Financing Growth for Africa’s Smallholder Farmers

Two years ago, Eunice Wanjiru Kinyua and her colleagues in the Wamumu Umoja Rice Growers Self-Help Group on the foothills of Mount Kenya had to rely on lenders who charged them 100 percent interest on loans to purchase seed and fertilizer—and sometimes to pay school fees.

Things are different now. Eunice Wanjiru Kinyua has two children in secondary school and a third in primary. Joseph Kamau has been able to buy his first dairy cow, and Esther Muthoni Gacheru is building a new house.

Their fortunes changed less than one year ago, when the Self-Help Group took out a low-interest loan to buy high-yielding rice seeds and fertilizers. The loan was the result of a unique partnership between the Alliance for a Green Revolution in Africa (AGRA) and a leading commercial bank, and it solved a problem that cripples Africa’s small-scale farming: most farmers have only the coins in their pockets to finance their farms.

Across Africa, the agricultural system is broken. Millions of smallholder farmers are poor and getting poorer. As long as this is the case, Africa will remain hungry. For Africa to prosper, millions of smallholder farmers must be able to access good seeds and fertilizers, crop storage, transport and markets. And African entrepreneurs, eager to build businesses, from seed companies to food processing, likewise need access to commercial financing. But low interest loans and capital that would trigger growth is rarely available.

The Alliance for a Green Revolution in Africa (AGRA) and its partners are changing this. Their innovative new financing programs are giving hope to farmers, prompting Africa’s commercial banks to offer low-interest loans to smallholder farmers and providing finance to start-up agricultural businesses. The programs:

• Share the risk of lending with commercial banks, inducing them to make millions of dollars of low-interest loans available to farmers and rural retail shop-keepers (agro-dealers) that serve farmers;

• Invest in small- and medium-sized enterprises (SMEs), from seed companies to food processors, with both reimbursable loans and start-up capital;

• Invest in people through providing business training to farmers, agro-dealers and company managers;

• Are supported by partners and sister programs that develop and distribute high quality seeds, improve soil fertility, create connections between farmers’ fields and markets, and improve agricultural research and education.

Indeed, AGRA’s Innovative Financing programme is one part of a dynamic new movement -- a uniquely African Green Revolution -- which promises a new day for Africa’s smallholder farmers. All of AGRA’s programmes and partnerships aim to catalyze that movement, and to nurture socially and environmentally sustainable growth across the continent.

Rapid Growth and Growing Impact

In less than two years, AGRA’s Innovative Financing programmes have leveraged $150 million dollars in low-interest loans for smallholder farmers and small agricultural businesses in five African countries. The programmes have grown rapidly:

• January 2008: In Tanzania, AGRA and the Financial Sector Deepening Trust provided $1.1 million for a loan guarantee fund. In return, the National Microfinance Bank (NMB) dedicated $5 million for loans to farmers, agro-dealers and other agricultural businesses. The guarantee fund cushions NMB against losses that could result from defaulted loans.

• May 2008: In Kenya, AGRA and the International Fund for Agricultural Development provided $2.5 million each as a loan guarantee to the Equity Bank of Kenya, leveraging $50 million of low-interest loans available for 2.5 million farmers and 15,000 agri-businesses. The Kenyan government provides millions of dollars in subsidies targeted at the country’s most vulnerable farmers, who receive vouchers that they redeem at agro-dealer shops in exchange for farm inputs. Agro-dealers return the vouchers to Equity Bank, which then credits their accounts, enabling the agro-dealers to purchase supplies.

• March 2009: AGRA joined forces with Standard Bank, Africa’s largest, to launch a lending program for farmers in Mozambique, Tanzania, Uganda and Ghana. AGRA -- along with the Millennium Development Authority in Ghana, the Millennium Challenge Account Mozambique, the Financial Sector Deepening Trust in Tanzania, and Kilimo Trust in Tanzania and Uganda-- provided $20 million as the loan guarantee fund. Standard Bank is providing $100 million in loans to small-scale farmers and small- and medium-sized agricultural enterprises.

These programmes have already contributed to training and certifying more than 3,500 agro-dealers in Kenya, Tanzania and Malawi. They have sold more than $67 million worth of agricultural inputs, boosting the productivity of thousands of farmers. And the programmes are giving birth to a new industry: an African seed sector—small and medium sized companies that are multiplying and distributing improved varieties of Africa’s staple crops: maize, rice, cassava, beans, banana, sorghum and many others.

Based on these strong initial successes, AGRA believes it can make one-to-two billion dollars available to farmers and agricultural businesses, raising farm productivity and growing rural enterprises and rural employment. AGRA’s expanding network of partners--including banks, African governments and international organizations--are making this possible.

It is time to make history together, putting Africa’s smallholder farmers first. (September 2009)