Microfinance Beyond the Standard? Evaluating Adequacy and Performance of Agricultural Microcredit

Abstract

Microfinance was successful in increasing access to credit for micro, small and medium enterprises in developing countries, particularly in urban areas. The offer of installment loans as the standard credit product for new and very small customers has been indentified as one of the keys that enabled microfinance institutions to reach out to formerly unbanked entrepreneurs. However, these standard loans always were considered as inadequate for agricultural entrepreneurs with seasonal production cycles. For this reason, this paper investigates the effects of providing flexible agricultural microfinance loans (flex loans) to farmers as an alternative to standard installment loans. The study was carried out in cooperation with two banks of the AccessHolding Microfinance AG in Tanzania and Madagascar. A mixed-methods approach was applied relying on observations during field visits and in-depth portfolio analyses.Our results reveal that the combination of standard and flex loans enables the investigated microfinance institution to address a wide range of agricultural producers. Based on our results it seems very unlikely that seasonal agricultural producers would have had credit access without flex loans. Standard loans are only adequate to address non-seasonal agricultural producers. We also find that nonseasonal agricultural producers repay their loans with delinquency rates similar or even better than those of non-farmers. For seasonal agricultural producers a redis-* The views expressed in this paper are entirely those of the author and do not necessarily represent those of KfW. The authors are grateful to Access Microfinance Holding AG and LFS Financial Systems GmbH in Berlin, Germany, for the provision of data, in particular Stephan Hödtke and his colleagues from the LFS IT department. Furthermore, we would like to thank all colleagues from AccèsBanque Madagascar for their great support during the field visits in Madagascar and for contributing their expertise; Claudia Schmerler is also acknowledged for her helpful comments.

Developing Fintech and Islamic Finance Products in Agricultural Value Chain

“…Both scheme have flexible payment based on harvest cycle, although it depends on the nature of commodities which is required to increase the adoption rate of formal lending instead of informal lending (Meyer, 2002). The flexible payment mechanism also increase the likelihood of farmers' access to credit and minimize the risk of seasonal horticultural commodities farmer (Weber, 2013) which took up the majority of Crowde's financing portfolio.…”