Flexible loan terms, climate insurance open door to small farmer financing



Impact Voices is an occasional series sharing the opinions of impact investing practitioners and leaders with ImpactAlpha readers. The views expressed in Impact Voices are the writers’ own, not ImpactAlpha’s.

By Tanmay Chetan and Mike Warmington

Several years ago, Peter Makasi looked out his window as a neighbor walked by carrying bags of hybrid seeds and fertilizer, two things the smallholder farmer in western Kenya thought he’d never be able to afford.

Peter had 10 children to support, and all of his income went toward feeding them and paying their school fees. Peter’s crop yields were small, and the family often had to ration food to survive until the next harvest. He knew his land could be more productive, and that he could stave off hunger for his family, if only he had access to better-quality inputs. No one would lend him money for seeds and fertilizer, especially because the two-acre farm he’d inherited from his father didn’t have a land title and couldn’t be used for collateral.

In 2009, Peter joined One Acre Fund, a nonprofit organization that provides smallholders with high-quality inputs on credit, without the need for collateral, along with training on proven farming techniques to increase crop yields. Soon, Peter’s harvest increased sixfold — enabling his family to have plenty to eat year-round. With his additional income Peter has been able to pay school fees for his children and grandchildren, buy solar lights for his house and purchase chickens and ducks for his farm.

“Now we’re in paradise,” Peter says with a laugh. “Any time we want to eat, we eat. The food is always there.”

One Acre Fund operations in Rwanda l Photo credit: One Acre Fund

Creating opportunities

There is a strong business case to be made for developing farmer-centric financial products. The size of the market is huge: there are more than 450 million smallholder farming households worldwide, supporting more than 2 billion people within their households. It is estimated that only one-quarter of the total demand for financial services is currently being met. Farmers are reliable customers when loan products are tailored for them, as AMK and One Acre Fund have learned from experience.

Tanmay Chetan is co-founder and Chief Executive of the Agora Microfinance Group. Mike Warmington is the director of microfinance partnerships at One Acre Fund. Both organizations are founding members of Propagate, a coalition of practitioners working to promote financial inclusion for smallholders. Follow Propagate Coalition on Twitter, @PropagateSHF.

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