the agricultural finance market and agricultural sector as a whole, particularly via:
- better conditions for cooperation between agricultural producers and creditors
- development of access to finance for small farms, niche segments, and processors
- saving time and other resources throughout the process of agricultural receipts application
- timely funding that will allow the introduction of advanced technologies
- new technologies implementation that will increase the productivity of economic entities and their income
Experts of the Chamber member companies support Draft Law #2805-d and call upon the Verkhovna Rada of Ukraine to pass it in the first reading.
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