Lending in the agricultural sector of Ukraine: challenges and solutions

The promotion of efficient development of productive resources, specific geographic areas, and branches of the economy is the fundamental reference point of the financial and credit policy of the state. In particular, the agricultural sector has certain features of capital formation within the financial system of the state. This is reflected in the requirements and approaches to the development of financial policy by the state and in the corresponding mechanism for its implementation. Being an important tool within this mechanism, lending is aimed at ensuring the economic growth of the agricultural sector. State support facilitated the system of subsidizing loans by providing funds to reduce the cost of loans for farmers in Ukraine, thus encouraging increased productivity in the agricultural sector at the initial stage. However, gradually, this caused a debt agricultural economy that became dependent on the state and started negatively affecting the elimination of structural, intersectoral, and territorial disparities in the agricultural sector. Therefore, the article is relevant, with mentioned issues requiring immediate examination of state credit support to the agricultural sector as well as justification of financial and credit policy of the state with the view of mutually beneficial cooperation between banking institutions and Ukraine’s agricultural sector for stable and efficient development of the latter. The article analyzes the market of bank lending to agricultural enterprises. It also reveals the influence of bank lending on the development of the agricultural sector in Ukraine. The study identifies subjective factors considered as biggest сhallenges for lending to the agricultural sector in Ukraine. The core problems of lending to the agricultural sector in Ukraine are identified in our study, namely: increasing inflation risks; ineffectiveness of economic promotion programs, tightening of the NBU’s monetary policy, underdevelopment of the non-banking financial market, unfavorable conditions in the foreign financial markets. Measures are suggested to solve the problems of lending to the agricultural sector, the essence of which comes down to the development of partnership mechanisms between the state, agricultural enterprises, and banking institutions. А unified regulatory and methodological framework for lending secured by agricultural land should be established. The paper covers European land mortgage lending practices. In Ukraine, they might be adopted by directly raising public funds not only through an authorized state credit institution but also through private credit institutions operating in a market environment.