Distinctions and terms of soft financing to Russia's agricultural enterprises

Abstract

Subject. Under the current circumstances, the State and commercial banks invent how to support agricultural producers due to the high priority of agriculture for the national security and the high standards of living of people. Soft financing is a mechanism the State uses to support agricultural enterprises, thus stimulating the agricultural production through debt finance. Objectives. I identify distinctions and determine positive and negative aspects of soft financing granted for agricultural producers. Methods. I referred to official data of the Federal State Statistics Service of the Russian Federation, Ministry of Agriculture of the Russian Federation, Russian Agricultural Bank. I applied methods of analysis and synthesis, induction and deduction, the systems approach. Results. I analyzed typical traits of soft financing to agricultural enterprises. The article indicates the role of authorized banks as systemically important credit institutions in Russia as part of the soft financing mechanism. I conducted the comparative analysis of commercial lending and soft financing to businesses, pointed out key differences between their mechanisms. The article spotlights the shortage of working funds, which results from distinctions of the agricultural sector. I investigated the impact of the sectoral and intrasectoral specifics of agriculture on the lending process. Referring to the key differences of commercial lending and soft financing to agricultural producers in the Russian Federation, I figured out positive and negative aspects of soft lending. Conclusions and Relevance. Agricultural producers operate, being exposed to high risk. Therefore, commercial banks take risks into account when setting up the cost of loans. High rates on loans are unaffordable for the majority of small and medium-sized agricultural businesses, thus complicating the finance of agricultural producers’ operations. Agricultural enterprises demonstrate a rather low profitability, thus impeding the performance of lending principles, such as repayment, timeliness, serviceability.