For smallholder subsistence farmers, one of the greatest barriers to developing their business is a lack of available credit for what is often written off as too risky an investment. For female smallholders, the prejudices are greater still.
Yet bridging this risk-averse preconception can have a transformative effect, not only for the women it affects but for her family and community as well.
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This is the third post of Farming First’s #FillTheGap campaign to highlight the gender gap facing rural women working in agriculture.
Closing her eyes for a moment, Esperanza Dionisio Castillo recalls one of the first meetings she attended as a cooperative leader in San Martín de Pangoa, central Peru. “There wasn’t a single woman there,” she said. “More than a hundred men, all of them stunned, looking at me like some sort of rare insect.”
Peruvian women have often fallen into the gender gap when it comes to employment and leadership roles. Most do not join the formal labour force with two thirds finding work and income in the informal sector, according to a 2012 report. In 2007, more than a quarter of rural women had no education compared to just seven per cent of rural men.
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By Jessica Joye, Communications Director at Fintrac.
In Kenya, smallholder farmers lack access to financial services and face high barriers accessing commercial banks and community lending institutions. These institutions rarely approve loans to smallholders or have a slow turnaround time for approval, preventing farmers from getting capital when they need it in the agricultural cycle. Smallholder farmers not only face the improbability of loan approvals, but, even if approved, they often encounter hidden fees on top of already-high interest rates. To overcome these challenges, Fintrac’sPartnering for Innovation program is working with Musoni, a Kenyan microfinance institution, to pioneer and commercialize a digital model specifically targeted toward smallholders.
Musoni developed a model to reach high volumes of remote smallholder customers with an agriculture-specific “Kilimo Booster” loan. Village-based loan agents meet directly with farmers to discuss their credit needs and, using a cash flow software developed by the Grameen Foundation, can wirelessly submit farmers’ loan applications on the spot. Farmers don’t have to worry about traveling long distances to a bank or completing complicated applications requiring extensive documentation.
At many Kenyan banks, customers usually need personal or family connections in order to schedule appointments, making it difficult to inquire about loan or repayment details. In contrast, Musoni customers can receive immediate attention via walk-in appointments for any issue. Unlike many traditional Kenyan banks, Musoni wants to see its customers grow, and building personal relationships helps Musoni determine if and when customers are able to increase their loan amount or transition into other types of credit offerings. Although its interest rates are on the higher side, Musoni does not charge any hidden fees and customers have been willing to pay the higher rates in exchange for this personal attention.
Once a Kilimo Booster loan is approved, it is deposited into the customer’s mobile money account within 72 hours, ensuring farmers have timely access to the finance they need during specific times in the agricultural cycle. Musoni’s software also tracks customer information, including repayment information and changes in income, to make loan processing more efficient.
This client-focused approach benefits both customers and Musoni, which profits from reduced time needed to complete each application. Musoni also offers customers a mobile platform from which they can receive payment reminders and obtain other information about their loans, reducing the need to make visits to physical banking locations.
Michael Chege, a Kenyan farmer, also points out that “Musoni is flexible in case of disaster and willing to work with farmers to get payments in.”
In just 18 months, Musoni disbursed more than $6.4 million in loans to rural smallholders, proving its high-touch, efficient approach is gaining traction in the market. Musoni has built a reputation of valuing its customers, building relationships, and successfully applying digital technology to the smallholder market. By paying a relatively high interest rate, smallholder customers prove they place a premium on easy processes, personal and trustworthy customer service, and transparency.
CNFA established credit insurance in 2001 in Malawi to guarantee repayment of half of the money borrowed by agricultural input retailers to stock their shops.
This greatly expanded the number of rural distributors and decreased the distances farmers travelled to obtain inputs, sometimes quite dramatically, resulting in savings in both time and travel costs.
By 2005, retailers covered by the guarantees earned more than $1 million (plus a significant amount not underwritten by the credit insurance). Their success boosted local economies, raised Government tax receipts and increased the provision of non-agricultural services.
After the 2005 food crisis, the Government distributed seeds and fertilizers in order to prevent the situation from worsening. The 2006 maize crop rebounded significantly, but the impact on private-sector retailers was devastating: commercial sales of fertilizers slumped by 60-70 per cent.
A coalition engaged with the Government to transform the support programme into a private-public partnership. Retail sales have since recovered.
