Financiera Rural leaves as a “stunted” organization, but whose fault is it?

What was an open secret for months, the president Andres Manuel Lopez Obrador confirmed it a few days ago: National Financing Agency for Agricultural, Rural, Forestry and Fisheries Development (FND) will disappear and thus one more component of the scarce financing for the countryside in Mexico will be eliminated.

When this administration began, in December 2018, it was thought that this institution would be an important commitment of the federal government to support the countryside, since the possibility of turning it into the National Agricultural Finance (Fonagro) to operate as a development bank, instead of a development agency.

However, this step never materialized and, contrary to this, it began to contract its activity more and more and present a deterioration in its indicators. For example, at the end of 2018, with the arrival of the present government, FND had a credit portfolio of 62,875 million pesos and at the end of 2022, this was 32,006 million pesos, a decrease of 49% in said period.

Likewise, its delinquency rate went from 7.90% to 25.90% in said period, that is, a growth of 228% so far in this government, with a deterioration in its past-due portfolio coverage rate, which went from 103%. to 78.10%, a decrease of 24 percent.

Between internal struggles and unwise decisions, the organization, which was an important anchor for financial intermediaries in relation to the field, went on to have assets of the order of 38,917 million pesos at the end of 2018, to 29,904 million pesos, as of December 2022, a decline of 23 percent.

Blame the sofomes?

In the initiative of the Federal Executive, sent a few days ago to the Chamber of Deputies, in order to extinguish the FND, the president described this institution as an “atrophied organism, incapable of fulfilling its objective of promoting rural development, raising productivity and improve the standard of living of the population through credits to the sector”.

According to the figures presented in the project corresponding to 2021, of the total credit placement of that year, 44.5% was granted via 315 financial intermediation companies (almost all sofomes), which operated an amount of 21,422 million pesos, while the rest, 55%, was granted directly to ejidatarios, producers and peasants.

The problem, in the eyes of López Obrador, is that only 198 intermediaries, of the 315 supported, managed credits in areas of medium, high and very high marginalization, which meant only 19.7% of the total placement on the second floor.

The FND granted them credits without mortgage guarantees or of any other type that would give certainty to the fulfillment of their payment obligations”, can be read in the project.

Likewise, the initiative indicates the concentration of the portfolio of said agency, since only with the data of 2021, it was recorded that 10 of its clients concentrate 49.8% of the total past-due portfolio, which, for the president, exhibits the form in which the credits were granted: to large intermediaries and in a way totally unrelated to the producers and needs of the field.

Without elaborating on it, the project signed by López Obrador blames the mismanagement of previous years, the substantial increase in the body’s overdue portfolio. “Obviously, the lack of recovery of the credits granted has critically damaged the patrimony of the institution.”

In a letter addressed to the FND workers, of which this outlet has a copy, Baldemar Hernández from Tabasco, current director of the organization, confirmed the possible disappearance and explained that said decision was made as a result of an incorrect application of public policies and mismanagement that had dragged on from previous six-year terms, as well as the clientelist use of the institution.

“Despite suffering the economic ravages of the world crisis, the Covid-19we redoubled our efforts to recover the overdue portfolio, which increased as a result of the pandemic,” Hernández said in the letter.

Responsibility of this government?

During this administration, the FND was impacted by government decisions, which caused internal conflicts and an almost total paralysis of its activity.

After the approval of an initiative, in 2020 the disappearance of 109 trusts without an organic structure was endorsed and one of them was the Rural Finance Fundwhich was part of the patrimony of the FND.

Although it was initially expected that the disappearance of the fund (which occurred during 2021) would affect at least 40% of the FND’s assets, in the end the impact was less, thanks to the federal government’s support for this body.

However, the responsibility for managing this body during this administration falls on three key figures: javier delgadowho was the first director of the FND in this government; Baldemar Hernandezcurrent director and Leonel Ramirezformer coordinator of advisors to the Secretary of the Treasury.

On December 15, Beatrice Paredesa PRI senator, asked the Secretary of Finance a detailed report regarding the FND and in it, he pointed out that, during Delgado’s administration, the organization acquired a banking core at a cost of 800 million pesos, which until that date was still not operating.

Likewise, the current director was told to restrict credit activity only to borrowers who could leave physical guarantees greater than the value of the loan. In this context, Ramírez wanted to put order in the institution, which did not give him time to land, since his departure from the Ministry of Finance occurred last September.

In December 2022, the FND warned that it would pause all granting of credits and would give priority to advance payments made with international organizations. Just last January, the agency made advance payments to the Inter-American Development Bank y al world Bank for a total amount of 4,237 million pesos.

Although, since October last year, the institution denied that its disappearance was not foreseen, the pause in its credit activity was seen as the first step towards its extinction.

For those who know the subject, one of the historical problems of this organization was that of infrastructure, since the 94 agencies it had at the end of 2022 were insufficient to meet all the demand and help its operation.

Despite the fact that this body was created 21 years ago, its history dates back to 1926, when the National Bank of Agricultural Credit and in 1935, when the National Ejidal Credit Bankentities that in 1975 gave way to the creation National Rural Credit Bankthe predecessor body of the FND.

Now, legislators have in their hands the decision on the future of this body and in the event of its disappearance, only FIRA it would remain as a governmental financial body for credit support to the countryside, along with government programs that serve specific niches.