Academic journal article Review of European Studies

The Evolution of Russian Institutions of Agricultural Loan: From Domination to Systemic Approach

Academic journal article Review of European Studies

The Evolution of Russian Institutions of Agricultural Loan: From Domination to Systemic Approach

Article excerpt

Abstract

A detailed study of the key political and economic declarations and regulations related to the attempts to establish and develop agricultural loan system in the country, allows to make paradoxical conclusion: in the context of formation of market relations in modern Russia and establishment of adequate institutions, the essence of such system was reduced to setting up a monster institution, a monopolistic institution, a quasi-public banking organization with its rights and responsibilities to include all items typical for a system of that kind in general.

Keywords: bank, agriculture loans, risk management, banking sector

1. Introduction

We believe that the phenomenon of existence of a bank with the share held by the government, such as Rosselkhozbank (Russian Agricultural Bank) can be explained by the coincidence of many factors, including, first of all, old thinking, habitual approaches to system functioning, and excessive commitment to traditional values and institutions.

The history of assigning the meaningful legal status of an institution with unique nature, unique tasks and unique importance to the Russian Agricultural Bank demonstrates lack of understanding, inconsistency and contradictory nature of all legal and corporate rules used by the bank to guide its activity up to the present day.

There are many reasons to claim, from institutional and strategic point of view, that the bank's philosophy at present is a patchwork comprised of numerous ideas and hopes of different interest groups, being at the same time the reflection of these or those epochs of political and corporate imagination in modern history of agricultural loan system in Russia. (Bazarya, 2002)

There is no doubt that one of the reasons behind the institutional dead end in which the bank is at the moment lies in its following doubtful strategic objects in the process of its development.

Thus, when formulating the state credit policy in agriculture, the bank believes it would be strategically correct to achieve "adequate capitalization and funding potential in the interests of national agricultural loan system that, at the current stage of social and political development, should be consolidated around the Russian Agricultural Bank". (Chayanov, 1917)

At the same time, as determined in one of its development strategies, it is important for the bank to identify new areas of credit business, i.e. shift from narrow to wide programs that would cover all stages of production, storage, processing and sale of agricultural products. (Izambert, 2002)

The bank believes that this requires fundamental changes in the approaches of the Bank of Russia and banking community to creditworthiness assessment and security of loans granted to the borrowers representing new top-priority areas of credit support. (Yanbykh, 2013)

In the bank's opinion, significant effect would be produced by vesting a number of controlling and expert functions in it aimed to reduce construction costs both at the state of project solution selection and design, and in the process of production facility construction and commissioning.

Among other functions to be vested in it, the Bank attaches great importance indeed to its engagement in fostering real conditions for a fast, cheap and complex formation of land mortgage lending system.

It is clear that by offering correct content-wise ideas, the bank regards itself as frontline worker in implementing them: isn't it the unequivocal confirmation of the bank's claims to play the role of a "bank-system"?

However, actual values of, and trends in, the bank's key performance indicators suggest that such structure in the form of a specialized farm lending institution has been unable already for a long time to sustain the varied and universal nature of business, to which is has been committed, and its current development model to a considerable extent contradicts the objectives of improved performance based on intensive development. …

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