Access to finance for small holder farmers - Policy options for Micro finance institutions and Models for rural financing

In Africa, particularly southern Africa, access to finance for small holder men and women farmers is not only limited but very expensive. A number of approaches and models have been explored in the quest to link small holder farmers to finance. These approaches have however not been effective and that micro finance has tended to make farmers worse off instead of empowering them. 

Most challenges related to the viability of the micro finance sector narrate to;

  • Legal framework governing the micro finance sector in a given country,
  • State of rural infrastructure
  • Population density
  • Type, viability and nature of enterprises small holder farmers are engaged in,

Based on the above background, what alternative policy and legal frameworks have worked successfully in other countries? What interventions have worked in changing the perceptions of Micro Finance institutions that small holder farmers are not credit worthy? What financing models on collateral have worked successfully elsewhere?

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Good Point and hopefully and interesting discussion!


Mainly agree with what you say, but not all microfinance have made farmers worse. At least this is my opinion.

Farmers pay highest interest and collaterals than anyone else because agriculture is very risky as depends on many variables  very unpredictable, being Climate Change among them. Also farmers tend to live far away from cities so control is difficult. This is solved in Europe and in USA by different form of subsidies, but this is not likely to happen in Africa soon (or maybe I'm wrong).

Alternatives that are working well, but not THE solution, are on my point of view; Post harvest credit (Warrantage) that diminishes moral hazard as the grain acts as collateral and Weather Indexed Insurances where also the moral hazard is reduced by taking in consideration the quantity of rain (easy to measure) instead of real losses by drought (difficult and expensive to measure).

In Oxfam Intermon we have quite an experience in the former, and Oxfam America in the latter. Also Saving initiatives such as "Saving for Change" work for the poorest in the rural areas, and have the advantage that people won't get worse for sure.

Hi Brian

I agree with you that microfinance is not really suitable for small holder farmers - it's designed more for very small loans quickly paid off in instalments. Small holders need seasonal credit in larger amounts for inputs and sometimes extra labour, which can be repaid from the proceeds of the crop. As Josep says, the value can sometimes be accessed while the crop is in safe storage post-harvest, but often it has to wait for the final sale. One way that small holders can sometimes get better access to credit is by coming together in a cooperative or producer association which can then access a wholesale loan from a bank or other financial institution which has branches in some of the big rural towns. The producer association can negotiate better terms, but would need to run its own on-lending arrangements, transparent and fair, for individual members, and typically charge an interest margin to cover these costs.  The decision to advance credit to a farmer applying to the committee has to respect the principles of being appropriate for the type and amount of crop that is being financed, and for its risks, as well as getting assurances from other members that the farmer is a responsible person. Weather index insurance can be very helpful in transferring climate risk, but it does have to be paid for, so the cost needs to be factored in. There are price risks of course, so pre-selling to reliable buyer(s) with volume and price fluctuations tackled in the contract is also very helpful, if it can be done. The association should be able to negotiate good terms for both sales and inputs on behalf of members. Sometimes the credit can be given in cash, other times in kind in the form of seeds, fertiliser and so on. Land may have to be taken as collateral, but there are sometimes informal collateral arrangements that are much cheaper, which banks should accept. Oxfam GB has some experience, not all fully successful,with Producer Associations working in this way in a number of countries.

Hi all,

To continue the debate about how to improve access to finance for small-holder farmers, I am posting some interesting resources related to micro-financing that Alan Doran has brought our attention to. Micro-finance is a type of banking service that provides low-income individuals or groups who would otherwise not have access to credit with a means of saving money, borrowing money and insurance.

In What is Wrong with Micro-finance, the authors urge governments, bankers, donors and the general public involved in micro-finance to be aware of the risks of micro-finance and its potential to be actively damaging to its intended customers. The book shows for instance that micro-finance can impose heavy burdens on group members in terms of time, risk and loss of privacy. The authors engage with examples from Africa, India, Bosnia and Bolivia and approach the topic from different angles, writing for example about micro-finance and farmers, impact measurement, livelihood finance and sustainability of micro-finance. They argue that micro-finance institutions need to monitor carefully not only their positive impacts but also their negative effects so that micro-finance can lead to economic development of markets in developing countries.

The Dalberg report Catalyzing Smallholder Agricultural Finance identifies five main ways for increasing smallholder’s access to finance: (i) replicate and scale social lending, for example social lenders for cash-crop value chains can expand to new crops in geographic areas they already serve; (ii) innovate new financial products beyond short-term trade financing. Social lenders could expand to meet other financing needs, such as working capital, longer term financing of equipment and tree renovation and lending to individual organisation members; (iii) out-grower schemes that allow producer groups to rely on different buyers and to access credit from commercial lenders; (iv) unite farmers in producer or other organisations and (v) finance directly to farmers when farmers are not organized in groups, for example through mobile banking.


Collier et al. (2009) assess the opportunities and challenges of weather index insurance in lower income countries. Weather index insurance insures against a weather event that is highly correlated with production loss as a proxy for individual loss. In other words, it provides insurance against the impact of a specific hazard on the production outcome. For example, one of the first weather index insurance programmes in a lower income country began in India and insured against drought for groundnut farmers as assessed by rainfall measurements. This instrument should reduce costs over traditional agricultural insurance and enhance the ability of stakeholders in lower income countries to adapt to climate change.

Any thoughts/comments? Please write them below!


Important discussion, thank you.  

Regarding the question of ag/weather/disaster insurance, we have a lot to offer on this topic from our work in the R4 Rural Resilience Initiative.   We are happy to share information and partner in this area. 

Regarding the policy agenda for microfinance, we have done some very good community driven research on this issue and would also be happy to share and discuss.  

Best wishes, 

David Satterthwaite | Deputy Director Private Sector Department 

Oxfam America | Boston | O: +1 (617) 728-2590 | M: +1 (857) 294-4493 | |

Traditional micro credit provision only responds to a narrow ‘need’ for financial services for women farmers.  Small holder farmer families need to amass and access lump sums of money for many purposes, not only enterprises or production, such as education, health, furniture, travel, weddings, etc.  Furthermore, social norms mean women are often held responsible for ongoing health and life-cycle events, such as births, illnesses and funerals.  Women are also more at risk and affected by life-cycle events for which they often go to great efforts to develop savings and insurance schemes.  Therefore, a truly ‘gender equal’ micro-finance strategy would respond to the full range of financial services and needs, not only credit for market economy activities.  To be clear, women should not be excluded from credit for enterprise and production, but this is a narrow and more ‘male’ view of household finance. Women benefit from micro-finance (such as savings schemes remittances or insurance) that enables them to cover ongoing household expenditures without falling into debt. Because of vulnerabilities specific to their life cycles and gender roles - related to marriage, births, childcare, health needs, education needs, old age, abandonment, separation and violence - women tend to value consumption smoothing mechanisms more than loans for business growth. Ongoing household expenditures that are disproportionately women’s responsibility can thus be covered through savings schemes, or insurances.  

Here's a powerpoint (from some time ago!) exploring the gaps in gendered household financial services needs... if we only provide microcredit for microenterprise. 

Would be glad to hear your comments.

Thalia Kidder

Senior Advisor- Women's Economic Rights





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