IFAD uses highly concessional loans in an innovative way in the Republic of Macedonia, the Republic of Armenia and the Republic of Moldova. Low-cost refinancing capital makes rural investments attractive and profitable for formal financial institutions and reduces rural poverty by stimulating economic growth.
 
In the past seven years, IFAD has successfully used refinancing facilities in economies in transition to stimulate investments on farms and in rural processing companies. The approach supports the financial system as a whole, allowing it to respond more effectively to the financing needs of rural clients, whether individuals or enterprises. Participating banks and credit institutions assume all the risks, and operations do not weigh down state budgets. Near-perfect loan repayment rates are spurring banks and credit institutions to adopt more flexible collateral requirements for rural lending, a major goal of IFAD’s rural finance policy.
 
The impact of the financed investments on farmers’ incomes, companies and rural value chains has exceeded expectations. The market-based refinancing model in rural finance has various advantages that make it an interesting option for future interventions in the financial sector worldwide. While refinancing facilities have worked well in the Republic of Macedonia, the Republic of Armenia and the Republic of Moldova, their use in other countries and regions would require partnering with a number of well-managed, regulated financial institutions that demonstrate a solid interest in expanding their operations in rural areas.