European Microfinance Week 2015

PRESENTATIONS

Michaël DE GROOT welcomed the audience, introduced the speakers and announced that unfortunately Maria Elena QUEREJAZU from Fundación Sembrar could not attend the session. She was represented by her colleague Jorge CRESPO VELASCO. 

Crespo Velasco introduced the Fundación Sembrar, a Bolivian non-profit entity which uses a particular service package to achieve its mission to fight poverty and ensure food availability. Fundación Sembrar addresses the country’s rural areas in particular, since around 33 percent of Bolivia’s population lives in rural areas where poverty is especially high. Smallholder farmers in rural areas face constraints as they have limited access to capital and assets, lack adequate technology and do not meet the standards of the market. In addition, they face risks in terms of production and crop, climate and weather, as well as price and market. To support farmers in addressing these constraints and risks, a particular model was created. Over the last six years, the ATF (Asistencia Tecnica y Financiera) model has been providing a combination of services: access to credit, bundled with the provision of technical assistance and market access facilitation. These services are offered by two separate institutions. Fundación Sembrar provides technical assistance to improve yields and productivity as well as market access facilitation through the provision of market and price information, while financial services are provided by the microfinance institution Fundación SembrarSartawi. Crespo Velasco stressed that the productivity results were great, illustrated by, for example, the milk production being doubled. He concluded that producers need financial resources, but must be supported with a comprehensive package. 

Gabriella CRESCINI of Swisscontact, presented an innovative way to enhance agricultural productivity: microleasing bundled with training provision. The development organisation realised that access to local financial services is often constrained for landless people, women and micro farmers and micro entrepreneurs who lack collatoral. Microleasing eliminates the need for individuals to borrow or commit their resources up front. Risk is mitigated instead by a collateralized and insured asset and creditworthiness is based on future prospects and potential cash flows. In 2006, Swisscontact commenced ‘greenfielding’ with K-Rep Development Agency, a research and development microfinance NGO in Kenya. The project started with cow leasing and extended to other livestock and agricultural assets, until in 2009 Juhudi Kilimo was established. Three years later, the social enterprise reached profitability and Swisscontact exited in 2015. Crescini stressed that a good model is required in order to make microleasing successful. First of all, working assets with quick turnover are required in order to repay lease and increase farmers’ income. As high quality products are not enough, it is important to insure products at the same time. Secondly, technical assistance and training provision is an important part of the model - on both the farmer side and the financial service provider side. Currently, Swisscontact has more pilots running in other East African and Latin American countries. The development organization now works with more mature financial service providers (FSPs) to reach profitability over a shorter time period. Nevertheless, this remains a challenge since FSPs are often not agricultural specialists, a lot of investment capital is needed for microleasing and “there are not a lot of patient and risk-taking financial service providers on the market”. Crescini concluded with the remark that a lot of work with the investment market and accompanying technical assistance for the FSPs is required to make microleasing successful. 

Mike WARMINGTON from One Acre Fund described the particular service bundle that the organization developed in order to serve smallholder farmers. One Acre Fund developed a repeatable and scalable model, currently serving over 250,000 farmers, located primarily in East Africa. The service bundle includes: 1) asset financing in the form of farm input loans, such as seed and fertilizer; 2) distribution of the farmer’s order to the rural areas where the farmer lives; 3) market facilitation to maximize profits from harvest sales through improved storage and links to market; and 4) training on modern agricultural techniques which is largely focused on increasing yields. Warmington stressed that the service bundle is taken on credit, which farmers pay back on a schedule that suits their cash flow over the course of the season. As a result of this service package, including training, the average One Acre Fund client increases their farm income by at least 50 percent, and realizes more than a 100 percent return on their investment. Warmington highlighted that, despite a solid repayment history, One Acre Fund still face a number of challenges with the training program. Firstly, the uniform training program might not necessarily address the differing experience range and training level of farmers. One Acre Fund is currently looking into customization of training without losing efficiency. Secondly, the long-term health of soil as well as risks posed by climate change need to addressed. And lastly, the time constraint that training poses. The organization currently addresses the question how to achieve more efficient training; with one possibility being technological solutions such as mobile payment in order to reduce the time of group meetings before the trainings. 

DISCUSSION

De Groot opened the discussions by asking Warmington whether One Acre Fund deliberately focuses on food crops rather than on cash crops. Warmington affirmed, stating that the aim is to ensure food security first while access to market is secondary. Addressing the question if training costs are factored into the margin of interest rate charged, Warmington stressed that it is. The interest rate is made transparent and competitive. However, he also highlighted the need to scale up since after six years, One Acre Fund is not financially sustainable yet. Addressing questions regarding default risk, Warmington stated that the default rate is very low as farmers recognize the value of the services, the approach uses joint liability and in addition, farmers need to finish their payment before they can enjoy next year’s services.

Bakir Lashkari from Rabobank Rural Fund addressed the transparency of donations that the Fundación Sembrar receives. Crespo Velasco emphasized that donations flow to the technical assistance side and that investors are informed about the economic and social role of the investment they make. Responding to the question if multiple trainings are really necessary, Warmington stressed that it is indeed necessary since repetition, follow ups and check-ups are crucial to achieve change. Crescini agreed, stressing that implementation and practice change after training. De Groot drew attention to the fact that questions remain on how to feed 9 billion people in 2050. He asked for ideas, also given the background that before the 1980s, extension services by governments in Africa were cancelled due to demanded budget cuts by the IMF. Warmington and Crescini agreed that, if country structures allow it, governments have a role to play to deliver training. Supporting countries in doing so is one possible approach.