Inga Balžekaitė Information and Development Department Rural Credit Guarantee Fund January 2011, Brussels

Rural Credit Guarantee Fund (RCGF)  Rural Credit Guarantee Fund (RCGF) was founded in 1997 according to the resolution of the Government of Lithuania. Legal Status – Closed Stock Company, Ltd.  The Ministry of Agriculture holds the shares of the Fund owned by the State (100 per cent) under the right of trust. Also is in charge with responsibility for RCGF creation and supervision;  Our goal is to promote economic development of agriculture, providing an opportunity for economic entities not having enough collateral to receive credits from credit institutions and to help beneficiaries assimilate EU funds. 2

Establishment details of RCGF The Goverment of Lithuania for the establishment of RCGF has allocated these amounts: - 1,5 million € for Funds capital; - 2,9 million € for reserves (to ensure the fulfillment of financial liabilities to credit institutions) - 1,2 million € for guarantee fee compensation; - 0,3 million € for Funds administrating. EU funds played a role in establishing RCGF : - 2 million € for reserves (according to the Financing Memoranda for the PHARE Agricultural Programme in Lithuania, the Commision of EC has reserved the sum as a financial reserve contribution in 1998). 3

Fulfilment of guarantee obligations  It was declared (in the resolution of the Goverment), that not less than 90 per cent of the guarantee fee funds shall be accounted for fulfilment of guarantee obligations, the rest of the funds – for the administration of the Fund.  To ensure the fulfilment of financial liabilities to credit institutions the Fund accumulates reserves. Now it is approximately 17 per cent of the guarantee portfolio is constituted of reserves.  The fulfilment of the Fund’s guarantee liabilities is ensured by the State. The amount of guarantees whereof at a time cannot exceed the limit of state guarantees established for the Fund by the Government on a year to year basis. The guarantee limit for 2010 –174 million €; 4

Main functions  issuing credit guarantees to banks and credit unions; The Fund has cooperation agreements with all commercial banks and credit unions operating in Lithuania.  administrating state support for credit beneficiaries (guarantee fee and interest rate compensation);  administrating Credit Fund (the measure of financial engineering). 5

RCGF issues guarantees to credit institutions for credits granted to:  farmers and agricultural entities;  small and medium businesses (SME), located in rural areas (economic entities engaged into activities alternative to agriculture);  enterprises which purchase, process and sell agricultural produce, and provide production services to agriculture;  State enterprise Lithuanian Agricultural and Food Product Market Regulation Agency. 6

What is credit guarantee? The Fund guarantee – a real alternative for collateral. The Fund guarantees to banks or credit unions the repayment of up to 70 percent of the unpaid credit amount (up to 80 percent - for credits granted to young farmers and agricultural entities which insured their crop fields). Credit guarantees are issued for:  credits to finance investment projects (machinery, construction, reconstruction, land aquisition);  credits or credit lines to supplement current assets (working capital). 7

Guarantee Issuing Procedure SME/Beneficiary Credit institution RCGF ) Economic entity applies to the credit institution - bank or credit union – asking for credit and negotiates the terms. 2) Credit institution applies to Rural Credit Guarantee Fund asking for guarantee. The credit institution shall submit guarantee application and additional documents, indicated in the application. 3) The Board of Rural Credit Guarantee Fund makes a decision concerning guarantee issuing and reports it to both credit institution and credit beneficiary. 4) Credit beneficiary pays guarantee fee to the Fund’s account and signs credit agreement with credit institution. 5) Rural Credit Guarantee Fund issues credit guarantee to credit institution. 6) Credit institution grants the credit to credit beneficiary. 6 8

Guarantee liabilities fulfilment SME / Beneficiary CREDIT INSTITUTION Collaterals 3 1 RCGF Max. 70% of unpaid credit amount 2 1)After the credit institution terminates a credit contract with the beneficiary, credit institution should first of all realize assests and (or) interests pledged in favour of credit institution and applies to the RCGF asking to fulfil guarantee obligation. 2)RCGF fulfils the guarantee obligation to the credit institution, pays the guarantee payment, equal to outstanding credit amount after recoveries, up to 70% of unpaid credit or credit line amount – the difference between the unpaid part of the credit and the credit institution’s exaction. 3)Debts are recovered from the debtor (guarantee beneficiar y) 9

Issued guarantees in , million € 10

The structure of portfolio by sectors (activities and customer type) in 2010, per cent 11

Guarantee distribution by the risk groups in , per cent 12

Dynamic of the highest risk group, per cent 13

Supporting the assimilation of SAPARD  The lack of sufficient financial resources and difficulties to obtain credits (illiquid collateral, risky agricultural sector for the banks and etc.) were and are the main problems relating to absorption of the EU funds. The beneficiaries have to ensure sufficient co-financing of the projects (100 perc. of the projects to be later reimbursed 50 perc. of eligible costs).  The Fund has extensively contributing the assimilation of the funds. The Fund‘s guarantee helps for these bussiness entities who are not having enough collateral to receive bank loan for financing projects. The guarantee was and is a real alternative for collateral.  In 2002, Lithuania started implementing projects financed from the EU SAPARD programme. In February in 2002, the first guarantee issued for credit to business project financed by European Union SAPARD programme funds. 14

The projects related to EU support are given more favourable loan conditions  Priority is given to projects financed by the EU financial supports funds.  Guarantee amount issued for these projects should not be restricted;  Guarantees can be issued to all credit institutions - banks and credit unions (before only to the banks);  In 2003, the new guarantee scheme was introduced: According to the new guarantee scheme, RCGF guarantees the repayment of up to 70 per cent of the unpaid credit amount (before banks had been guaranteed up to 70 per cent compensation for the losses incurred); The credit beneficiary shall be obliged to mortgage only the property purchased for loan funds to the bank - other property or property rights may be mortgaged as well; The Fund started to administer partly compensation of guarantee fee and interests paid to credit institution. 15

Supporting the assimilation of EU funds  Since the beginning of it’s activity the Fund has issued:  94 guarantees totalling 20,34 million EUR for 33 million EUR of credits to help beneficiaries assimillate Sapard Programme;  1167 guarantees totalling 137,46 million € for 227,9 million € of credits for investment projects with EU financial support, i.e. 55 per cent of all issued guarantees by the RCGF to credit institutions.  Now the Fund actively issues guarantees to credit institutions for beneficiaries, who are taking credits for implementing investment projects under the Lithuanian Rural Development 2007–2013 programme. 16

Issued guarantees by the support type (by guarantee amount)

Issued guarantees for projects with EU support in , million € 18

Issued guarantees to assimilate EU funds by the programmes (by amount) –

Issued guarantees to assimilate EU funds by RDP’s ( ) measures, thousand € 20

Million Euro Private Investment € 26 Private investment of 26 million € lets to: create and retain more than 3460 workplaces in rural sector, assimilate more than 104 million € EU funds, attract more than 262 million € investment in rural sector. Private investment of 26 million € lets to: create and retain more than 3460 workplaces in rural sector, assimilate more than 104 million € EU funds, attract more than 262 million € investment in rural sector. Multiplying effect of private allocations to the guarantee scheme Guarantees issued € 138 Credit institutions loans € 228 Credit institutions loans € 228 Investment made by the beneficiaries that got guarantees € 262 EU funds €

RCGF is a member of AECM  Rural Credit Guarantee Fund maintains close contacts with partner organizations in Europe and other countries and plays an active role in international cooperation projects both in Lithuania and abroad.  Lithuanian Rural Credit Guarantee Fund is a member of European Mutual Guarantee Association AECM since Founded in 1992, AECM operates as an open, democratic organization, representing 34 companies or federations that operate as networks of guarantee societies in 18 countries in the European Economic Area. 22

Financial Engineering – Credit Fund  In order to improve competitive ability of the agricultural sector, to accelerate the assimilation of the Lithuanian Rural Development 2007–2013 programme funds and to create more favourable financing opportunities for business development, the Ministry of Agriculture has established the „ Credit Fund ”.  The „Credit Fund” was established as a separate block of finance within Rural Credit Guarantee Fund (operates in accordance with the regulations No.1974/2006 and No.1698/2005 of the EC);  Through financial intermediaries, the Credit Fund enables farmers and entities processing agricultural produce to receive support for credits. The total amount allocated for this measure amounts to 130,33 million EUR. 23

25 % from national budget75 % from EAFRD budget Credit Fund (budget-130 mill. EUR) Credit Fund (budget-130 mill. EUR) Financial Intermediates (banks and credit unions) Financial Intermediates (banks and credit unions) Final credit receiver Credit Fund - Operating Scheme I stage (29 mill.EUR) II stage (29 mill.EUR) III stage (29 mill.EUR) I V stage (43 mill.EUR) 24

The key features and hints of the Fund –  Since the beginning of it’s activity the Fund has issued 3362 guarantees for 619 million €;  In 2010, the Fund has issued 427 guarantees totalling 40,2 million € for 57 million € of credits;  Volume of total guarantees in portfolio –120 million €;  Number of total guarantees in portfolio – 1819;  Own funds – 24 million €;  The average amount of granted credits –118 thousand €, the average guarantee –72 thousand €;  Since 1998 to 2010, the Fund fulfilled 101 guarantee liabilities to banks and paid out 4,2 million €. 25

Current challenges of the Fund  Ensure the fulfilment of financial liabilities to credit institutions (to accumulate adequate reserves);  To launch new guarantee products (guarantees for leasing, risk capital).  Development of borrowing processes and seeks to improve conditions for investments in rural areas.  “Closer-to client” tactics. To have an open dialogue with credit institutions and beneficiaries facing difficulties. To find best financial solutions concerning restructuring credit and guarantee agreement; 26

Thank you for your attention