Around the world, 450 million households depend on agriculture as their primary economic activity. But these smallholder farmers are plagued by low productivity and low quality. They are locked out of higher paying markets because they lack access to farm inputs such as good seeds and fertilizers, training and capital. Barely six percent of rural adults in developing countries have bank accounts.
Financial services providers face hurdles too, especially the high cost of serving rural clients and the near total absence of information on smallholders’ financial history, farm practices and operations. As a result, the majority of smallholder farmers are excluded from formal financial markets.
To deliver agricultural finance to more smallholder farmers, our innovations cost-effectively collect, analyze and assess information, providing deep insights into smallholder farmers, their business opportunities and risks. At the same time, we work with farmers to improve their farming, maximize their return on investment, and bolster their ability to repay loans.
We help fill the information gaps, reduce risk, and lower transaction costs, safely connecting smallholder farmers to new financial resources.
ARET: Dispelling Myths About Lending Risk
Credit histories and collateral may serve to qualify middle-class customers for loans, but most rural smallholder farmers have neither. The Agricultural Risk Evaluation Tool (ARET) evaluates the ability of a smallholder to repay loans based on who they are and how they farm: concrete information that can be gathered by field agents using a digital app.
ARET uses farm-level data to answer key questions that provide crucial insights into a farmer’s likelihood of defaulting on a loan.
To develop ARET, we partnered with Cooperativa de los Andes (COOPERAN), a large coffee cooperative in Colombia. We surveyed more than 1,500 farmers with questions covering more than 150 variables, ranging from a farmer’s fertilizer use and water access to the certifications achieved. Based on the data, we segmented farmers into eight risk groups that help COOPERAN make decisions on who to serve and how to best serve them with credit and ongoing support.
Data collected by field agents and credit officers are now used to assess risk, and develop individualized farm management plans that help farmers raise their productivity and their credit-scores.
We are continuing to implement and refine ARET. Ultimately, use of such a tool could enable millions of smallholder farmers to access loans, improve the productivity of their farms, and improve the efficiency of the credit process.
Musoni: Digital Loans Tailored for Smallholder Farmers
In Kenya, where smallholder farmers can rarely access loans despite accounting for more than 75 percent of agricultural output, Grameen Foundation worked with the 100% cashless microfinance institution Musoni to develop Kilimo Booster, a mobile-based agricultural loan designed specifically for smallholder farmers.
Unlike other loans, its flexible repayment terms correspond to farmers’ harvest cycles and cash flows. Equally important, funds are disbursed directly into farmers’ mobile money accounts no more than 72 hours after a loan is approved. From its launch in 2013 through May 2016, Musoni had disbursed 6,023 Kilimo Booster loans worth more US$2.2 million, with loan disbursement quadrupling in the most recent nine months.
Kilimo Booster took advantage of two pre-existing systems, including Kenya’s now world-famous m-PESA mobile money platform. Other technology enables Musoni loan officers to digitally process group applications in the field using tablets. It eliminates farmers’ paperwork and relieves them of the burden of travelling to distant service points to apply for loans.