Can microlending increase agricultural productivity

What is microlending and who is benefiting?

And, who is benefiting from this trend? Simply put, microlending is a form of financing that provides small amounts of money to typically very poor fledgling entrepreneurs to encourage self-sufficiency and to end poverty – particularly in developing countries. The funds that they receive through microlending programs are used to start businesses.

Is microlending still popular in the US?

However, with the tightening of the credit markets and an increased demand for smaller loans, microlending’s appeal has grown tremendously. Both Kiva and Muhammad Yunus’ organization Grameen Bank have widened their lending to the United States.

What are the risks of borrowing money from a microlender?

There are definitely risks, though, when it comes to borrowing money from a microlender. The biggest is the higher interest rate. It will take more to pay back the money you borrow from a microlender, and this should be a big consideration.

Why don’t more banks and microfinance institutions offer agriculture finance?

Perceived risk and lack of expertise are the most significant reasons that more banks and microfinance institutions have not yet started offering agriculture finance products. Compared to urban lending, which microfinance institutions are familiar with and have developed expertise in, rural lending feels quite risky.


Can we increase agricultural productivity?

Water is an essential need for planting crops, and by the management of water, you can enhance the production. Water management is the best way to improve production. Using the sprinkler irrigation system, you can increase the output by up to 50%.


Does microcredit use helps farmers win battle against food insecurity evidence from Jimma zone of southwest Ethiopia?

Results. The results reveal that educational level, family size; land size and non/off-farm income of the households influenced microcredit utilization positively, whereas livestock ownership and farm income negatively influenced it.


When did microlending start?

When microlending began in the 1970s , the idea was simple: To raise people out of poverty, microfinance institutions would provide small loans—from a few dollars to a few hundred dollars—to people who wanted to start businesses. Back then, borrowers and their businesses were treated the same—whether woman or man, weaver or farmer.


Why is mobile money important?

Using mobile money services also lowers costs both for banks (they don’t have to invest in buildings and staffs) and for clients (they can save on bank fees). Technology is also helping women, says Mary Ellen Iskenderian, CEO of Women’s World Banking.


Why are microfinance institutions not offering agriculture finance?

Perceived risk and lack of expertise are the most significant reasons that more banks and microfinance institutions have not yet started offering agriculture finance products. Compared to urban lending, which microfinance institutions are familiar with and have developed expertise in, rural lending feels quite risky.


How does microfinance help?

Microfinance is widely known for the incredible speed with which it has scaled to reach hundreds of millions of people, and the positive effect it has had in reducing poverty.


What is one acre fund?

One Acre Fund is just one of a small number of organisations that has figured out how to successfully lend to smallholder farmers. With a global financing gap of $441bn, we need thousands of financial institutions to step in and start serving this market. Farmers are 70 percent of the world’s poor. Agriculture microfinance is our best tool to significantly reduce global poverty – and it is also a promising business opportunity.


What are some financial institutions that help smallholder farmers?

Institutions like Opportunity International, Vision Fund, Microensure, as well as One Acre Fund, all offer products to smallholder farmers that successfully address their financial needs.


What are the opportunities for smallholder farmers?

Smallholder farmers represent two tremendous opportunities: a market opportunity for any financial institution looking to grow their client base, and an impact opportunity for all financial institutions that have a social mission. The total amount of debt financing available to smallholder farmers in the developing world is approximately $9bn.


What percentage of Africa’s population is agricultural?

While 55 percent of Africa’s population is engaged in agricultural livelihoods, only approximately 1 percent of bank lending across the continent goes to the agricultural sector.


What are the challenges of rural banking?

Further, operating in rural areas poses infrastructural and logistical challenges . Margins will be lower than when serving urban clients, and financial institutions will have to build out either physical or human infrastructure to reach remote rural areas. Currently, significant distances between bank branches represent a major barrier to rural financial inclusion. For example, in Tanzania, where there are less than 0.5 bank branches per thousand square kilometers, 47 percent of all unbanked persons cite distance from a bank as a primary reason for not having an account.


How can agriculture improve productivity?

Summing up, evidence suggests that productivity in the agricultural sector can benefit from better access to financial instruments tailored to the needs of farmers and agribusinesses. Policy makers can take a series of steps to make this happen. First, investing in rural financial infrastructure can overcome the information asymmetries that discourage financial providers from serving agricultural firms. The availability of public databases on agricultural and weather statistics would allow lenders and insurers to distinguish good clients from bad ones more precisely and monitor their actions. Governments have a comparative advantage in providing information to help lenders or insurers identify their risks and price them accordingly (World Bank 2007). Second, strengthening property rights and contract enforcement can open up access to important financial products to farmers and agribusinesses. Third, governments should abstain from paternalistic policies that discourage financial providers from entering the market and that distort the incentives for farmers and firms. Public subsidies directed at agriculture should be carefully considered because they provide inappropriate incentives for farmers to invest in unprofitable farming activities. While certain subsidized insurance products could be justified on the basis of achieving the higher take-up of these products and allowing users to understand their value, subsidies that do not involve proper assessments of the quality or feasibility of projects should be avoided.


What are the challenges that banks face in the agriculture sector?

Another challenge that banks face when serving the agriculture sector is that financial infrastructure in rural areas is in general very poor. Tracking identity of clients or monitoring production outcomes becomes extremely difficult in rural areas. If financial provides cannot track their clients back, then the punishment of default or underperform for a farmer is low, especially if contract enforcement is low. Hence, potential lenders or insurers may well decide not to engage with the sector in the first place, or to respond by excessive credit rationing or over-reliance on traditional forms of collateral, which many farmers lack.


What is Agrofinanzas?

Agrofinanzas specializes in lending to small farmers with little experience with banks and formal financing. Its business model is based on relationships with larger firms that are connected to smaller farmers. Agrofinanzas identifies its borrowers with information obtained by large firms on their small suppliers.


What are some examples of technology in agriculture?

One with great potential in agricultural settings is the use of technology to facilitate financial transactions. Credit and movable collateral registries, mobile banking and correspondent banking are examples of ways in which technology can help ease market failures in the agriculture setting.


Why do governments have a comparative advantage?

Governments have a comparative advantage in providing information to help lenders or insurers identify their risks and price them accordingly (World Bank 2007). Second, strengthening property rights and contract enforcement can open up access to important financial products to farmers and agribusinesses.


Why is it so difficult for financial providers to diversify their portfolio?

When natural hazards or adverse weather conditions take place , they typically affect a large number of farmers and firms simultaneously, making it more challenging for financial providers to diversify their portfolio of clients, since when one client fails to pay, many others will be in the same situation.


What is the lack of financial institutions?

The lack of financial institutions branches has translated in a limited provision of saving, insurance and credit products to farmers and agribusinesses. A second factor inhibiting financial institutions from serving the sector has to do with the systemic risk characterizing agricultural activities.


How to improve farm productivity?

What Methods Are Especially Productive for Farm Improvement? 1 They help to track the route of each machinery item to provide thorough control of the working process. 2 They help in mapping the territory of the farm. 3 They allow making precise calculations of the number of seeds needed to sow or of a future crop. 4 They help to avoid errors and gaps in tractor fieldwork.


What is the first thing farmers do to increase agricultural productivity?

When it comes to increasing agricultural productivity the first thing each farmer does is buying special AG machinery. We mean, tractors, harvesters, cultivators, spreaders etc. This is not a new trend as tractors have been used worldwide in AG for over a hundred years. However, precise agriculture does even more. It improves the functionality with the help of digital solutions. A GPS method of data transmission from the satellite that was a real breakout for AG. Even the simplest GPS trackers installed on farming machinery allow a wide range of possibilities:


How Does Microlending Work?

Small loans are provided at an affordable cost with the goal of providing a real opportunity to borrowers. The global average interest and fee rate is estimated at 37% with rates as high as 70% in some areas. The high interest rate is typical because of the high transaction cost of traditional microfinance operations relative to the size of the loans that microlenders offer.


Why do people participate in microlending?

Most individual lenders choose to participate in a microlending program because they want to give back in some way. Whether it’s to help a woman launch a handicraft business in a far-reaching Asian village or the desire to support a local community, lenders should be considering microlending as a form of philanthropy as opposed to a way to turn a profit. Doing good is often the only reward in participating in a microlending program.


How much does Kiva loan?

Overseas, Kiva offers loans up to $3,000, but in the United States, the loans can be as high as $10,000. Over 150 businesses of have been helped by Kiva since the roll out its microlending service in the US. Many of the individuals who offer loans on Kiva actually prefer helping business owners on their own turf as opposed to those in other countries.


What is microlending for entrepreneurs?

What is microlending? And, who is benefiting from this trend? Simply put, microlending is a form of financing that provides small amounts of money to typically very poor fledgling entrepreneurs to encourage self-sufficiency and to end poverty – particularly in developing countries. The funds that they receive through microlending programs are used to start businesses. Over time, they are able to pay back the loans with the ultimate goal being to raise their income status and potentially others who they hire.


Why don’t banks give micro loans?

As well, most community and national banks don’t grant business loans of less than $50,000 because the profit isn’t there to make them worthwhile to offer. In contrast, most microlending programs in the US offer loans under $35,000 to small businesses with five or fewer employees. The interest rate for microloans in the United States ranges from five to 18 percent which is higher than most bank loans.


Which banks have widened their lending to the United States?

Both Kiva and Muhammad Yunus’ organization Grameen Bank have widened their lending to the United States. And, the economic stimulus bill of 2009 granted $54 million to the Small Business Administration to enable microlenders such as these to help more small business owners. Even cities, such as San Francisco and New York, have joined in the microlending trend by introducing their own microfinancing programs.


What is the interest rate on microloans?

The interest rate for microloans in the United States ranges from five to 18 percent which is higher than most bank loans. While some microlenders are in the business of making money, many have a more distinct mission of trying to alleviate poverty.


How to improve the soil of Africa?

1. Develop high-yield crops. Increased research into plant breeding, which takes into account the unique soil types of Africa, is a major requirement. A dollar invested in such research by the CGIAR consortium of agricultural research centres is estimated to yield six dollars in benefits. 2.


Why is government support important for smallholder farmers?

Government support, crucial to coordinate the integration of smallholder farmers into larger cooperatives and groups, may be needed in other areas that aid integration with wider markets..


How can information technology help farmers?

It also improves land and water management, provides access to weather information, and connects farmers to sources of credit.


How did the Green Revolution affect the world?

The Green Revolution benefited most regions of the world , particularly East Asia and the Pacific, where cereal yields quadrupled between 1960 and 1990. But Africa missed out on this and the continued lack of progress in agricultural productivity has been blamed for holding back the region’s overall economic growth.


Is GM growing in Africa?

But with Africa’s rapid population growth, high-yield GM crops that are resistant to weather shocks provide an opportunity for Africa to address food insecurity.

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