“Solidarity” Fund Expected to Contribute R$5 Billion in Guarantees to Agribusiness

RIO DE JANEIRO, BRAZIL – On Tuesday, October 1st, the government introduced a Provisional Measure (MP) with a number of initiatives linked to credit and financing of rural producers’ debts.

The initiatives involve the extension of the volume of credit available for agribusiness, easing financing through a solidarity fund for debt renegotiation and construction of warehouses. With the fund, the government expects an initial contribution of R$5 billion (US$1.25 billion).

According to the Secretary of Finance of the Ministry of Economy, Waldery Rodrigues, the government’s intention is to expand financing through the capital market.

With the MP, the government intends that other financial agents, besides banks, may also finance production. “This is funding in abundance,” Rodrigues said during a press conference.

Among other measures, the MP creates the so-called Fundo de Aval Fraterno (FAF) (“Fraternal Guarantee Fund”) that will allow producers to secure “solidarity” guarantees to renegotiate debts from rural credit operations.

According to the government, the initiative aims to reduce default through a kind of credit, in which the liability for payment is spread among the members of the fund.

This fund can be created with the involvement of two to ten producers. Each producer may enter with up to four percent of the total financing requested. Creditors and even financial institutions may also take part.

The concept is that the fund serves as a subsidiary guarantee for the payment of a debt, i.e., it only pays after the debtor’s real or personal guarantees have been activated.

According to the government, the measure would help reduce interest rates on loans, since there would be a better guarantee of payment in the event of default.

“If we join the same FAF and there is no payment, the common fund is compromised. The point is that it’s harder for you to default with your neighbor than with the bank,” said Rogério Boueri, undersecretary for agricultural policy and the environment at the Ministry of Economy’s Secretariat for Economic Policy.

“We are certain that the banks will look at these producers with different eyes,” he added.

Another measure to reduce the cost of loans is aimed at large landowners and provides that producers will be able to offer one or more portions of their property as collateral. The proposal is to reduce red tape to carry out the operation.

“If producers have a property worth R$10 million and want to give the property as collateral for a loan of R$500,000, they lock up the entire property. What we are proposing is that the producer can subdivide this property”, said Boueri.

Credit

The MP also allows the use of various agricultural securities to expand agribusiness financing. The aim is to get money from the capital markets, using the Rural Product Bond (CPR) among other securities.

A further point is an economic grant (a form of aid) for companies that produce grains to finance works, purchase machinery and equipment needed to build warehouses and expand storage capacity.

The MP was announced by the government during the launch of a plan to boost rural development in Brazil’s Northeast region. Named AgroNordeste, the program may be implemented this year or until the end of next year, in the nine northeastern states plus the north of Minas Gerais.

In all, it should serve a rural population of 1.7 million people.

Source: Agência Brasil