BRIDGING THE RURAL FINANCING GAP IN WEST AFRICAWith its Tripartite Rural Financing Model, Lutheran

World Relief (LWR) bridges the gap between financial institutions and community-based agricultural initiatives that lack the critical financing needed for success. LWR’s model creates three-way partnerships between LWR, local farmers’ organizations and financial institutions (banks, credit unions, other lending institutions), connecting smallholder farmers with commercial lenders.

These formalized and negotiated agreements include a partial loan guarantee fund placed by LWR within the financial institution as an incentive to lend to previously un-bankable farmers’ cooperatives, helping the institution manage the risks of agricultural lending to a portfolio of new clients. At the same time, LWR’s agreement with the farmers’ cooperative helps boost production yields and ensure profitable sales of production surplus through technical skills-building in market analysis, negotiation and financial management and post-harvest storage and/or processing innovations. Finally, loan agreements between the financial institution and the cooperative, set at prevailing rates and conditions, are negotiated according to the cooperative’s business plan and loan application.

RESULTS FOR WEST AFRICAN FARMERS

In West Africa, financial institution partners are commercial banks chosen for their agricultural lending portfolio, footprint in rural areas, relatively low interest rates1 and tailored farm credit lines. The agreements with LWR’s commercial bank partners are set to leverage loan capital at two to three times the amount of the guarantee fund. The partial guarantee rate decreases following each successful repayment cycle as

lender confidence in the cooperative grows, with the bank ultimately bearing 70 percent or more of the default risk. This partial guarantee ends when LWR’s partnership with the cooperative concludes.

The Tripartite model supports access to farm inputs and equipment credit lines, improving access to high-quality inputs to increase yields and produce a marketable surplus.

In West Africa, the model also supports cooperative-based warehouse financing — purchasing and storing farmers’ crops at harvest to re-sell later when market prices improve. This approach helps bridge a critical financing gap by meeting farmers’ immediate cash needs while generating profit that can be reinvested in the organization or in second payments to cooperative members.

Since 2009, LWR has implemented nine Tripartite projects with 11 farmers’ cooperatives in Mali and Niger2, securing access to credit for 17,553 people (9,422 women and 8,131 men). Loans were used to purchase production inputs and warehouse-improved seed, dry cereals, horticulture products, oilseeds and legumes. These farmers’ cooperatives received a total of 22 loans, two for production inputs and 20 for warehouse financing, ranging from $4,000 to more than $100,000 with a total value of approximately $697,000. Loan repayment remains at 100 percent through September 30, 2013 — much higher than that of the financial institutions’ typical agriculture lending portfolio.3

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1 Annual loan interest rates for commercial lenders tend to be lower (approximately 10-15 percent) than MFIs (approximately 20-25 percent)

2 A Tripartite agreement with the Bank of Africa in Burkina Faso was signed in 2013, so no data is yet available

3 African Development Bank tracks repayment agricultural credit repayment rates of over 90 percent in West Africa. (http://www.rdfs.net/linked-docs/RDC/Annexe12_African_Development_Bank.doc); other reports on agricultural loan repayment are much lower, from 25–50 percent.

In addition to measuring the number of people accessing credit and tracking loan volume and repayment rates from 2009-2013, other key final evaluation results among completed Tripartite projects include:

• Input/equipment credit lines helped boost millet and peanut yields per hectare by 224 percent and 277 percent, respectively.

• With warehouse credit to purchase seed and other crops at harvest, cooperatives were able to mobilize 431 tons of farm products from cooperative members from 2009-2013. Volumes collected increased by more than twice as much as would have been possible without access to credit.

• As a result of increased collection and warehousing of farm products, cooperative-level marketing and sales income also rose by between 168-228 percent.

• Storing crops until market prices increased helped raise sales margins by between 118-285 percent from the time of purchase, resulting in net income for the cooperatives and second payments to members.

• Crop purchases and second payments to cooperative members contributed to boosting household incomes by 372-577 percent.

• Cooperative members reported using these increased incomes for household food, healthcare, education and other expenses.

Ultimately, the Tripartite model is designed to help farmers’ organizations increase their capacity to manage and successfully repay loans, building a solid credit history to ensure sustainable access to rural financing for their members. While three of these projects continue in 2014, 75 percent of the cooperatives that have graduated from LWR support since 2009 have been able to leverage new farm credit lines since the projects’ end.