Rural families face incredible challenges accessing the tools and support they need. Farmers are often reliant upon traditional farming practices, local lenders, and whatever markets they can access. They are at the mercy of not only the weather, but their limited opportunities.
Currently, 85% of the demand for financing from smallholder famers is unmet—financial institutions and value chain actors are lending only $30 billion to a sector in need of more than $200 billion. Few smallholder farmers and rural entrepreneurs have access to loans, often because local financial institutions do not know how to serve these specialized needs. A lack of understanding about the seasonality of different crops, risks and operational costs of serving rural clients, and the cashflows of rural households deter many financial institutions from lending to farmers.
Opportunity International empowers rural farmers and entrepreneurs to drive the economic development of their communities by increasing their access to tailored agricultural loans, training, and support—an approach that will continue to create opportunities for rural families long after Opportunity International's initial intervention.
A production loan offers a smallholder farmer credit to invest in better seed, fertilizer, inputs for crop protection, labor, and equipment to improve and increase yields on their farm. Offered both at the group and individual levels, loans are structured around the seasonal cash flow of farmers, ensuring they can access credit when it is needed and start repayments after harvest.
Smallholder farmers use production loans to:
- Increase their incomes. With higher-yielding crops, farmers can earn more and re-invest to improve their farms.
- Diversify their incomes. Farmers invest in additional sources of revenue—such as goats, cows, and chickens—or start a small side business, improving their long-term financial resilience.
- Improve their living conditions. With surplus income, farmers often purchase new metal roofs, water purifiers, food, or healthcare.
- Send their children to school. Improvements in farm productivity and income mean more children can go to school instead of staying home to help on the farm.
For entrepreneurs who operate agribusinesses, such as suppliers, aggregators, warehouses, or processing facilities, one of the biggest challenges is having enough capital on hand to grow their business. Micro, small, and medium-sized enterprise (MSME) loans for agribusinesses provide rural entrepreneurs with up-front capital, increasing their capacity to purchase more crops from farmers. By helping agribusinesses reach and serve more farmers, Opportunity International is strengthening the links in rural agricultural markets that ultimately ensure farmers can earn a good income.
In rural communities, the growth and development of agribusinesses leads to:
- Access to higher-quality inputs for smallholder farmers. Entrepreneurs can purchase more (and better) inputs in bulk to resell to local farmers.
- Higher returns for smallholder farmers. With capital, buyers can purchase more crops from farmers much more quickly after harvest, reducing post-harvest losses for farmers.
- More jobs in rural communities. As more activity is generated throughout agricultural markets, more jobs are created in aggregation, transportation, warehousing, and processing.
- Fewer hungry families. More crops reach more markets efficiently, reducing their cost and increasing availability of food in high-need regions.
Agricultural Loan Guarantees
Agriculture remains an inherently risky sector for lending. Unpredictable weather, volatile crop prices, and informal market linkages often lead financial institutions to be wary of lending to agricultural clients, especially those with limited collateral. Loan guarantee facilities help accelerate lending within the agricultural sector by partially protecting financial institutions against potential losses. Opportunity International works with financial institutions to connect them to loan guarantee facilities in the marketplace, such as from the U.S. Development Finance Corporation's Development Credit Authority, or to offer a loan guarantee funded directly by the Opportunity International network.
With a loan guarantee, a financial institution is more equipped to:
- Increase its lending to agriculture clients. Financial institutions can provide more agricultural loans while maintaining their sustainability and mitigating their risk.
- Reach further down the economic ladder. For women in particular, many of whom do not own land, loan guarantees can secure a portion of their loans and help them access finance much sooner.
- Grow the "missing middle" of agribusiness. Small, rural agribusinesses can benefit from larger lines of credit to increase their liquidity.