Integrated Financing For Smallholder Farmers

Africa’s agricultural potential can only be realised if smallholders gain access to finance. But loans cannot be focused on just one aspect of the value chain at the expense of others. Antois van der Westhuizen, managing director of John Deere Financial, suggests ways to design integrated financing models for smallholders.

Access to adequate financing is often identified as one of the key inhibitors to achieving long-term sustainability for Africa’s agricultural practitioners, particularly smallholder and subsistence-level farmers. These people typically resort to borrowing from community members or pooling resources to make ends meet. There is a real need to unlock financing for smallholder farmers to give them access to mechanisation and other technologies, but it is little use helping them buy tractors when they don’t have money to buy seed and fertiliser. Africa’s farmers require a holistic financing solution that focuses on the entire agricultural value chain.

BEYOND CONVENTIONAL FINANCING

Failure to provide integrated financing models is partly why the traditional reliance on grant funding from government sources or NGOs has not succeeded in creating real agricultural productivity gains on the continent. It has simply been too limited in scope.

Relying on commercial banks to solve the problem also has its limitations, as their regulatory and fiduciary duties require them to adopt a risk mitigation strategy. This, by its very nature, limits the potential scope of clients to larger organisations with established track records. While this makes sound commercial sense, it does not necessarily achieve the broader policy objectives of developing agriculture for food security, job creation and community welfare reasons.

For banks, the risk profile of a commercial farmer is vastly different to that of a smallholder farmer. It makes more sense for them to lend to the end-customer of a group of smallholder farmers than each individual smallholder. For example, if a community of smallholder farmers is growing barley for a brewery, it makes more sense for the bank to lend money to the brewery, which can, in turn, lend money to the smallholders.

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