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Agriculture Finance

For Mary Makkazi, growing maize is a profession that she grew up in. Her parents were smallholder maize farmers, and today, she grows maize and beans on a small farm outside Mityana, Uganda, to support her five children as a single parent. Until very recently, her approach to farming, known as subsistence farming (literally farming for one’s own food), had changed little.

She made enough money to keep her family fed, but there wasn’t much for anything else.  Her resources often run out when it’s time to pay her children’s school fees, forcing Makkazi to swallow her pride and beg school proprietors to let her kids stay in school until she can pay the tuition at next harvest.

But this year, she’s excited about new progress she’s making with her farm. About a year ago Makkazi and her neighbors heard about Opportunity International, which offers small loans, access to training, extension services, savings and insurance programs, and other essential financials never before available to rural, smallholder farmers in her area. Her neighbors organized into a loan group, and asked Opportunity to extend its services into their remote, rural area.

Customer Service Officer Clean Chendera with clients in Mchinji, Malawi.

Customer Service Officer Clean Chendera with clients in Mchinji, Malawi.

Group members each had individual goals for how they wanted to use Opportunity’s services. Makkazi received a loan for about $180 (500,000 Ugandan shillings), to purchase fertilizers, pesticides and higher quality seeds for her farm.

As part of Opportunity’s programs, Makkazi also took advantage of the organization’s connections to ensure that these inputs were legitimate. “This is an important asset, because it’s not unusual to be sold counterfeit seeds and fertilizers in this part of the world,” said John Magnay, head of agriculture at Opportunity International.

Makkazi said the program worked for her. Due to improved inputs she’s earning more and was able to build a home for herself and her five children—ranging in ages from 8 to 18—and also for her sister and her two children.

“I have just one loan, but I plan to get another loan soon,” Makkazi said.  “I have seen my life improve dramatically from my Opportunity loan and that’s why I’d like to get some more money.”

“I have been able to build my house with the money I made. The benefits of that loan you can see when you visit my home. I feel proud of myself for being able to support my family,” she said, grinning.

Makkazi is equally proud she was able to pay back her loan. With a second agricultural loan, she plans to expand the land that she is able to till. She also is hoping to receive education loans to help pay for her children’s tuition and other school fees. This is another popular financial product Opportunity has introduced to support families.

GPS plotting provides precise information about his land, including plot boundaries, altitude and access to water. From this survey, Asuman can accurately gauge seed, fertilizer and labor needs, as well as predict his sugarcane yield. GPS mapping helps farmers plan and manage their farms, increasing efficiency and income. Where farmland is often fragmented, knowing the exact acreage of their tillable land enables growers to utilize the latest agricultural practices for maximum productivity and environmental sustainability.

GPS plotting provides precise information about his land,
including plot boundaries, altitude and access to water. From this survey, Asuman can accurately gauge seed, fertilizer and labor needs, as well as predict his sugarcane yield. GPS mapping helps farmers plan and manage their farms, increasing efficiency and income. Where farmland is often fragmented, knowing the exact acreage of their tillable land enables growers to utilize the latest agricultural practices for maximum productivity and environmental sustainability.

Opportunity International has been offering small loans, averaging about $150, to community entrepreneurs in the developing world since 1971. Until recently, the loans were only available to clients in urban areas who could visit brick-and-mortar banks.

“After years of successfully offering loans to struggling entrepreneurs who drove taxis, worked as craftsmen and ran food stalls at markets among other trades,” Magnay said, “we realized we needed to do more to address one of the most entrenched repositories of poverty and hunger—rural, smallholder farmers.”

In 2008, when Magnay began working with Opportunity, the organization was piloting agricultural finance programs in Malawi with little success.

“It was a true eureka moment,” Magnay said. “I realized that Opportunity International needed to look at smallholder farmer financing in a completely different way.”

Since it was introduced in 2008, Opportunity International’s agricultural finance program has transformed millions of lives.  In particular, the program is enabling access to financial services, savings programs, training, extension services and mobile banking in rural areas of seven African countries: Ghana, Uganda, Rwanda, Malawi, Mozambique, Kenya and Tanzania. Alternative delivery channels—such as mobile banking (trucks that operate as bank branches) and cell phone banking—are some of the most important aspects of Opportunity’s financial services in rural areas.  For many of the world’s poorest people—often subsistence farmers in remote areas—the nearest brick-and-mortar bank location may be hours away, meaning that they would have to take a day off work to visit with a banker—something impossibly difficult for people barely surviving.

The majority of the world’s poor are farmers. Most of these farmers cultivate less than five acres of land. Africa is home to a quarter of the world’s farmland, but generates only 10 percent of all crops produced globally. According to Opportunity, most African farms are operating at just 40 percent of their capacity. Under Magnay, Opportunity International is working to develop additional capacity to dramatically reduce hunger in Africa.

After five years of offering agricultural finance to clients, the results are positive.  Smallholder farmers have increased their crop yields by up to 60 percent after becoming Opportunity clients.

Opportunity’s agricultural strategy has been supported by a number of leading companies, large foundations, institutions and individuals, such as The MasterCard Foundation, the Caterpillar Foundation, the Bill & Melinda Gates Foundation, the World Bank and John Deere. The MasterCard Foundation initially supported Opportunity’s impactful interventions in rural communities more than five years ago. From 2009 to 2013, this strategic partnership equipped Opportunity to deploy 676 financial access points, disburse 141,000 agricultural loans and open 1.4 million savings accounts in Africa. To scale the innovative work, The MasterCard Foundation and Opportunity expanded their partnership in 2014 through a $22.7 million commitment by The MasterCard Foundation for expansion of agricultural finance and other critical programs through The Africa Growth and Innovations Initiative.

This initiative builds on Opportunity’s early successes by promoting a deeper dive into rural areas to offer more smallholder farmers access to loans, savings programs and other critical financial programs and services. Over the next five years Opportunity will provide financial services to impact the lives of more than 7 million people in eight countries, including the remote Southern Agricultural Growth Corridor of Tanzania (SAGCOT), where they are launching an aggressive branchless banking campaign using mobile money and rural-based loan officers. In this new program, all transactions will take place on cell phones, and cash is never part of the equation. In that way, clients never need to visit a bank branch.

Cell phones offer unprecedented access to rural farmers in Africa. In fact, 80 percent of Africans own a cell phone. This is impressive because buying a cell phone is often not an insubstantial expense for Africa’s poor.

“Cell phones have been quickly adopted across Africa. For example, in the country of Uganda, there are more cell phones than light bulbs,” explained Rosa Wang, Opportunity’s director of mobile money. “Our programs are limited only by the availability of cell signals in Africa, and that’s proven to be no limitation whatsoever.”

Magnay said that the traditional lack of access to any capital at all is a huge burden for the smallholder farmers. It means during the “hungry season”—the name given by these farmers to the months before harvest when money often runs short—many will turn to traditional moneylenders, known as “loan sharks” in the United States for their extremely high interest rates, or they will have to sell their crops to buyers months early, which can cut profits in half.

“For most of the new clients of our agricultural finance programs, this is the first time that they’ve ever had any contact with a traditional bank,” Magnay said. “If you look back just five years into the past, farmers did not have any access to financial services. If you want an African success story, it’s that bank programs are available in places where they never have been before.”

“The clients that we finance have never had a formal bank account before in their lives,” Magnay said. “Opportunity International, as it often has, serves as a pioneer in proving that these programs work—we’re helping people and creating a sustainable banking program where none existed before. While it’s true we have work ahead of us to expand and improve our agricultural finance programs, I think that’s truly a remarkable accomplishment.”

In addition to harnessing the popularity of cell phones on the continent to initiate its mobile money programs, Opportunity International is using new mobile technologies to identify potential client farmers, assess their households for financing and provide them with information on banking services. Loan officers are able to complete loan applications for farmers remotely using a tablet to collect information about the farmer and GPS technology to map the farm, which allows for exact information about the inputs needed for planting.

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The growth of Opportunity’s agricultural finance program is impressive, but not to Magnay. “To me it’s really still just a work in progress,” he said. “Whilst we do have a good strategy, it’s still an evolving strategy.”

For Magnay, one of the reasons that he was tempted to join the Opportunity team is that Opportunity’s model is sustainable. While most often Opportunity clients are not asked for collateral for their small loans, because they have no collateral to offer, loans are repaid at the rate of 98 percent, allowing for the Opportunity bank funds to continue to cycle through the community in perpetuity. As a bank, Opportunity leverages each donation so that every $1 donated will grow to $5 in five years.

Like Makkazi, most loan clients are a part of Trust Groups—a loan group and support group with weekly meetings that include training programs on business, finance, savings, budgeting, marketing and even life skills. During that meeting, the Trust Group members make their loan payments and talk about business. Makkazi said that she enjoys getting advice from her peers and her loan officer. If one Trust Group member is unable to make a loan payment one week, the other Trust Group members will help cover it.

The training that is provided during Trust Group meetings is not only about banking—like how to write a check—but also on budgeting, business, family life and preventative health. As a result of the successful Trust Group system, Opportunity banks have set up sustainable, life-changing programs.

“This isn’t project-based philanthropic development where a charitable organization launches an operation in an area with many smallholder famers and they spend millions of dollars to train farmers to meet a series of goals, and then, once those goals have been met, they pull the money out and say, ‘We’ve done it!’ They haven’t done it,” Magnay explained. “Farmers need continued services. Opportunity International is committed to building financial institutions in rural areas to deliver services and financial help. Those agricultural finance banks are sustainable, so they’ll continue to deliver help long after I retire.”

Opportunity is an international organization that establishes strategic partnerships with generous donors, corporations, foundations and institutions in the United States, Canada, Australia, the UK, Germany, Singapore, Switzerland and Hong Kong. Funds provided by strategic partners—which can include a $50 donation from a school bake sale—are used to expand programs in developing countries around the world, including the DR Congo, Ghana, Kenya, Malawi, Mozambique, Rwanda, Tanzania, Uganda, Zimbabwe, Colombia, the Dominican Republic, Honduras, Nicaragua, Peru, Macedonia, Romania, Serbia, China, India, Indonesia, and the Philippines.

Just as The MasterCard Foundation has been an essential partner to Opportunity, the Caterpillar Foundation has also played a critical role in supporting the delivery of impactful financial services to Africa’s smallholder farmers. The Caterpillar Foundation has partnered with Opportunity International for over 20 years, committing nearly $30 million in grants that will impact an estimated 18.3 million lives. John Deere has also developed a program to offer financial incentives to help deliver tractors into the areas of Africa where Opportunity International is helping smallholder farmers increase their production, acreage and skills. Earlier this year, Credit Suisse similarly invested in Opportunity’s programs.

Opportunity’s programs are also constantly being monitored to ensure that they work properly. In fact, the organization conducted a study in 2013 to understand the impact that its agricultural finance programs have on the lives of smallholder farmer clients in Uganda, Malawi and Ghana—farmers like Makkazi. The organization interviewed 1,200 clients growing 10 different crops, sampling randomly from bank branch areas where the greatest number of farmers worked.

The study’s findings were very positive, showing that the services were improving the lives of clients. The vast majority of farmers in the study experienced positive results in crop yields and productivity. For example, farmers who grew Ghanaian maize or Ugandan coffee saw crop yield increases of 38 and 67 percent respectively, compared to farmers who were not working with Opportunity banks. The inference drawn from these results is that the Opportunity clients were accessing improved agricultural inputs, following agricultural best practices taught by extension service providers, enjoying greater access to market channels, and selling their crops for a higher price.

The Opportunity International survey of clients showed that they were also better able to meet food expenses, build assets and invest in income-generating activities. Just like Makkazi, their lives, as a result of Opportunity International, were being transformed.