AGREEMENT FOR COOPERATIONBETWEEN THE GOVERNMENT OF THE REPUBLIC OF SERBIA AND THE GOVERNMENT OF THE UNITED STATES OF AMERICA ON IMPROVING ACCESS TO FINANCE FOR THE AGRIBUSINESS SECTOR IN THE REPUBLIC OF SERBIA THROUGH THE LOAN PORTFOLIO GUARANTEE("Off. Herald of RS - Treaties", No. 8/2019) |
Pursuant to the Agreement on Economic, Technical and Other Assistance from March 6th 2001 signed by and between the Government of the Federal Republic of Yugoslavia and the Government of the United States of America and pursuant to the Memorandum of Understanding signed between the Government of the Republic of Serbia and the United States Agency for International Development (USAID) on improvement of the bank guarantee system aiming at developing agribusiness in the Republic of Serbia on April 5th 2018,
The Government of the Republic of Serbia, acting through the Ministry of Agriculture, Forestry and Water Management ("the Ministry") with its seat in Belgrade, Republic of Serbia, Nemanjina Street no. 22-26,
and
The Government of the United States of America, acting though the United States Agency for International Development ("USAID"), with its seat in Belgrade, Republic of Serbia, Kneza Aleksandra Karađorđevića Boulevard no. 92,
Have agreed on the following,
Article 1
The Ministry of Agriculture, Forestry and Water Management of the Republic of Serbia (hereinafter referred to as: the Ministry"), and the United States Agency for International Development (hereinafter referred to as: "USAID"), hereinafter jointly referred to as: the "Parties", have agreed to support and spur bank loans to the agribusiness sector in Serbia, using the Development Credit Authority mechanism of the United States Agency for International Development (hereinafter referred to as: "DCA").
The Parties support the development of the Multi-bank Loan Portfolio Guarantee (hereinafter referred to as: the "Guarantee") to facilitate access to finance for micro, small and medium-sized enterprises which operate in the agribusiness sector, focusing on, but not limited to, fruit and vegetable producers and processors, to encourage increased production, access to export markets, job creation and to improve of economic growth in general.
USAID will guarantee 60% of the principal loss of qualified loans, as further provided in the guarantee agreement to be signed between USAID and the financial institutions (hereinafter referred to as: the "Guarantee Agreement"), which will, along with the support of the Government of the Republic of Serbia and the Ministry, reduce the perceived risk for financial institutions when lending to agribusiness micro, small and medium-sized enterprises (MSMEs).
The Government of the Republic of Serbia shall provide support to establishment of this Guarantee through the Ministry.
The Guarantee will be effective for 12 years, while this Agreement shall be effective for additional 6 months to perform all the necessary analysis of the Guarantee’s impact.
According to its experience and practice USAID has had so far with this type of guarantee, USAID suggests the optimum value of the Multi-bank Loan Portfolio Guarantee at this moment of the implementation of the Agreement be from USD 40 million to USD 50 million.
Article 2
Through the DCA mechanism, the Parties intend to develop a guarantee for a lending portfolio to incentivize financial institutions to provide loans to the agribusiness sector by sharing the risk through venturing into this sector.
The Parties agree that despite the fact that the Serbian financial market has liquidity, it has provided only limited financing for smaller enterprises and start-ups, mainly because micro, small and medium enterprises, including agribusinesses and processors, often cannot provide a credit history, may not be able to generate business plans according to banks’ expectations, or are not able to provide collateral (predominantly real-estate) that is acceptable to financial institutions. Even if these firms are able to obtain financing from financial institutions, these loans are short-term, intended for financing working capital only, while long-term loans for investment and growth are rarely provided.
Having in mind the aforementioned, the purpose of this Guarantee is to encourage financial institutions to increase longer term lending to this sector, implement new policies to evaluate these types of clients, accept alternative collateral mechanisms that are more appropriate for micro and small agribusinesses, or provide better terms of lending intended for investments and company growth.
In addition, the Guarantee should also spur better utilization of the Instrument for Pre-Accession Assistance in Rural Development (IPARD) or other national programs provided by the Government of the Republic of Serbia and the European Union.
Article 3
Per this Agreement, the financial institutions, through which the Guarantee shall be implemented, shall meet the following criteria:
1. they are commercial banks, operating in the Republic of Serbia;
2. they have a high strategic alignment with agribusiness MSMEs, including the following:
(a) they have branch offices outside of Belgrade;
(b) they are already lending in the agribusiness sector; and
(v) they have an interest in increasing lending to MSMEs within the agribusiness sector, as well as start-ups.
3. They are financially viable, in particular as follows:
a) they have audited financial reports; and
b) they have been profitable in the last two calendar years;
4. They have the financial capacity to approve loans in accordance with the terms of the Guarantee; and
5. They have the ability to complete transactions with borrowers in a timely manner by signing final contracts with borrowers within appropriate reasonable timeframe.
Article 4
The Parties agree that the targeted borrowers, per this Agreement are start-ups, cooperatives and/or associations of agricultural producers, micro, small and medium enterprises, and other entities working in the agribusiness sector.
The financial institutions should predominately focus on, but not be limited to, expanding lending fruit and vegetable production and processing.
Loans should support: working capital, investments in machinery, equipment, facilities, business growth, expansion, and small-scale irrigation systems, predominantly in the fruit and vegetable producers and processors, not excluding other agricultural sectors.
The final borrower definition will be determined by negotiations with the financial institutions to ensure it overlaps with the Parties’ development objectives and policies, as well as the long-term profitability of the financial institutions, which will be separately agreed upon by the Parties.
II ROLES AND RESPONSIBILITIES OF THE PARTIES
Roles and Responsibilities of USAID
Article 5
USAID will administer the Guarantee Agreement in the same manner in which it would administer any guarantee agreement funded through USAID, and in accordance with the already established models which drive the system of this sort worldwide.
USAID will provide oversight and appropriate monitoring of and communication with the banks and with the Ministry to ensure that the Guarantee is implemented properly and in compliance with the Development Credit Authority (DCA) legal requirements.
As further provided in the donation agreement, to be signed between USAID and the Ministry (hereinafter referred to as: the "Donation Agreement"), the Ministry shall provide funds in the amount of USD 1 million for the purpose of participation in the Guarantee. These funds shall be used for settling the claims coming from financial institutions, in accordance with this Agreement. The Donation Agreement shall define the deadlines and ways of funds transfer more closely, as well as other related duties rights.
After the Ministry’s funds have been fully utilized, USAID shall cover 60% of the remaining losses under a loan portfolio that will be in the range of not less than USD 40 million and not more than USD 50 million.
USAID Competitive Economy Project’s Technical Assistance
Article 6
The USAID Competitive Economy Project (a four-year project providing technical assistance to fruit and vegetable value chains, with the goal to increase their competitiveness) will support, to the best of its ability, the Loan Portfolio Guarantee in Serbia. Specifically, the project seeks to identify the highest growth potential activities and businesses for financing by the banks participating in the Guarantee (such as the introduction of green houses, new cooling technology, new processing lines, introduction of packaging enterprises).
The project will provide direct technical assistance in partnership with banks to spur utilization of the Guarantee.
The technical assistance program includes:
• Providing financial education to producers and processors so proper planning and utilization of capital is ensured;
• Providing technical assistance to potential clients for developing sustainable growth-oriented projects;
• Providing linkages to other successful financing, design and technological models the project has already established, such as Innovation Hubs for product development;
• Establishing of a pool IPARD consultants to further expand coverage and utilization of the Guarantee;
• Providing consulting to banks on how to tailor and evaluate loan products to the clients targeted by the Guarantee.
Article 7
After USAID signs the Guarantee Agreement with financial institutions, USAID shall submit to the Ministry the Baseline data collected in USAID/DCA’s Relationship Management Platform (RMP), which will track impact of the Guarantee, showing advantages and benefits of financing pursuant to this agreement. USAID/DCA will track the Guarantee data including the banks’ existing agriculture portfolio and the terms of such loans. USAID/DCA aloo collects data on the number of new clients, number of female borrowers, and the number of start-ups, micro, small and medium-sized enterprises participating in the Guarantee. In addition, USAID/DCA will report on the characteristics of the loans under coverage, such as collateral, tenors, interest rates, geographic region and purpose of the loans.
In addition, a separate mid-term performance evaluation will be conducted by USAID/DCA, subject to the availability of funds.
After a term sheet which will more closely define the terms of the Guarantee has been negotiated with the financial institutions, and prior to signing of the Guarantee Agreement, USAID and the Ministry shall enter into a Donation Agreement, pursuant to the regulations on donations, pursuant to which the Ministry shall transfer to USAID total funds in the amount of dinar currency equivalent to USD 1 million, intended for participation of the Government of Serbia’s in the Guarantee. USAID undertakes the obligation to protect these funds against negative foreign currency effects.
USAID shall provide semi-annual accounting data to the Ministry
The Parties agree that, following the transfer by the Ministry to USAID of total funds in dinar currency equivalent to the amount of USD 1 million, the funds shall be used exclusively for covering the costs of any first loss incurred by financial institutions under the DCA Guarantee. Such funds cannot be used for other purposes, and upon the completion of the program, all the remaining funds shall be returned to the Ministry’s account (or used for financing a similar agribusiness support program upon receiving the Ministry’s approval).
Article 8
USAID Serbia shall report semi-annually to the Ministry the status of the Development Credit Authority (DCA) guarantees.
The Ministry shall have the access to the online reporting tool of the USAID / DCA Credit Management System.
Article 9
Within 30 days upon signing of this Agreement, the Parties shall establish a Committee for following the performance of the Guarantee, composed of two members appointed by each Party, while the chairperson shall be appointed by the Ministry.
The Committee for following the performance of the Guarantee composed of representatives of the Ministry and USAID will meet at least semi-annually to review the progress of implementation of the Development Credit Authority (DCA) and identify opportunities for improvement of the utilization of the Guarantee, if necessary.
Article 10
The Parties agree to resolve all the disputes arising from or in relation to this Agreement amicably, through consultations and negotiations between the Parties.
Article 11
For the avoidance of doubt, each Party shall be liable only for its obligations undertaken under this Agreement and shall not be liable for the obligations of the other Party.
Article 12
This Agreement may be amended only with written consent of both Parties.
Each Party shall be entitled to terminate this Agreement unilaterally by sending a written notice to the other party, 3 (three) months earlier.
Article 13
This Agreement shall become effective on the date of its signing.
Signed in Belgrade, on 8. May 2019, in two original copies in Serbian and English, both in equal authenticity. Should any differences in interpretation arise, the English version shall prevail.
For the Government of the Republic of Serbia |
|
For the Government of the United States of America |