At European Microfinance Week, which is hosted by Luxembourg’s 140-member European Microfinance Platform (e-MFP), Daniela Rottger, a consultant to German development finance institution Deutsche Investitions-und Entwicklungsgesellschaft (DEG), spoke Wednesday about her study of the agricultural lending products offered by several African banks and microlenders. While agricultural loans are often structured to allow for bulk repayment at the time of harvest, Ms Rottger noted that some institutions do collect interest payments on a regular schedule before harvest. Many institutions also reported that when offering loans to farmers, potential clients were more interested in savings services. Although this was not expected, it was viewed as positive because the accumulation of savings can mitigate lending risk.
In response to difficulty with repayment, some of the institutions developed relationships with third parties. For example, one lender arranged a voucher system with a supplier of agricultural products to increase the chance that the loan proceeds were actually used for intended purposes, such as seeds and fertilizer. Another lender made an arrangement with a wholesaler that purchases crops to deposit the proceeds of crop sales into an account with the lender, so the lender can get paid before the farmer receives his or her net proceeds.
Regarding the promotion of agricultural finance by investors, Philippe Guichandut of the Luxembourg-based Grameen Credit Agricole Microfinance Foundation reported that his agency has had difficulty supporting the sub-sector because so few microfinance institutions (MFIs) are offering farm loans. Although over 80 percent of those served by MFIs supported by Grameen Credit Agricole live in rural areas, perhaps less than half of those are accessing agricultural loans.
Lisa Peterlechner of German development agency Gesellschaft fur Internationale Zusammenarbeit (GIZ) argued that bringing knowledge to microfinance institutions (MFIs) that do not offer agricultural loans is important to increase their comfort level with the product type.
In response to a question from the audience, Patrick Van Damme of Belgium’s Univeriteit Gent stated that an enabling environment for agricultural lending can be promoted through a range of avenues such as financial training or small infrastructure projects,
This content is sponsored by e-MFP, the organizers of European Microfinance Week. It is one in a series of articles covering the proceedings of the event, which is taking place in Luxembourg from November 12 to November 14. MicroCapital is reporting on the sessions onsite throughout this time.
Additional Sources and Resources:
MicroCapital Special Report; November 14, 2013; Women Microfinance Clients Often Save More, Are More Loyal to Lenders
MicroCapital Special Report; November 13, 2013; Michael Chu: “Disrupt this Old Model to Unlock the Potential of Microfinance”
MicroCapital Special Report; November 12, 2013; “Making Microfinance Investment Responsible” Group Wrestles with Inconsistent Data Reporting at European Microfinance Week
MicroCapital Special Report; November 12, 2013; Youth Financial Inclusion Group Tackles Business Training, Scaling-up, Dormant Accounts, Program Indicators, Self-sufficiency at European Microfinance Week
Microfinance Event; September 24, 2013; European Microfinance Platform (e-MFP) to Host European Microfinance Week 2013, Luxembourg, November 12-14, 2013, With On-site Coverage Provided by MicroCapital
MicroCapital Special Report; November 15, 2012; Sanjay Sinha of M-CRIL Calls Overexuberant Growth “Recipe for Disaster” at European Microfinance Week Opening
MicroCapital Universe Profile: Deutsche Investitions und Entwicklungsgesellschaft (DEG)
MicroCapital Universe Profile: European Microfinance Platform (e-MFP)
MicroCapital Universe Profile: Grameen Credit Agricole Microfinance Foundation https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Grameen+Credit+Agricole+Microfinance+Foundation
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