Investing in agricultural microfinance

  • Jürgen HAMMER, Grameen Crédit Agricole Microfinance Foundation
  • Zacchaeus I. SYENGO, Rafiki Kenya
  • Irina EICHENAUER, KfW Development Bank
  • Caterina GIORDANO, Alterfin


Jürgen HAMMER introduced the session by explaining how agricultural microfinance became mainstream as financial institutions and MFIs were searching for new markets during the crisis of 2008. Agricultural microfinance has proved to be fundamental for impact, as 80% of the people in developing markets live in rural areas. Nevertheless, only 30% of MFIs are dedicated to agricultural microfinance.

Hammer continued by asking the panellists to answer the questions on why a specific session on agricultural microfinance is necessary and what makes it different. Caterina GIORDANO replied that agricultural microfinance requires more adaptation by MFIs, while systemic risks are evidently linked to the product. Irina EICHENAUER added that rural areas have the challenge of low population density and poor infrastructure (roads, communication, etc.), resulting in higher transaction costs for MFIs. Another challenge, she mentioned, related to human resources and higher training costs: it is challenging to recruit well qualified staff in rural areas and loan officers need financial and agricultural skills. Zaccheus SYENGO also pointed out that the agricultural sector is not well-structured, which is shown by gaps in the value chain. Another issue according to Syengo is related to seasonal weather externalities.

Hammer asked the opinion of the panellists on the role of technology. Syengo stressed the importance of mobile banking. Mobile banking attracts new people to agriculture. Syengo related mobile banking to the current problem that many studies on smallholder farmers show: although smallholders are responsible for most of the food production in developing markets, challenges are found in the traditional patterns in smallholder farming. They do not appreciate new technologies and associated agricultural improvements. However, mobile banking products opened up opportunities for young farmers, helping them to mitigate risks.

Hammer asked the panellists about their role in supporting agricultural finance. Eichenauer stated that KfW's approach to agriculture finance can be presented along three pillars. The first pillar is a traditional financial intermediary approach: KfW provides credit lines and training measures to local MFIs for refinancing lending to agriculture. The second pillar consists of the value chain approach:
KfW invests in funds that provide financing and technical assistance to agricultural producer organisations, SMEs and other chain actors. The third pillar is agro-insurance, which has the goal of expanding agricultural microfinance by reducing the credit risks through e.g. weather-index-based insurance.

Giordano answered the question by mentioning that Alterfin is an investor which attracts funds from the North to invest in the South. The total portfolio is EUR 60 million, of which 60% is invested in agricultural finance. Alterfin's approach to agricultural finance consists of two pillars. Firstly, Alterfin directly finances international value chains, such as coffee and cocoa. Secondly, the organisation finances local value chains by providing working capital investment, asset finance and rural finance. Alterfin uses tripartite agreements between local partners, farmers and buyers to mitigate risks in the value chain.

The Rafiki Bank has a more practical approach, working directly with farmers. The services consist of four components: savings facilities, credit facilities, insurance and value addition through technical assistance and creating market linkages. Syengo stressed that Rafiki's loan book consists of: 20% of smallholder farmers and 17% of agribusinesses. Rafiki expressed that he is proud to support the people that feed the nation.

Hammer carried on by asking the panellists about their experience with microinsurance. Syengo highlighted the main difficulties for Rafiki Bank. Affordability is still a challenge due to the 6% interest rate. Distribution is another challenge which Rafiki Bank was able to overcome by opening 19 branches. The final challenge posed by Syengo was trust. This issue was dealt with by incorporating a third party which was trusted by the farmers.

The session then continued with the presentation of three case studies by the panellists. Eichenauer introduced the KfW Development Bank and the Fairtrade Access Fund, which is a social investment fund, designed to support smallholder farmer cooperatives and associations in Latin America, Africa and Asia. The fund is a joint investment with Fairtrade Labelling Organisation International, Grameen Foundation and Incofin cvso. KfW currently has an equity investment of EUR 2 million for refinancing smallholder cooperatives and a new proposal for expansion to Africa is underway. Eichenauer stressed that the challenges and risks faced by smallholder farmers require a holistic approach. This approach includes a combination of financing (e.g. long-term loans for business development, working capital loans and trade finance) and technical assistance (e.g. organizational capacity building or mobile information services).

Giordano presented her case study on an MFI in Northern Peru which mostly serves the agricultural sector. The MFI was created by coffee and cocoa cooperatives to provide adapted loans both for working capital and asset financing. She expressed the risk of concentration: 70% of agriculture portfolio consists of coffee. Systemic risks, such as price fluctuations and climate shocks can be solved through geographical and product diversification. This new strategy led to a continued growth in the loan portfolio, while at the same time operational self-sufficiency was reduced.

The last case study presented by Syengo was the successful pilot of Kilimo Advance, a strategic partnership between farmers, milk processors, technology partners and the Rafiki Bank. The main challenges included slow information flow, errors leading to double payments and late payments due to market circumstances. Success factors include the ability to access USD $15 million worth of credit served beyond the 19 branches. Furthermore, the pilot worked with more than 60 cooperatives and 87 thousand farmers.


The discussion started with a question on the plot size of the farmers. The panellists agreed with the audience that it is tricky to access subsistence farmers through agricultural finance. They are often more dependent on traditional microfinance tailored to flexible needs of those farmers. The discussion then moved to the interest of young people in farming. Syengo noted that the Kenyan government, banks and private sector are promoting farming amongst the youth, and provided the example of a performance artist, who grew up in a rural part of Kenya, as ambassador for farming. Syengo closed the discussion agreeing on a question about the competitive environment in agricultural microfinance. He provided the example of his own bank which did not exist three years ago.