Lending services for agricultural microfinance

  • Resi JANSSEN, Cordaid
  • Josefine LINDÄNGE, Hand in Hand International
  • Frederik Jan VAN DEN BOSCH, FMO
  • Bart DE BRUYNE, Independent consultant for AMT


Michael KORTENBUSCH introduced the topic by providing an example of an MFI in Central Asia which was involved in agricultural finance. Kortenbusch asked this MFI's manager what the biggest challenge for his MFI was. He responded by telling Kortenbusch that he thought it was very difficult to move into urban microfinance due to the bad infrastructure and the high costs to open a branch. When Kortenbusch asked him if he had any difficulties with rural microfinance, the manager could not indicate any. This crumbled the ideas of Kortenbusch on agricultural microfinance. He learned that, in order to work in agricultural microfinance, you have to think like a farmer instead of a city banker. Kortenbusch explained that this session would also discuss the challenges and solutions of agricultural microfinance from different perceptions and welcomed the panellists to the session.

Before the presentations, the founder of K-Rep and chairman of the African Microfinance Transparency (AMT) network, Kimanthi Mutua, contextualized the work of Bart DE BRUYNE. AMT is a network of 53 African MFIs, strengthening microfinance by promoting disclosure. De Bruyne presented the results of a survey based on the experience of AMT members, showing the differences of perceived versus real challenges in rural finance. The financial results showed that rural MFIs have a harder time to be self-sustainable. De Bruyne searched for a quantitative explanation for this difference. His research showed that this was not because of higher operation costs, but could be because of the credit methodology (individual versus group-lending). He then turned to the perceived risks. Based on the data, repayment risks were similar for rural and urban credits. The last question he researched was the size of the credits. This showed that rural loan sizes per borrower are smaller compared to urban loan sizes.

De Bruyne also executed a qualitative research on the challenges and solutions for agricultural finance. The identified success factors for rural finance included client proximity, involvement of commercial actors, solidarity groups that secure diversification of the portfolio, financial education and entrepreneurial training, and design of demand-driven products. He also highlighted the most important risk factors, such as weather conditions and related diseases, marketing difficulties, lack of collateral or unclear land rights, lack of farmer experience or inadequate farmer extension services. De Bruyne concluded that strategic partnerships are key for rural finance to assure market access, good conservation management, payment through MFI accounts and farmer extension services.

Frederik Jan VAN DEN BOSCH continued the session with FMO's perspective on non-financial services that support microfinance. He stressed the need for knowledge and networks in order to make agricultural finance work. Partnerships are crucial for lending services for agricultural microfinance. He then introduced Josefine LINDÄNGE of Hand In Hand International, a project partner of FMO, to illustrate how you can get more out of microfinance by providing non-financial services. Lindänge stressed the importance of enhancing financial skills at the farmer's level, which can harness the potential of farmers to achieve more with credits. She highlighted that, through the partnership between Hand In Hand International and FMO, the supported farmers performed better. Farmers were able to borrow more safely as they could access a platform of extension services, allowing them to increase their knowledge and capacities.

Resi JANSSEN explained that current agricultural production in Africa is only 45% of what it could be, indicating a huge potential for increased food production and processing. However, this will require appropriate financial services for farmers. Risk management could help to reduce risks and make successful agricultural lending possible for smallholder farmers. Agricultural microfinance can do much more to reduce risks and linking clients to insurance. A more substantial risk reduction can be realised before the product is developed and through the creation of strategic partnerships. Janssen then introduced the ACP/EU-funded MicroSave/Cordaid agricultural lending project, which identified four categories of risk-mitigating measures.

The first category was named preparation. Janssen explained what MFIs can do before starting the development of a new agricultural financial loan product to minimise risks. This included the execution of a value chain analysis, area selection, and having agricultural expertise at board and management levels. The second category, named product, identified risk-mitigating measures related to the product. Janssen stressed that, next to the development of an appropriate loan product, offering a savings product and financial education allows clients to perform better. Operations, the third category, showed the measures MFIs can take for operational products, such as risk management and limiting exposure to certain crops or areas. MFIs were also recommended to make a good analysis of the household's income, expenses and cash-flow and closely monitor their clients, being crucial for repayments. In this respect, MFIs were advised to hire qualified staff with agricultural backgrounds. The last category, named collaboration and linking, included the mitigation of risks through the collaboration with other value chain actors. Janssen recommended facilitating input supply and arranging extension services for clients, facilitating access to price information and applying value chain finance. Janssen also encouraged MFIs to work with producer organisations, participate in multi-stakeholder meetings and to link clients to insurance providers.


The audience questioned whether rural MFIs are not self-sustainable due to the limited size of their operations. De Bruyne replied that he found out that larger MFIs were not per definition more sustainable. Another person from the audience questioned the panellists whether a lack of farmer experience is a risk factor. De Bruyne explained that this research was executed by the MFI (versus the farmer) perspective, which indicated that this was among the biggest challenges. Another question raised the issue of the definition of what is rural versus urban. The panellist explained that he used the perspectives of the MFI as a definition.

Another question was directed to Lindänge, asking how it was possible to keep costs per client low (< USD 250). She answered that the NGO was founded by a businessman, making the organisation focused on targets and strict monitoring. This allowed the NGO to work very cost-effectively. She was then asked to provide an example of what a day-to-day experience would look like. Lindänge mentioned that her organisation would first establish groups for the lending structure and training to use this structure. They would also provide low entry business trainings to capacitate the groups. Another member from the audience asked if her NGO also links these farmers to larger vegetable-growing companies in order to gain market linkages but also to gain agricultural skills. In his view, these companies would have the knowledge to improve the farmers´ skills. Lindänge agreed that this would be a good initiative, which needs to be explored further.

A question from the audience to Janssen revolved around the methodology of project monitoring. Janssen responded that monitoring is mostly done through group meetings and by producer´s associations. In the latter case, these organisations are often not capable of monitoring due to limited capacities. Another issue raised by the audience was about experience with the value chain approach. The audience wondered whether farmers are empowered to sell their products without MFI intervention. Janssen replied that this happens in some cases. The seven MFIs have not done any price negotiations with the farmer. She stressed the need to have another actor that supports the value chain, as MFIs alone cannot provide this type of support.