How Microfinance Fights Both Ultra-Poverty and Hunger

The first United Nations Sustainable Development Goal (SDG) is No Poverty.  The second SDG is Zero Hunger.  There are 17 SDGs in all, but it’s hard to argue against the priority of these two.

On October 9 the World Food Program (WFP) was awarded the 2020 Nobel Peace Prize for its efforts to combat hunger.  From the WFP website:

“In a world where we produce enough food to feed everyone, 690 million people still go to bed on an empty stomach each night. Acute food insecurity affected 135 million people in 55 countries in 2019. Even more – one in three – suffer from some form of malnutrition.”

Hunger is clearly linked to poverty, which is defined as living on less than US$1.90/day.  This is the reality for almost 700 million people, with hundreds of millions more living on slightly more than this. In sub-Saharan Africa, over 40% of the population lives below this grim poverty line. 

According to the World Bank, an estimated 80% of people living in poverty are in rural regions, primarily in sub-Saharan Africa, where small-scale farming is the most common means to eke out a living.  These small farms, which average in size between 1 to 2 acres and are worked by hand, suffer from chronic low productivity which is insufficient to sustain a family.

Like farmers everywhere, small-scale farmers face risk factors such as severe weather and crop disease.  But ultra-poor small-scale farmers face other aggravating factors such as limited access to good farming techniques, machinery, quality seed and fertilizer, resulting in crop yields that are five or six times below the harvest potential.   

Furthermore, geographic isolation, poor market networks, and an under-developed agribusiness ecosystem combine to limit both market access and income potential.

It is worth noting that Oct 13-16, 2020 is Financial Inclusion Week.  Lacking assets and often illiterate, small-scale farmers are financially excluded without access to formal banking services.  Financial institutions steer away from the small-scale farm sector because of the high cost and risk.  Any financing that is available is at exorbitant interest rates, further increasing vulnerability and indebtedness.

All of these factors combine to make small-scale farmers and their families economically vulnerable.  Since annual income is deeply variable and dependent on one or two harvests, children can go hungry for months and are often pulled out of school because funds aren’t available for even modest school fees.  Many of these small-scale farmers are women who end up leaving the farm between harvests to seek other more dangerous sources of income.

CAN MICROFINANCE PROVIDE A SOLUTION TO THESE SEEMINGLY INTRACTABLE CHALLENGES?  THE ANSWER IS A RESOUNDING YES WHEN THE PRINCIPLES OF MICROFINANCE ARE APPLIED TO SMALL-SCALE FARMS.

On October 6, Opportunity International Canada was honored to host Tim Strong as the keynote speaker for our annual London Luncheon, that was held virtually this year.  Tim is the Global Head of Agriculture Finance for Opportunity International. You can listen to his talk here.

“The fastest way to end the intergenerational transfer of poverty is by investing into rural economies.”

Tim’s theme was “The Unmatched Potential of Agriculture in Ending Extreme Poverty”.  He quoted African Development Bank President Akinwunmi Adesina who said, “The fastest way to end the intergenerational transfer of poverty is by investing into rural economies.”

The opportunity lies in both increasing small-scale farm harvest yields combined with developing an agribusiness ecosystem to provide access to markets.  With these two clear objectives, small-scale farms will be sustainable, providing livelihoods for families and feeding entire communities. 

To tackle this challenge, Opportunity International launched its Agriculture Finance Program (AgFin) in 2008, with the joint support of the MasterCard Foundation in Canada and the Gates Foundation in the US.  Today, Opportunity International is one of the leading organizations providing finance-based solutions for small-scale farmers and rural agribusinesses throughout sub-Saharan Africa. The AgFin program focuses on three main areas – Financial Institutions, Agribusinesses, and Farmers.

The AgFin Team partners with microfinance institutions (MFIs) that are aligned with the goal to eliminate poverty, providing support including technical assistance, loan guarantees, digital financial services, and portfolio management. These MFIs become important Partners in the effort to build a sustainable agricultural ecosystem to transform the lives of small-scale farmers.

The Agfin Team works with agribusinesses, which tend to be small to medium-sized businesses, with training and support including business development, cashflow management and digital financial services. The goal is to increase the volume of and demand for small-scale farm produce, maximizing small-scale farm revenues.

Finally, the AgFin Team works with the small-scale farmers, providing support that includes training on the potential for small-scale farm productivity, financial and digital literacy, farm management, and household cashflow management.

Small-scale farmers receive loans to buy quality seed and fertilizer, and the agribusiness partners provide access to machinery such as tractors, off-taking services, and market access. Combined with the training on good farming techniques, small-scale farms have seen harvest yields increase by five or six times and they are able to get this produce to market.

The result is dramatic — a sustainable livelihood for the small-scale farmers, employment growth among the small to medium-sized agribusiness owners, sustainable financial markets for the MFIs, and surplus food for the greater community. Small-scale farmers are thus able to feed, clothe, house and educate their kids, and break the intergenerational transfer of poverty.

But the gap between the current reality and the potential is huge. There is an estimated US$186 billion of unmet demand for small-scale farm financing. Tractors are only used on about 5% of farmland and only 3% of cultivated land in sub-Saharan Africa is irrigated.

To date, Opportunity International has cumulatively provided 500,000 agricultural loans to farmers throughout sub-Saharan Africa which have empowered women farmers to grow their yields, increase their incomes, and provide for their families, impacting an estimated 2.9 million lives in rural communities.

Over the next three years, the Opportunity International AgFin Team aims to expand its services with new financial institution Partners throughout Africa to reach and serve more agricultural communities. The goal is to reach as many as 1.17 million rural families with the program, a significant investment in a broad Farmer Support Agent network and the deployment of new loan funds.

Saturday, October 17, is the globally recognized International Day for the Eradication of Poverty. As Opportunity International’s Agriculture Finance Program demonstrates, farmers can play a significant role in ending extreme poverty.