Kiva Innovations: Why do farmers need finance?
This is a randomly selected loan profile from the Kiva site. Víctor is just one of 1,100 borrowers that work in agriculture looking for loans on Kiva. At any given time, these loans represent more than one-fifth of all fundraising loans on the site. Why so many, you ask?
In my last blog on agriculture, I wrote about the green revolution in Asia and some of the reasons why it has yet to spread to the rest of the developing world. Limitations differ across countries and regions, still some challenges are inherent to the relationship between poverty and agriculture. Smallholder farmers face a triple whammy of obstacles to pulling themselves out of poverty: low and irregular incomes, unpredictability of these incomes and a lack of financial tools to manage risk.
Farmers earn the bulk of their income, often 60 to 70%, during the two or three peak months of the harvest every year, and often earn very little during the off season. Laborers work daily during the harvest and traders make money during festival seasons or just after harvest when prices are lowest. It’s all part of the cycle of low and irregular incomes that keep rural families poor.
You, a maize farmer
Pretend you’re a small Kenyan maize farmer. Maize is harvested in October, and you and your smallholder farmer friends flock to markets en masse. Overwhelming supply causes prices to slump, forcing you to sell your crop at half price. Meanwhile, fertilizer and seed prices immediately begin to rise.
By February, when the growing season begins, you purchase seeds and fertilizer at their highest prices along with your neighbors. Most of the money that remained from your previous harvest has just been spent. You look ahead to the next eight to 10 month growing season without any secure source of additional income -- and it starts all over again.
Financial picks and shovels
Often in agriculture, poverty is both a symptom and a cause. Rural families determine their strategies for survival in a context of failed markets. High transaction costs (water, transportation, and inputs), insufficient and unequal access to information, imperfect competition and government failure to provide public infrastructure combine to create insurmountable barriers to development.
In short, small farmers start poor and, without financial support, often remain so.
Support has been in short supply. Existing financial instruments in most countries -- industrialized and developing alike -- are ill-suited to addressing farmers’ low, irregular incomes. And governments tend to invest in collective or large-scale farms over smallholders. Still, between 60 and 99% of the population that lives in rural areas depend on agriculture for a living. Farming persists because, for some, it remains their best option.
At Kiva, we believe that supporting small shareholder farmers is the key to unlocking a second green revolution in the developing world. After all, it was China’s shift from promoting collective farming to full-scale financial support for smallholder farms that ignited its own rapid development -- not to mention the significant improvements in productivity that allowed for the Industrial Revolution in North America and Europe.
Kiva works with organizations like One Acre Fund and Soro Yiriwaso Mali to provide financial tools for farmers. These groups have developed innovative services to help smooth the peaks and valleys of rural income earners.
One Acre Fund packages these services as a complete “market bundle” for smallholder farmers. It includes inputs (at lower, off-season prices), training, finance and market facilitation. It also provides deep rural distribution, reaching farmers in some of the most remote villages and providing tools and training that allow them to take greater risks and strive for higher productivity.
After all, it’s this calculation between risk and survival that farmers make each day. Consistently getting the answer right means Víctor and others can blaze a pathway out of poverty. Our job is to maximize the likelihood of their success.
Ian Matthews is an intern on Kiva’s strategic initiatives team, looking for new partners and loan products to extend opportunities and access to even more people around the world. Ian has an MSc in
Global Politics from the London School of Economics and Political Science, and has previously done field work in Honduras. Send him your feedback on this blog series at firstname.lastname@example.org.
This is part of a larger series on Kiva’s strategic initiatives and innovative loan products, which are designed to expand opportunities for more borrowers. Kiva is excited to partner with companies and organizations that provide innovative options for farmers.
Photos courtesy of Peter Nijenhuis, Bread for the World, Franz88, IITA Media Library, CIAT