Using Value Chain Relationships to Leverage Bank Lending: Lessons from Croatia

Croatian banks are beginning to recognize agricultural businesses and family farms as an attractive market segment. However, they will not lend without significant collateral. Banks typically look for collateral coverage of 1.5:1 for loans, and also frequently require third-party guarantors, although it seems unlikely that these could be collected on if needed. Banks will also take bills of exchange and insurance instruments. Interest rates are typically in the 8–9 percent range. Expanding lending to the agriculture sector is dependent upon taking innovative approaches to collateral, and examples are emerging to show that an agricultural value chain can be leveraged to promote and secure bank lending. This note documents several innovations used to overcome collateral constraints, thus facilitating access to finance and unleashing the potential of Croatian agricultural sector. These are all clients and relationships that have been supported by USAID’s Agribusiness Competitiveness Enhancement Project/Raising Incomes in Economically Distressed Areas project.