Agricultural Finance for Smallholder Farmers - Rethinking Traditional Microfinance Risk and Cost Management Approaches

Even though traditional microfinance has successfully paved the way for offering financial services to low-income populations without traditional collateral, many microfinance institutions (MFIs) are still reluctant to move into rural areas and agricultural finance, due to the perceived high risks and costs. Daniela Rottger's research demonstrates how MFIs can mitigate risks and costs of lending to smallholder farmers by using a combination of proven traditional microfinance mechanisms while adapting specific loan features and lending mechanisms to the particularities of smallholder agriculture. She systematically compares traditional microfinance risk management mechanisms with agricultural microfinance approaches and identifies successful strategies. Eight MFIs providing agricultural finance to smallholder farmers in four countries in East and West Africa (Uganda, Kenya, Benin, Cameroon) were interviewed and their loan features and agricultural lending mechanism were analyzed. The study shows that MFIs can successfully serve smallholder farmers in rural areas. A strong commitment combined with sound in-house knowledge of agricultural value chains and the flexibility to adapt loan terms and lending procedures to the particularities of agriculture are needed to successfully develop and sustain agricultural microfinance.

Chiar daca microfinantarea traditionala a pregatit cu succes calea oferirii de servicii financiare populatiilor cu venituri mici, fara garantii traditionale, multe institutii de microfinantare (IFM) sunt inca reticente sa se mute in zonele rurale si finantarea agricola, din cauza riscurilor si costurilor ridicate percepute. Cercetarile Danielei Rottger demonstreaza modul in care IFM pot reduce riscurile si costurile imprumuturilor catre fermierii mici utilizand o combinatie de mecanisme traditionale dovedite de microfinantare, adaptand in acelasi timp caracteristicile specifice de imprumut si mecanismele de imprumut la particularitatile agriculturii micilor fermieri.