Agriculture is inherently risky. Farmers have to contend with unpredictable weather, pests, and market prices. At the beginning of a season there’s no way to know what crop yields will be. And since most farmers need to borrow money to afford inputs like seeds and fertilizers, there’s no guarantee that they’ll be able to repay regularly or as agreed. This leaves millions of farmers in a bind every year, facing livelihood-threatening obstacles:
PROBLEM #1: Farmers need credit with flexible terms
- Many farmers have uneven cash flows. Their incomes spike during the harvest, but they spend most of the year bringing in little or no supplementary money. At the same time, they need to find a way to pay back loans on a weekly or monthly basis.
- Most banks consider farmers to be too risky to borrow. And when they do lend, loans are too small or come in the form of cash or money transfers, forcing farmers to buy local, pricier inputs rather than in bulk.
- Inputs are most expensive during planting season when farmers need them most, which also heightens demand for credit.
- Many live in areas so remote that they have no access to credit outside of informal moneylenders who charge high interest rates.
Long Tenors and/or Bullet Loans: When loan amounts and terms are tailored to the agricultural sector, farmers have the ability to buy the inputs they need at lower bulk prices, and to repay at harvest time when they have the money.
In-kind loans: Loans that are disbursed as inputs like seeds and fertilizers enable farmers to tap into bulk and wholesale pricing, and to buy off-season when prices are at their lowest.
Person-to-person loans: Making interest-free loans available directly from lenders to farmers where they live, with flexible terms like longer grace periods.
Kiva Zip, Kenya and United States
Kiva’s pilot project in person-to-person lending that can be leveraged to support farmers with flexible loan terms.
One Acre Fund, Kenya
In-kind loans that allow farmers to access lower bulk and off-season prices and don’t require repayment until after harvest.
Loans for small plots of land that give farmers a base from which to grow.
In-kind loans for tree farm inputs, and support to grow and sell wood products.
Maya Mountain Cacao, Belize
Loans for cacao farmers to buy tools, invest in farm maintenance or increase their land.
Milango Financial Services, Kenya
In-kind loans, training and fixed market prices for farmers, in addition to longer grace periods.
PROBLEM #2: Farmers lack access to information
Gaps in information and services in remote areas perpetuate poverty. In particular, extremeley rural regions suffer from a dearth of economic opportunity.
Loans for mobile devices to share knowledge. Providing financing for farmers in remote areas to buy mobile phones establishes them as knowledge hubs for their neighbors. This enables them to share information about the weather, diseases, etc. to improve yields. At the same time, device owners can generate additional income by providing the service.
Grameen AppLab, Uganda
Loans for community knowledge workers to buy phones to share information.
PROBLEM #3: Productive assets are expensive
Productive assets like tractors, cows, post-harvest processing equipment and storage units have the potential to dramatically increase farming incomes. Often, however, they’re not affordable to people at the bottom of the pyramid.
Loans for productive assets. By financing productive assets, organizations can help smallholder farmers become more efficient, boost crop yields, and generate significantly more income that can be used to repay loans.
Sistema Biobolsa, Mexico
Loans for biodigesters that convert livestock waste into energy and fertilizer.
Honey Care Africa, Kenya
In-kind loans for beehives that produce honey and byproducts, purchased from farmers by this organization at a fixed market price.
Juhudi Kulimo, Kenya
In-kind loans for dairy cows and cold milk storage.
What is Success?
We want farmers to be able to build and sustain strong livelihoods. We define success as:
- Higher crop yields: Measurable improvements in harvests and income for farmers.
- Expanded access: More farmers accessing the information and equipment they need to optimize their businesses.
- Higher repayment rates: More farmers repaying on time without worrying whether they’re one failed crop from financial disaster.