Promotion and integration of rural finance in BENEFIT programmes: challenges and opportunities
BENEFIT Partnership held a half-day brainstorming session to share experiences on agriculture finance, seeking a common ground BENEFIT should consider in future planning. The meeting was led by Cor Wattel, Senior Researcher-Financial Services in Agriculture from WUR who has international experience in micro finance and rural economics, and was attended by 14 BENEFIT staff representing all programmes (ISSD, REALISE, CASAPE, SBN and ENTAG and PCU). The session was relevant to reflect on financial issues that is hindering programme progress and explore ways to stimulate the financial ecosystem towards achieving the programmes’ goals.
The participants agreed that finance is a major challenge in all BENEFIT programmes. Properly functioning agriculture finance system is relevant to prevent farmers take debt from money lender, enable them to adapt new agriculture technologies and practices, enable coops to increase operations and make investments, increase their capability to engage in various market etc. The participants looked at key ingredients in agri-finance including channels, financial services and financial products.
It was noted that agri-finance aims to bridge the gap between the farmers’ and the finance’ world for maximum benefit for both sides. Both parties should understand the risk involved on both sides and understand the logic and language of each other. Farmers and cooperatives should be able to meet the requirements from financial institutions, just like the financial institutions should offer financial services that are suitable for the farmers. By understanding each other, trust and long-term partnerships can prosper.
In many countries, most of the farmers’ finance comes from their own pocket and relatives (60%-70%). Other finance sources include unions, cooperatives, SACCOs, money lender or trader (buyer/ seller). The traditional approaches like Idirs and Equbes are other relevant financial structures small holders greatly depend on.
The group discussed the pros and cons of group lending and different ways to manage individual loans, crop insurance, community warehouse financing, and experience of Grameen in Bangladesh. Some of the issues raised by the programmes included the challenge related with cooperatives being not treated and functioning as enterprises, political interference, cultural perspective of loans (being opportunist), poor governance, financial illiteracy etc. SBN work with banks, financial literacy and a guarantee fund, CASCAPE’s Malt Barley experience in linking farmers with beer factories to resolve input and marketing finance issues, using joint financing strategies (AGP), the pros and cons of providing grants (ISSD) and other innovative funds to minimize financial shortage were discussed in depth.
At the end, the participants’ suggestion on areas of future possible engagement included: (i) piloting already demonstrated successful financing interventions; (ii) strengthening farmer organizations and businesses through finance literacy, developing business concept and bankable business plans, internal resource mobilization, and business planning; (iii) organizing financial trade fairs; (iv) partnering with finance focused organizations; (v) co-financing and providing credits to Community Based Organizations and other target groups; (vi) increasing capacity by recruiting financial experts for our target groups; (vii) support in designing financial models that are sustainable, cost-effective and implementable under Ethiopia’s context and promote workable packages to policy makers to include them in public programmes.