About the Foundation
AVHGA - Rural Credit Guarantee Foundation provides on-demand credit-default guarantees to micro, small and medium-sized enterprises which are engaged in the agricultural sector or whose activity is related to rural areas.
These guarantees promote financing of enterprises that lack sufficient colleterals which cause high risks to banks.
AVHGA acts in form of a foundation, as a financial enterprise equivalent to banks, which status is unique in the Hungarian financing sector. The Foundation’s status ensures that credit institutions apply more favourable risk rating owing to the guarantee in the financing process, improving the creditability of the SMEs and mitigating banks' risk exposure.
AVHGA – Rural Credit Guarantee Foundation was established in 1991 in the framework of the EU pre-accession fund PHARE Programme, by the Ministry of Agriculture and by 5 commercial banks.
AVHGA cooperates with the whole Hungarian banking system. Thanks to AVHGA’s guarantee, small businesses reach improved creditability and more favourable risk rating by mitigating banks' exposure. Since 1st of January 2008 the Foundation has been operating as a financial enterprise and later the predecessor of the Central Bank of Hungary acknowledged after the necessary approval procedure that the operation of the Foundation as a financial enterprise complies with the criteria relevant for credit institutions, so it authorized the operation of AVHGA as a "financial enterprise equivalent to banks" from 1st of January 2011.
The Hungarian State grants 85% counter-guarantee for guarantees issued by the Foundation. Since 3rd of October 2016, EIF provides AVHGA with 50% counter-guarantee under the COSME programme.
Access to external financing is particularly difficult for companies that are smaller in size and require resources and do not have eligible funds and do not maintain double-entry accounting. The Foundation therefore seeks to ensure that its guarantee in the agricultural sector primarily facilitates access to finance for micro-enterprises and smaller enterprises operating in a special legal form (primary farmer, member of the family farm of primary producers). In addition to the preference for the micro-enterprise segment, it is also necessary to help the development of larger enterprises, which are small and medium-sized enterprises, in order to develop enterprises, improve efficiency and increase competitiveness. Due to the significant resource requirements and special risks in the sector, it is necessary to ensure liquidity and stable operation in all agribusinesses at all times.
Due to the specificities of the agricultural sector and the difficulties of lending, guarantees play a key role in direct and indirect bank financing. The scope of operation for rural development directly related to the agricultural and agricultural area will continue to be at the forefront of the Foundation's activities. The agricultural sector has different funding needs from other sectors and therefore the Foundation should play an active role in financing the sector and in initiating measures to improve the conditions for funding.
The guarantee should also cover enterprises operating in rural economic spaces that are not directly linked to agriculture, in order to improve the quality of life in rural areas and strengthen territorial catch-up. The aim is to ensure that any viable agri-rural and rural business that is entitled to the foundation guarantee is aware of the financing possibilities and has access to adequate bank resources, with the necessary guarantee institutional background.
In order to preserve the security of the domestic food supply and to improve the international competitiveness of the Hungarian food economy, the Foundation supports the operation and development of agricultural, food industry, food trade and other enterprises operating in the food economy with its guarantee. The Foundation shall contribute to the effective implementation of government support programmes to improve the liquidity situation of enterprises and encourage investment, in particular with regard to the implementation of developments supported by the Rural Development Programme. Its priority areas are the stability of livestock farms and helping them to invest, improving the efficiency of the food industry and production, improving irrigation, adapting to climate change, commitment to sustainability aspects, and the use of digital technologies and precision farming. Through the investments, the capacities of producers will be expanded, the domestic added value in the food value chain will increase, modern production technologies will be applied and the position of Hungarian enterprises on the world market may be improved.
Due to the ageing of the farming community, the transfer of farms and means of production is expected to accelerate in the coming years. The takeover of businesses, the emergence of new owners and the departure of former key people carry a high risk from a financing point of view, which is often only compensated for by the Foundation's guarantee from a banking point of view. For this reason, a special role on the part of the Foundation is required for borrowings related to generational change. The increase in the number and proportion of young farmers is decisive for the future of the sector. The companies they manage will face an increasing need for resources due to their long-term development and growth plans and their openness to technological innovations, which require the Foundation's increased involvement to achieve.
The Foundation's independent purpose, as stated in the Founding Document and its business policy, is to help businesses gain access to finance on a large scale by providing favorable surety premiums. The performance of the supporting function requires that the Foundation seeks to optimize subsidies in its fee conditions and other business conditions and does not enforce market logic.
Where transactions are accompanied by a State counter-guarantee, guarantees at reduced rates can only be provided in accordance with the application of EU State aid rules. Formally, the guarantee is considered a grant due to the state's involvement and low fee, but in practice the grant is provided at the expense of the foundation's assets and returns.
The foundation's form of operation enables the Foundation to offer a guarantee at a low fee in a way that does not qualify as state aid, with the use of another - European Union central - counter-guarantee option instead of the state counter-guarantee, or exceptionally without a counter-guarantee, at the expense of its own assets.
In order to ensure favorable fees for businesses, it is necessary to waive the state counter-guarantee and budget fee support for some of the transactions, which can lead to an increase in risks and a deterioration in the Foundation's accounting results.
The Foundation applies the provisions contained in the ‘Hpt.” regarding solvency capital and capital adequacy, risk and investment limitation, asset qualification, management system and risk management, as well as management and control for credit institutions. In order to fulfill the conditions corresponding to the prudential regulation equivalent to credit institutions, the necessary resources, personal and material conditions must be continuously provided, and the capital requirement prescribed by the regulation must be fulfilled.
The Foundation fits well into the domestic financial infrastructure system and conducts activities in accordance with the quality and standards expected by credit institutions. Efforts must be made to continuously maintain the Foundation's service level in addition to efficiency requirements, and to further develop it in accordance with the needs of credit institutions and entrepreneurs.
The Foundation must conduct asset management in such a way that it can carry out its activities in accordance with the purpose set out in the Founding Deed. Due to the peculiarities of the foundation form, the purpose of the Foundation is not to accumulate wealth, but to achieve the foundation's goal - without exposure to external sources - without any time limit.
The Foundation strives to carry out its activities efficiently, using modern technological solutions. As part of this, it made significant progress in the digital transformation of its operational processes. The submission and review of guarantee applications and amendments is done through electronic channels, paperless, using e-signatures. The aim of the Foundation is to further expand the automation of processes and electronic data exchange by developing its IT system, with particular regard to the expansion of interface-based communication with financial partners, public organizations and external data providers.
The Foundation's guarantee can help to ensure access to funds for small and medium-sized agricultural and rural enterprises in an indirect way, in an additional form. Due to its nature, the positive effects of the guarantee can only be achieved in connection with the activities of financial institutions. In order to help finance businesses, the Foundation cooperates with all relevant institutions. Within this framework, the Foundation
- with its activities and shaping the conditions of the guarantee, it serves the government's objectives aimed at the development of agricultural and rural enterprises,
- cooperates in partnership with the founding banks, affiliated banks, financial enterprises and other institutions that support enterprises,
- strives for cooperation with professional organizations representing businesses, especially the National Chamber of Agriculture.
The strategic provision is approved by the Board of Trustees.
The Board of Trustees is the managing, decision-making and representative body of the Foundation.
Members of the Board of Trustees:
- István Pongrácz, Entrepreneur – Chairman of the Board of Trustees
- Zoltán Szentirmai, Head of Department, Ministry of Agriculture – Co-Chairman
- Dr. András Herczegh, CEO of the Foundation – Member
- László Tóth, Deputy CEO of the Foundation – Member
- László Szabó, Delegate of the Ministry of Finance – Member
- István Szabó, Director of OTP Bank Nyrt. – Member
- Dr. Miklós Weisz, Entrepreneur – Member
- Richárd Szabados, Head of Corporate Business of Erste Bank Zrt. – Member
- Éva Fabríczius Hegyi – Head of Department, Hungarian State Treasury
- Balázs Mészáros, Delegate from PricewaterhouseCoopers Kft.
The members of the Supervisory Board represent the interests of the Founders and are responsible for enabling the Foundation to perform its activity in accordance with the provisions of the Banking Law and other specific legislations.
Members of the Supervisory Body of the Foundation:
- Péter Horváth, Entrepreneur - Chairman
- István Tresó, Managing Director of K&H Bank Zrt. – Member
- Dávid Hollósi, MKB Bank Nyrt. - Member
- István Szántó, Entrepreneur - Member
Management of the Foundation:
- Dr András Herczegh – Chief Executive Officer
- László Tóth – Deputy Chief Executive Officer
- Tamás Leskó – Deputy Chief Executive Officer
- Árpád Juni – Guarantee Director
- Gábor Tóthpál – Redemption Director
- Dr Brigitta Verebélyi – Compliance Director
- Attila Becsák – IT Director
- György Várszegi – Risk Control and Monitoring Director
- Lénárd Kálmán- Operative Director
AVHGA is a member of the European Association of Guarantee Institutions (AECM), that is a non-profit association representing the credit guarantee institutions in Europe. AECM has been operating in accordance with the Belgian Association Act since 1992 as a democratic organization independent of any political or financial group. It is now representing 48 guarantee societies operating in 23 countries of the European Union, and Azerbaijan, Bosnia and Herzegovina, United Kingdom, Kosovo, Russia, Serbia, Swizerland and Turkey.
According to AECM Statutes, the main objectives are:
- to represent the common interest of members,
- to consolidate the role of the guarantee societies in lending to and development of SMEs,
- to harmonize the legal framework of the operating conditions of guarantee societies,
- to foster the professional operating conditions of guarantee societies,
- to foster the exchange of information and best practices among members,
- to make proposals for establishing economic policy guidelines at European level for the intermediate bodies, including the European Union.
Long-term co-operation with AECM is highly essential for the Foundation since thus it has an opportunity to maintain direct relations with European guarantee institutions and to share common experiences and best practices. AVHGA is an active member of AECM: the working group Agriculture is chaired by László Tóth, AVHGA’s deputy CEO.