First Time Loans Give Grassroots Farmers a Chance to Grow

Carlos Sigue, an agribusiness owner in Mozambique, with his 15-hectare plot where he grows several vegetables, including potatoes, cabbage, and cucumbers. / Scott Haller, USAID

Carlos João Tovela Sigue, a small farmer in Maputo, Mozambique, had bigger dreams than the small plot of land where he eked out a living for himself and his family by cultivating potatoes, cabbage, cucumbers and other vegetables.

He dreamed of improving his lot in life by expanding his small farm, but he had to put this dream on hold when he discovered a roadblock ahead. “It is difficult to expand production without a bank loan,” Carlos says.

For many small farmers like Carlos, accessing a loan to buy seeds, fertilizer and other supplies to expand their businesses can be difficult. Most banks assume that lending to farmers like Carlos is very risky, so they often offer limited finance on undesirable terms.

Fortunately for Carlos, he discovered a USAID program that provides a partial guarantee on loans for small farmers through the Agency’s Development Credit Authority (DCA) to reduce risks and encourage local banks to lend to underserved borrowers.

Through a partnership between USAID and the Swedish International Development Cooperation Agency (Sida), two banks in Mozambique received DCA guarantees to encourage lending to farmers and entrepreneurs, the main populations that local banks often overlook.

Since receiving a loan backed by USAID and Sida two years ago, Carlos’s farm grew from 3 to 15 hectares. With this financing, Carlos mechanized his farming processes and upgraded his irrigation system. This loan also allowed Carlos to hire more seasonal workers.

Harvesting a return on investment

Carlos Sigue received a loan from Banco Terra with the backing of USAID and Sweden’s development agency. He used the funds to grow a thriving business that won awards for its success. / Scott Haller, USAID

Carlos paid off his entire first loan and took out a larger second loan to help him reach bigger goals and greater financial security. With this credit, he plans to farm 350 hectares of family land, accumulate 700 cows, and buy a larger truck for taking crops for sale to the market.

When small businesses and entrepreneurs can access credit, they can create a better economic future for themselves and their communities.

Carlos is a case study in success and the Government of Mozambique recognized his excellence in agricultural entrepreneurship with multiple awards.

Many other farmers like Carlos are accessing credit for the first time because of the DCA guarantee program. Since 2006, the DCA program in Mozambique has helped to guarantee 795 loans.

When these borrowers were surveyed regarding the performance of the DCA guarantees in Mozambique, the results were positive. Most borrowers reported that this was their first experience with a financial institution, and about one-third of these first-time borrowers were women. Borrowers said the guaranteed loans helped them expand their businesses, create jobs, and improve the quality of their lives.

“In all interviews, farmers who benefited from the loans mentioned increasing the area [of land] cultivated and…productivity.”
“All farmers mentioned having financial means through the loan to hire additional labor, [which included] mostly women as seasonal labor…more food for the family and having [a] surplus for commercialization purposes.”
— ELIM Serviços Lda, the organization that led the independent evaluation

Everyone wins when development agencies partner with banks to bring financing to promising entrepreneurs.

While USAID and Sida continue unlocking private capital for hundreds of borrowers like Carlos in Mozambique, similar DCA partnerships are providing over 160,000 borrowers in 74 countries across the world with much-needed financing.

About the Author

Claire Everhart is the communications specialist for USAID’s Development Credit Authority. Scott Haller, a USAID Development Credit Authority portfolio manager, and USAID Communications and Evaluations Analyst Beth Pappas contributed to this story. This story was originally published on the USAID Impact Blog.

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