Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Paper 4
1
ABSTRACT
FINANCING OF AGRICULTURAL FOOD
PRODUCTIONBY THE BANKING SECTOR
The financing of food production by the banking sector was given a boost
with the launching of the Fund For Food Scheme by the Government in
January 1993. The primary objectives of the scheme are to increase food
production, reduce food imports and stabilize food prices, A total of RM1
billion was allocated, and by the end of June 1999, 59% or RM 585.9
million was extended under the scheme.
With the introduction of the Fund For Food Scheme, funds are made
available for financing food projects under more attractive terms and
conditions.This has greatly improved the accessibility of credit to the
existing and potential entrepreneurs engaged in food production.The
banking sector could play a bigger and more effective role if the
prospects and viability of the industy could be further improved under the
Third National Agricultural Policy.
2
FINANCING OF AGRICULTURAL FOOD PRODUCTION
BY THE BANKING SECTOR
1. INTRODUCTION
Most of the loans extended by the group to the agricultural sector were
for the financing of oil palm, rubber, cocoa, forestry and logging projects,
which together accounted for RM5.7 billion or 74 % of the total loans
extended. The loans extended for food production were mainly for the
financing of livestock and fisheries projects amounting to RM811.7
million and RM165.4 million respectively.
3
Table 1
Financing of food Production, Processing and Marketing by
BPM As at 30 June,1999
The responbility of financing the food sector, particularly the small and
medium scale project, is left to Bank Pertanian Malaysia. Established in
1969, BPM started is operations with the financing of paddy production
in the Muda areas. Ever since it has remained the main financier of paddy
production, the staple food crop in Malaysia. As at the end of June 1999,
it loans to paddy production amounted to RM83.6 million covering
28,498 farmers.
4
From paddy production, BPM gradually extended its role to the financing
of other food project. By the end of June 1999, it had extended RM 582
million for financing the food sector. This constituted about 31% of the
total loans extended by BPM to the agricultural sector, that is RM 1.9
billion for 83,118 agrobased entrepreneurs.
Of the RM582 mllion credit extended to the food sectors, RM 251 million
was for financing of paddy, fruits, vegetables, spices and other food
crops; RM150 million for fishing and aquaculture projects; and RM 171
million for poulty, cattle and other livestock projects. Please refer to
Table 1.
The financing of food production was given a boost in January 1993 with
the launching of the Fund For Food Scheme by the Government. The
primary objectivies of the scheme are to increase food production, reduce
food imports and stabilize the rising food prices. The scheme started with
a fund of RM300 provided by Bank Negara Malaysia in 1993, followed
by a second fund of RM400 million in 1997 and a third fund of RM300
million in 1999. Altogether, a total fund of RM1billion has been set aside
for the financing of food production, processing, marketing and
distribution under the scheme.
The first and second funds are open for the participation of commercial
banks, tier 1 finance companies, Bank Islam, Bank Pertanian, Bank
Pembangunan and Bank Industri. The third fund, however, was solely
allocated to BPM for financing food projects.
5
Objectives
Eligibility
Loans are given for the financing of capital expenses such at the
purchase or construction of buildings, equipment, vehicles, land
clearing and preparation as well working capital. The purchase of land
can be financed up to a maximum of 20% of total poject coast.
• Labor cost
• Purchase of shares or existing assets
• Refinancing
• Takeover of existing projects
• Projects for exports exceeding 50% of total production.
• Projects where most of the raw materials are imported.
6
Loan amount
Interest rate
4% per annum.
Duration
Up to a maximum of 8 year.
Collateral
7
Table 2
Table 3
8
4. ISSUES
Risk of Financing
Accessibility of credit
9
However, loans given up under 3F still need to be secured with
sufficient collateral or guarantee. This condition is necessary
since bankers have to the prudent in lending their money. They
have to ensure that whatever funds they lend out are collected.
Otherwise, they will end up losing money and fail as a viable
financial institution.
For the banking sector to play a bigger and more effective role,
the prospects of food production must be good and the industry
must be viable. Otherwise, there will be little demand for credit
and the risk of financing food production will be high.
10
To improve the demand and effectiveness of credit, steps be
taken to enhance the prospects and viability of the industry. The
economic conditions and basic infrastructures such as financial
incentives, research and development, training and extension,
drainage and irrigation as well as marketing, storage and
distribution must be there to support and promote the industry.
The economics and viability of projects could be enhanced by
improving the systems of management, production and
marketing through area zoning by commodity, mini-estates and
contract farming.
6. CONCLUSION
11