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

Tuesday, August 22, 2017

A new method of aid microfinancing, known as recovery lending, aims to give such farmers a much-needed short-term boost, especially in times of crisis.

Vision Fund International (VFI) operates as the microfinance arm of the international NGO World Vision. It sourced a £2 million returnable grant from the UK’s Department for International Development to be loaned to 14,000 families in Kenya, Malawi, and Zambia after disasters so they can rebuild their lives and start generating income again.

Farmers need loans at the beginning of agricultural seasons to buy seeds, fertilisers, and other vital inputs. But as smallholders often lack title deeds or other forms of collateral, traditional banks don’t view them as viable debtors, while the rules imposed by other kinds of lenders – the return of the principal sum in full, for example – don’t always suit the seasonal economics of farming.

Charity Mati, VFI Kenya’s business development and integration manager, explained that the lender tries to tailor its repayment terms to borrowers’ needs, unlike other microfinance institutions that charge interest every month, leaving the entirety of the loaned sum due on maturity.

“Most of our clients are farmers,” Mati told IRIN. “While recovering from the El Niño rains, they were met with a second shock: the drought. We sat down with them and developed workable repayment plans, listened to their voices, and arrived at a solution,” she told IRIN.

Photo courtesy of Dusan Vranic.