Helping smallholder farmers to access adapted financing

In Ghana, CIDR Pamiga works with local agricultural value chains to facilitate financing for smallholder farmers. This three-way process, involving producers, companies and banks, is bringing about wholesale change and providing reassurance to everyone involved.

Agartha Gyamena is a hard-working Ghanaian grandmother. She has been growing manioc for 30 years and manages to earn enough to provide for her family, including her grandchildren. What helped her to get to this position? Access to the right type of financing so that she could increase the area of land she has under cultivation, thanks to a contract-based relationship with a company called Freshmacs.

Reduce the risks

This three-way process (producer, agri-business company and bank) is the fruit of the Outgrower Value Chain Fund (OVCF), a programm run by CIDR Pamiga and OA&A, a specialist Ghanaian consultancy, in collaboration with Ghana’s ministry of agriculture and funded by KFW, the German development bank. It covers eight agriculture value chains: rubber, palm oil, rice, pineapple, sorghum, manioc, cocoa and maize.

“Our approach is based on a formalized relationship between producer and company,” explains Paul Picot, Programm Manager for CIDR Pamiga.

“We believe that these sorts of relationships make it possible for producers to access the market for financing. It’s attractive to banks as they are reassured to see contracts signed by companies, which means that specific risks are reduced. This in turn opens the door to financing at below-market rates.”

Creating long-term relationships

This process creates relationships that are beneficial to all parties. Small-scale producers are able to secure the future of their activity and gain access to the equipment and resources they need, primarily inputs, equipment and land. The arrangement offers clear advantages to the agri-business partner companies: “The companies can use it to foster long-term contract relations with small-scale producers and provide high quality services,” says Paul Picot. The project also helps the companies access financing that they use to improve relationships and services provided to the producers.

To ensure that finance remains available in the longer term, CIDR Pamiga places great importance on the quality of the relationship between the various partners, including terms that are attractive to all parties, banks included, so that they are no longer reluctant to lend to the farming sector. Mutual trust is also key, rooted in transparency as well as financial education provided by partner banks.