Financial inclusion for Smallholder Farmers
Ensuring farmers have equal opportunities to access finance 🤝🏾
Agriculture is the largest employer of labor in Sub Saharan Africa, yet the sector is one of the lowest recipients of private capital. Understanding why this is a practice might be the first step in ensuring the agricultural sector has the finance it needs to grow!
Current Landscape
There is a disproportionate distribution of capital to the agricultural sector despite its contribution to national GDP. For instance, agriculture contributed 32% to Nigeria’s GDP in 2017 and yet it only received 3.8% of capital in Q3 2018. And with farming being a subsector of the agriculture sector, it is fair to say farmers don’t have sufficient access to capital to scale operations.
At Farmz2u, we have spent the last 12 months understanding the challenges farmers face in accessing finance. In particular, why lenders are not providing sufficient capital to farmers. A key observation is an inability to accurately assess a farmer’s risk. How can a lender sufficiently distinguish a farmer that will repay a loan to a farmer that won’t? This can be achieved by identifying data points that impact farmers’ operations.
The traditional lending model in Sub Saharan Africa, designed for formal sectors, is often unsuitable for farmers who operate in a largely informal sector. For instance farmers have variable income and should not be assessed as a traditional business owner. Similarly, farmers operations are exposed to significant risks thus insurance plays an important role in comparison to traditional business owners.
- Asset Ownership (Collateral)
- Financial History
- Sales History
At Farmz2u, we seek to support lenders in providing loans to farmers by providing additional data points that can be used to assess a farmer’s risk level. Beyond traditional metrics such as; asset ownership (collateral) and financial history, we are building a robust overview of a farmers operations with data points such as:
- Sales History; a farmer with a guaranteed buyer upon harvest is less risky than one without
- Capital and Yield Insurance; a farmer whose operations are insured against unforeseen circumstances is also low-risk
There are other data points beyond the aforementioned that will aid lenders in identifying credible loan recipients. Following pilot loans to farmers in Nigeria, we have created conditions
- Farmers must own their farmland
- Farmers must have insurance for farming production
- Farmers must have at least 2 years experience across all farming seasons
- Farmers must grow our target products for which we have guaranteed buyers
