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Assessing the Social Costs of State-owned Agricultural Credit Institutions: The Role of the State and the Development Community
Charitonenko, S. & Yaron, J.
Publication Date: 30 Sep 1999
Document Type: Paper
How to make state-owned agriculture credit institutions sustainable?
This paper informs that state-owned agriculture credit institutions (SACIs) remain a hallmark of government attempts to promote rural development. However, the performance of most of these institutions has been disappointing. The authors feel that this is mainly because of urban-biased policies and internal factors which include:
- Low to no deposit mobilization.
- High administrative/operational costs.
- Duality of objectives - incentives at odds with sustainability.
The paper suggests an "ABCD" framework to estimate the social cost of maintaining a SACI:
- A is the basic measure of the financial profit or loss reported by SACI.
- B includes adjustments to the net financial outcome made to overcome non-standard accounting practices.
- C captures the additional cost to society due to explicit or implicit subsidization of the SACI.
- D accounts for the losses of state-sponsored support programs on which the SACI relies to operate.
Finally, it proposes a methodology to measure the subsidy dependence index (SDI) for the institutions. It also suggests financial restructuring of SACIs to restore solvency by improving their financial structure and net income.
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