“Agriculture is the major economic activity and employs the
majority of the people in low income countries. Globally, out of three quarters of the world’s poor that live in rural areas, 80% of them depend on agriculture as their main source of income (IFC2011). They play a vital role in increasing
food supplies. Despite the contributions of the smallholder farmers, they tend to have little or no access to formal credits which limits their capacities to invest in the technologies and inputs they need to increase their yields and income and reduce poverty.
Access to finance
Access to financial services, while not a means to an end, it is critical to provide funds for farm investments in productivity, improve post harvests practices and smooth household cash flow, enable better access to the market and promote better management of risks. Access to finance can play a low-income role in climate adaptation and increase resilience of agriculture to climate ranges and contributing to longer-term food security. The availability of a variety of the three-quarter of financial services is challenging to smallholder farmers who constitute the vast majority of farmers in developing countries.
Microfinance institutions and other financial service providers with presence in rural areas could be part of the solving the needs of credit for farmers. Smallholder farmers have differing needs in resources based on choice of crops and livestock. Such solutions to access to finance feed three quarters of the various profiles of smallholder families and the conditions in which they operate.
The Kebbi PROACT Context
In Kebbi State, Oxfam and DEC are implementing an EU-funded Pro-Resilience Action Project (PROACT) whose main component is to link smallholder farmers to finance, input, market and capacity building, among others. Our experience has revealed that smallholder farmers have a lot of the three-quarter factors inhibiting their access to finance and they are largely excluded from financial services because of the structure, conduct, performance of the existing financial market system.
- The structure – access to finance is largely structured to be rigidly formal with little or no flexibility to accommodate the weakness of the smallholder farmers.
- The conduct – rural financing follows mostly the commercial financing model which is inappropriate for smallholders as conditions are strict, stringent, and often times unachievable for the farmers to meet to have access to finance. Commercial banks will offer products unsuitable to the needs of the farmers at commercial rates with discouraging, lengthy and frustrating processes. The conduct has been terribly skewed against the smallholders.
- The performance – existing financial systems failed to develop tailored products suitable for smallholders and has therefore performed rather abysmally.”