Tajik Agricultural Finance Facility

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The proposed project will support the restructuring of Tajikistan’s agricultural sector by providing revolving credit lines to Tajik financial intermediaries (banks and non-bank financial institutions) who will on-lend funds to farmers for seasonal finance. The objective is to provide alternative finance to small farmers and support the freedom to farm concept whilst employing best farming practice particularly with respect to environmental and labour issues. Through coordination with other donor programmes, farm yields are expected to increase thereby improving profitability. In parallel the Bank will support the establishment of a Warehouse Receipts Programme. The project is expected to address the structure of the market by fostering enhanced competition and expansion of the market by providing alternative, untied sources of finance which will stimulate competition between buyers and encourage development of input suppliers and associated farm service providers. It will also increase private ownership through stimulating the break-up of the remaining large farms. Tajik Commercial Banks as well as non-bank Microfinance Institutions will receive on-lending funds from this facility. The total facility is up to USD 35 million in revolving credit lines. Up to USD 10 million will be provided by EBRD which will leverage up to USD 20 million in commercial and/or official co-financing. A further USD 5 million may be provided in risk participation on the sub-loan portfolio. USD 35 million. Environmental and social issues There are a range of environmental and social issues associated with the farming of cotton both in general and unique to Tajikistan. Tajikistan was one of the leading suppliers of cotton in the former Soviet Union. Because of pressure to fulfill export quotas, farm managers saturated the land with chemical fertilizers and utilised a range of toxic pesticides, herbicides, and defoliants to maintain yields. These chemicals are having severe direct adverse health impacts on farmers as well as being found throughout the food chain in Tajikistan. Excessive tapping of rivers for the irrigation of cotton crops has caused high levels of soil salinisation, which in turn required more intensive irrigation to maintain crop yields. Irrigation in Tajikistan directly affects the water levels of the Amu Darya and Syr Darya, both of which drain into the much depleted Aral Sea, which has now shrunk to less than half its original size. There are also a range of social issues associated with cotton production. The cotton-growing areas of Tajikistan are associated with high levels of poverty - agricultural farmers and workers on cotton farms are a significant and visible element of the nation’s poor. Farmers have been directed by local government into the farming of cotton and pre-financing schemes for purchasing inputs has led to high levels of indebtedness among farmers. With regard to labour, the issue of child labour is inevitably at the forefront of discussions for the Central Asian cotton sector. While it does not follow that all children’s and young persons’ participation in the Tajik cotton sector is tantamount to child labour as per ILO conventions 138/182, there are reportedly high levels of children’s participation in the sector some of which is likely to be accurately characterised as child labour in contravention with ILO standards. Combined with its associated technical cooperation programme, this Facility has the potential for significant positive social and environmental impacts. Alternative sources of credit, as provided through this project, will free farmers from historic ties with investors and are expected to help some of the poorest farmers to improve their living standards. Many of these are women who are left with the management of household plots and small farms as male household members have left Tajikistan to seek employment in other countries. In addition, the credit facility will be accompanied by a substantial supporting technical assistance package to address the environmental and social issues outlined above. For instance, experience elsewhere suggests that rural micro-lending accompanied by awareness-raising and capacity building is an effective intervention to change the structural economic circumstances which give rise to and perpetuate child labour, and that Farmer Field Schools can be an effective means to introduce better farming practices. There already exist a range of relevant programmes run by other international institutions and international and local NGOs. Many of these programmes are of a small scale and / or very regional in nature and some are targeted at only one or two of the key issues. The Bank recognises that, to avoid loans exacerbating either environmental damage or social problems, borrowing farmers will require education and support to assist them in avoiding harmful practices, introducing the use of best practice, such as integrated pest management, and ultimately assisting the farmers in diversifying away from cotton to other crops. To that end, the Bank has commissioned a scoping study which will provide the Bank with an outline of existing support programmes and information on the key environmental and social issues in this sector. The scoping study will assist the Bank in developing the TC package for this facility, seeking partnerships with other organisations where possible. The TC will aim to first avoid the use of Bank finance for any harmful or unacceptable activities, and second to provide training and education in best practices in the cotton sector. As part of scoping activities the Bank is also consulting with a number of relevant international NGOs. The scoping study is due to be completed by 27 October 2007 with the aim of having the Bank's supporting TC package in place by the end of 2007 The project will be accompanied by technical cooperation funds to provide training to the partner financial institutions; training to extension service providers; awareness campaigns regarding social and environmental issues and development of an appropriate legal framework for a WHR. Luxembourg has already agreed to fund a scoping assignment to provide the groundwork for TAFF (other TC interventions etc). Sabina Dziurman (GSB) and Mark Hughes (ESD)