What Are Sources of Funding In Finance

Sources of Funding In Financing are discussed here.The high socio-economic significance and effectiveness of information and consulting activities is proved by the historical experience of the service in many countries around the world. These issues have already been considered in Ch. 1 and 4, however it is important to bear in mind that the sustainable and effective functioning of the service, as well as its progressive development, is impossible without organizing rational financing of its activities.

The financing of ICS is a set of interrelated actions aimed at financial support of the informational, consulting and organizational activities of the service, as well as investments in its development.

The set of actions to finance the activities of the service can be divided into the following areas:

  • attraction of budget funds;
  • study of internal capabilities and preparation of own funds for financing the activities of the service;
  • study of the financial market and obtaining borrowed funds;
  • attracting self-supporting revenues through the provision of paid services;
  • search and attraction of funds from other sources (grants, sponsors, etc.);
  • search and preparation of materialized assets in all forms (material and technical resources, buildings, equipment, goods, etc.) for use as a contribution to the current activities of the service and investments in its development.

The principles of financing VIC are considered in a single system, but at the same time reflect various aspects of the service’s activities. There are three main principles:

  • compliance with the goals and objectives of the VIC;
  • orientation to the final result;
  • payback costs for services.

Sources of Funding In Financing

If the main purpose of VIC is to assist commodity producers in the process of preparing and making management decisions, then the choice of forms and methods of financing the service should be guided by the interests of customers. It should be borne in mind that customers of the service, as a rule, are heterogeneous in their interests. Most commodity producers aim to maximize their income from their activities. However, individual clients or their groups may have other goals: the preservation of lifestyle, the social development of the local community, the creation of a favorable environment, etc.

As already noted in ch. 4, the end result of thefunctioning of the service is expressed through the results of the activities of the rural producer. At the same time, the interests of the service itself may conflict with the interests of customers (especially in the case of paid services), i.e. the activities of the service can be directed to the realization of their own commercial interests by extracting unreasonable additional income. This is a dangerous way for the service, as it inevitably leads to loss of customer confidence and, as a result, to self-destruction.

When deciding on the choice of sources and terms of financing, it is necessary to focus on the final results preferred by the client. At the same time, we should not forget about the interests of the service itself. If the interests of the service are not taken into account, then there will not be sufficient financial resources for its development. And this can lead to a reduction and even curtailment of its activities, which ultimately will have a negative impact on the results of customers’ activities.

In other words, it is necessary to optimally combine the interests of all participants in consulting activities, bearing in mind the maximum overall end result.

It is necessary to look for and / or create such financing conditions that would contribute to the full reimbursement of current and investment costs. Cost recovery does not mean the transfer of consulting activities to the provision of services exclusively to customers. Costs can be reimbursed through budget funding, targeted government programs, sponsorship, grants and other sources of funding. In financial planning, all possible sources of financing should be searched for and in which the conditions of financing together can ensure the timely replenishment of funds spent (current or operational activities) and, if necessary, the expansion of activities and development of services (investment activities).

In most countries of the world, the advisory service was created at the initiative of the state and for a long time was maintained at the expense of taxpayers. The variety of sources of funding for consulting services arose not so long ago, mainly as a result of the privatization of state organizations and the increasing role of commercial companies engaged in scientific research and the dissemination of knowledge in the agricultural sector.

Sources of financing are distinguished by the origin of capital:

  • direct budget financing (federal, regional and local budgets);
  • government and non-government programs and projects, including those organized on a competitive basis;
  • self-supporting income from the provision of paid services;
  • other sources of financing.

As is known from world practice, agriculture is often a subsidized industry. State funding of the consulting service can be considered as one of the many forms of subsidies, especially at the stage of the formation of the ICS. Moreover, state financing involves not only a simple redistribution of budget funds, it is aimed at developing the industry in order to increase its efficiency and then fill the budget by increasing the absolute size of the taxable base and taxes themselves. In other words, the state investment in the formation and development of the VIC provides for an appropriate return. At the same time, the state support of the consulting infrastructure, being not a direct, but an indirect form of support for the agricultural sector, according to the terms of membership in the WTO, belongs to the “green basket” and can be used without restriction. The world experience of creating such services confirms a high degree of return on investment: research shows that the average internal rate of return(IRR) investment in the creation of X-ray is about 40%

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