Expanding Access to Finance for Tajikistan’s Cotton Farmers

Nasirullo Babagulov, the general manager of MMM Farm in southern Tajikistan, must drive over an hour to reach the nearest bank in Kurgan-Tyube. MMM Farm, jointly owned by its 44 members, is unique among Tajikistan’s cooperative farms, which are known locally as dehkan farms. Not only does it count 34 women among its owners, but MMM is one of only a few farms that have remained free from debt owed to private financiers since its establishment in 2005. Private financiers are commonly referred to as “investors” in the Tajik cotton industry.

“Investors are the main cause of cotton farmer debts,” Babagulov says. Tajikistan’s investors are often the sole source of financing available to dehkan farms like MMM. Investors sell and finance inputs, like seeds and fertilizer, at high prices, and then purchase the cotton output for low prices. Recent studies have estimated cotton debts in Tajikistan amount to nearly $420 million as a result of this unsustainable system of financing. With roughly 75 percent of the rural population employed in the cotton sector, finding solutions to this problem is a key concern for raising living standards in Tajikistan.

Creating targeted financial products

Fortunately for Babagulov, he is a customer of TojiksoderotBank (TSB), Tajikistan’s third-largest bank. TSB has partnered with IFC’s South Tajikistan Cotton Lending Project, which is funded by the Canadian International Development Agency, to develop a new product--cotton loans tailored to small- and medium-sized dehkan farms. These loans provide alternative sources of financing during the cotton harvest cycle. With limited experience in assessing this type of loan, TSB worked closely with the project to develop credit risk tools for dehkan farms and proper due diligence procedures. The in-depth training allowed TSB’s loan officers to assess MMM Farm’s request for a loan and approve $16,500 for financing inputs and harvesting costs.

“The TSB Kurgan Tyube branch relies heavily on the advisory services provided by IFC for loans to small- and medium-sized cotton farmers in this region,” says Khabibullo Khaydarov, branch manager of the TSB branch in Kurgan Tyube. “We did not have the know-how or the capacity before IFC arrived. The policies and procedures for cotton lending to dekhan farms developed by IFC are essential to a strong, effective cotton portfolio for TSB.”


How does the South Tajikistan Cotton Lending Project expand access to finance?

• The project works with regional banks to develop loan products for small and medium-sized cotton farms. So far, farmers have accessed $79,500 in loans.
• The project provides training on the specifics of lending to smaller farms, borrower supervision, and lending review.
• It works to build public awareness of lending policies and procedures.