NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, March 22, 2012

After years of neglect, a new generation of lenders is making microfinance work for Africa’s small farmers.

Traditional microfinance has never been particularly well suited to agriculture. With variable incomes that typically rise after harvests and taper off during the off-season, farmers are unable to keep up with the inflexible payment schedules that come with most microloans. Additionally, external factors such as weather, disease or price volatility can severely constrain farmers’ incomes and ability to repay loans.

So, you’re a poor farmer and want a flexible loan that fits your income? Too bad, most [microfinance institutions] MFIs say, try opening a kiosk.

The result has been an uneven expansion of financial services to “microentrepreneurs,” even as access to credit has dried up for Africa’s small farmers. But the focus on providing credit to microenterprises is helping to fuel an unsustainable explosion of “traders and hawkers” in urban areas. With farming becoming less attractive, the migration of rural Africans to cities and towns in search of new opportunities is leading to overcrowding, unemployment, and conflict.

In response, the One Acre Fund is proposing a new type of microfinance designed specifically for Africa’s small farmers. Named this winter in The Global Journal’s list of the Top 100 Best NGOs in the World, OAF works with farmers across Kenya,Rwanda, and Burundi to provide a package of agricultural goods and services that includes training, credit, access to inputs, and insurance.

“This is a comprehensive package that generates more income for the very poor,” explained OAF employee Margaret Vernon. “With this spending power, farmers can choose for themselves how to improve their lives.”

It works. The average OAF farm triples its harvest and doubles its profit after joining the program.

Far from being a handout, farmers that work with OAF must pay for its services. The organization provides flexible loans to farmers and supplies inputs to local markets, allowing farmers to purchase their own seeds and fertilizers. After providing training in cropping techniques and input utilization, OAF expects farmers to repay their loans at harvest time.