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Moldova’s rural poor grow with micro-credit

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Rural enterprises support older Moldovans whose children have migrated.

Gheoghe Turculet – Cahul's 'busy bee'.

Victor Trocin and Mikail Kovel.

Sandwiched between Romania and Ukraine, Moldova is one of the smallest and poorest countries in Europe. Unemployment and corruption are rife, and at least 11%* per cent of the labour force has migrated for work.

Yet this is hardly the full picture.

A visit to this friendly, hard-working and ambitious country reveals that Moldova today is trying hard to arrest its downward trend, partly by building on its traditional strength: agriculture. Moldova is blessed by the extremely fertile ‘chernozem’-- soil and an ideal climate for farming. Almost two-thirds of the population depend on farming for their livelihood. However, while Moldova was a major agricultural producer in Soviet times, adjusting the farm sector to market economy realities has not been easy.

But progress is being made. The land is now fully privatised and a new class of private farmers and rural entrepreneurs, sole owners and decision makers in their businesses, has emerged. In reviving the sector they are combining old traditions with new skills.

Getting ready to borrow

“A decade ago farmers would not have dreamed of borrowing money from banks nor understood the concept of borrowing on interest and having to repay a loan. Getting them ready to borrow has been a tough challenge. To qualify for loans they had to learn to calculate their production costs, prepare financial statements and make sound business decisions,” remembers Victor Trocin, a representative of the Rural Finance Corporation (RFC).

Driving past sprawling vineyards, orchards and pastures to the village of Cahul outside the capital, Chisinau, he explains the RFC’s roots. It was set up in 1997 by the Moldovan government and the World Bank to channel capital to the rural poor via the grassroots Cooperative Savings and Credit Associations of Citizens (SCAs). The associations were established to help rural entrepreneurs gain access to finance to improve their productivity and ultimately reduce rural poverty and improve living standards.

The EBRD has contributed $800,000 to the RFC for on-lending to the associations; another $200,000 in grant funding was provided by the government of Taipei China. It all falls under the Bank’s donor-supported Early Transition Countries (ETC) Initiative, says Francis Delaey, head of the EBRD office in Moldova. “By using RFC as a vehicle, we hope to broaden and deepen our outreach in rural communities,” he adds.

Patient banker required

In Cahul, Mikail Kovel is eager to explain how the micro-lending programme from which he has benefited works. He is the well respected, hard-working owner of one of the village’s biggest vineyards of cabernet grapes. Vineyards are a long-term investment requiring a patient banker: “I will only be able to harvest these grapes in five years and hopefully then make a profit,” he says.

Mr Kovel says the secret of RFC’s success is that it builds on Moldovan rural traditions, particularly that of neighbours supporting neighbours, be it with interest-free loans of small sums of money or muscle power for constructing new farm buildings. This led to the creation of the associations but they, unfortunately, lacked adequate capital for any but the tiniest projects.

The EBRD, meanwhile, is too distant from local farmers to deliver small loans to them directly. So RFC is the intermediary through which EBRD’s capital gets to the associations which then deliver smaller loans at the village level. An association takes just one day to make its decision on a loan request, the average size of which is $288. Collateral (usually a house or a car) is required only on loans of over $770. “The whole process is based on mutual trust,” explains Mr. Kovel. “If one household does not repay its loan or interest, the neighbour’s loan will not be approved. This creates an additional sense of responsibility and community spirit.”

Realising ambitions

Gheoghe Turculet is one farmer keen to borrow to improve his assets. At age 57, the man known locally as ‘the busy bee’ does not know how to relax. “For us, it is in our heart to own a piece of land and cultivate it; we would not dream of doing anything else,” he says. For decades the Soviet Union frustrated these ambitions: “At that time you did not work your land for profit, because you didn’t own it,” Mr. Turculet says.

Mr Turculet, who owns four greenhouses, recently borrowed 45,000 lei ($3,500) to help finance state-of-the-art thermal greenhouse covers from France, a tractor and sweet pepper seeds. He is grateful he can borrow easily. “It is very important to upgrade our equipment and bring Moldovan agriculture to European standards.” He says this will take some time, particularly given the growing competition from Bulgarian and Turkish producers.

Investment is required to meet a wide variety of rural needs such as the dearth of village-level energy supply. By the end of 2006 an offshoot of a natural gas line will reach about 400 households in Mr Kovel’s village thanks to contributions from each household and additional borrowing from RFC.

RFC’s Victor Trocin, who is married and has a two-year-old daughter, is dedicated to transforming living conditions in his country by helping to finance rural entrepreneurs. “So many people have left and are still leaving for the west, especially young people. In Italy or Portugal they can earn 10 times as much as Moldova’s average monthly salary of €100. The vitality of the nation has gone abroad and we must do our best to eventually bring those people back for the benefit of our country.”

Written by Loretta Martikian, a member of the EBRD’s Press Unit.

Photos: Dumitru Doru

Contact:
EBRD Moldova office

5 May 2006