MICROCAPITAL STORY: The Role Of Rural Microfinance In Improving Food Security - Experiences of the Agricultural Credit Corporation in Jordan

In Omar Omeidat’s report in the Jordan Times on a regional conference in Amman on agricultural banks and rural microfinance, HRH Princess Basma was reported to have highlighted the importance of funding for rural projects, particularly in view of the global economic crisis, which she said has had a negative impact on food security programmes. The Princess indicated that due to local and global economic circumstances and a shortage of water resources, the agricultural sector in Jordan faces several challenges, which have led to a drop in the sector’s contribution to the gross domestic product (GDP) and work force. Jordan’s water crisis was the focus of a recent article on the AlertNet-Reuters network, which disseminates information about humanitarian disasters and emergencies across the globe. The IRIN portal, which provides information on humanitarian affairs under the auspices of the United Nations Office for the Coordination of Humanitarian Affairs, recently reported that whilst the water and related food crisis in Jordan is not yet critical, a range of measures and projects need to be implemented as soon as possible to contain the problem.

The Princess went on to highlight His Majesty King Abdullah’s directive to make 2009 a year of agriculture by stepping up efforts to develop the sector, increase its contribution to the GDP, reduce poverty and achieve food security. Minister Saeed Masri from the Jordanian Ministry of Agriculture added that the Agricultural Credit Corporation (ACC) extended loans worth Jordan Dinars 435 million (approximately USD 616 million) to over 200,000 farmers in the Kingdom between 1960 and 2009. ACC does not currently supply data to the MIX Market portal, which disseminates financial and other information on MFIs across the globe. ACC Director General Tawfiq Habashneh was reported to have told the Jordan Times that the ACC provided loans worth Jordan Dinars 13.4 million (approximately USD 19 million) to farmers during the first five months of this year, compared with Jordan Dinars 8 million (approximately USD 11 million) in the same period of 2008. He added that the ACC follows up on these projects to provide consultancy and to ensure that the loans are used for agricultural projects.

According to information on its website, the ACC has developed tailored credit programmes that target specific borrower groups. A recent project under this scheme is the “Micro-credit loans Project to Curb Poverty and Unemployment”. Funds amounting to Jordan Dinars 15 million (approximately USD 21 million) were dedicated to this project for 3 years. Jordan Dinars 5 million (approximately USD 7 million) was spent each year from 2004 in order to implement small family income generating programmes with a view to helping farmers save their effort and money. The aims of the project were to increase incomes and improve living and food standards for rural families. Under the project, agricultural rural loans were disbursed to support agricultural and rural activities such as sheep-rearing, poultry-keeping, dairy production and the establishment of nurseries. The maximum loan size under this project was Jordan Dinars 3,000 (approximately USD 4,200). These loans incur a flat interest rate of 5 percent and repayment is allowed over a five year period. In place of collateral, the ACC accepted guarantees from public notaries. Additional information on projects undertaken by ACC to boost household incomes through the promotion and funding of agricultural activities is available on the website of the International Fund for Agricultural Development.

World Bank Rural Finance Adviser Renate Kloeppinger expressed hopes that the conference would be an opportunity to introduce the ACC and other agricultural credit institutions in the Middle East and North Africa to mechanisms and international experiences in rural microfinance. Representatives of 17 countries from the Middle East as well as India, Thailand and Brazil are attending the conference, organised by the ACC and the World Bank. Participants are expected to discuss the stability of financed projects, the financial crisis, food and commodity price volatility and climate change during the three-day event.

The impact of the current market turmoil on food security has been a live issue since the onset of the global financial crisis. In a CGAP publication entitled The Global Financial Crisis And Its Impact On Microfinance by Elizabeth Littlefield, it was observed that low-income communities in many places have already been suffering from increased food prices and food security issues. A recent CGAP survey of MFIs (PDF) revealed that many MFI clients were withdrawing savings, cutting back on non-food expenses and in some cases struggling with loan repayment. With inflation expected to grow and cut-backs in remittances from the United States and Europe, microfinance clients across the globe are likely to feel the effects of curtailed funding. Credit for MFIs, to the extent credit facilities and financing opportunities are available, is expected become more costly and opportunities for refinancing are likely to be reduced.

Additional Resources:

Rural Finance Learning Centre: Home Page

Food And Agriculture Organization Of The United Nations: Home Page

International Food Policy Research Institute: Recommended Resources On Microfinance And Food Security

CGAP Report: The Global Financial Crisis And Its Impact On Microfinance

CGAP Report: Emerging Lessons In Agricultural Microfinance

CGAP Report: Access To Finance: Microcredit And Branchless Banking In The Hashemite Kingdom Of Jordan

MicroCapital Story: In Bangladesh, Rising Food Prices Affecting Loan Repayments in Microfinance Programs

MicroCapital Story: Small Business And Rural Finance In China: Low Leverage Ratios

MicroCapital Story: Millenium Challenge Account Aims To Promote Food Security Using Micro-credit In Ghana

Report: World Bank Rural Finance Scheme To Help Indian Farmers