Bank loans

Do Development Bank Loans Really Benefit African Smallholder Farmers?

“My name is Omoruyi. I am a farmer in Edo State. Two years ago I applied for the NIRSAL Farm Business Loan to expand my farming business and help put food on the tables of people in the Ipoba Hill community where I live because I need more of workers. But things didn’t go as I had planned. »

Omoruyi graduated in agricultural economics from the prestigious University of Benin. Being a flea from the old bloc, he started small scale farming in Edo State, Nigeria to make ends meet and create jobs for his community members. Initially, everything went well because his older brother in Spain (Uyi) supported him with a seed capital of $4,000. Their original plan was for the farmer to join the japanese train upon graduation, but his stubborn faith in the Nigerian dream wouldn’t let him.

Five years later, in 2019, he applied for a government-funded NIRSAL Microfinance Bank (MFB) NIRSAL Microfinance Bank (MFB) N10 million agricultural loan. The MFB is an institution licensed by the Central Bank of Nigeria that provides loans to small businesses. Its Credit Risk Guarantee (CRS) protects agribusiness loans against losses. “But the loan came to me and others in the form of agricultural machinery and equipment. We were told to buy these machines from suppliers approved by the Central Bank. When you name your machines, the bank pays the sellers directly. Only a fraction of the loan was disbursed in cash installments which ended up being useless as we could not order seeds in bulk,” Omoruyi explained.

In the agreement signed with the bank, farmers who do not repay their loan risk losing the machinery and equipment. What if these machines did not meet their agricultural needs? The business was then unsuccessful. “As we speak, the 50 KVA generator provided to me by an approved supplier is packed. It has only been running for two months. It was supposed to power my grinders, grinders, flash dryers and rasps. I filed several complaints, but nothing was done about it,” he said.

Currently, the mechanized aspect of Omoruyi’s farm has stalled and his debt is growing. But it is his cassava and yam farms that fan the small flames of his Nigerian dream.

In the profound words of Thomas Jefferson, one of the Founding Fathers and third President of the United States of America, “Agriculture is our wisest pursuit because it will, in the end, contribute most to real wealth , good morals and happiness”. It means so much in the African context. More than half of the world’s arable land (about 600 million hectares) is in Africa, which means the continent offers huge agricultural opportunities and should have gained wealth by feeding the world.

However, this is not the case as its agricultural sector is riddled with complexities, which over the years has helped explain why some of its countries import basic foodstuffs from other continents. According the International Fund for Agricultural Development (IFAD)Africa is spending $35 billion importing food rather than creating the conditions to produce more food locally, despite an abundance of uncultivated farmland.

Impacts of smallholder farmers

Agriculture contributes 23% of Africa’s GDP and 49% of employment. The productivity of the sector is not massive as smallholder farmers dominate the industry. IFAD estimates that the region has around 33 million small farms, and the farmers who make a living from them contribute up to 70% of the food supply. A portion of these farmers reside in rural areas, a few in semi-urban areas, and only a handful in urban towns.

More than 50% of farmers in this category still use rudimentary agricultural tools for farming processes. Most smallholder farmers meet the immediate food needs of their families. They also supply food to community markets. This means that limited products from this agricultural segment reach the manufacturing sector. Nonetheless, smallholder agriculture is a vital aspect of sub-Saharan Africa’s agricultural sector and one of the continent’s largest employers.

Main challenges of smallholder farmers in Africa

The growth of small farms in Africa, compared to those in Europe, America and Asia, is hampered by mundane obstacles (apart from climate change). These obstacles have created complexities in the industry. They include internal conflicts, lack of financing, low use of mechanized agriculture and low technological inputs. Again, short-term development fixes, a lack of political will, limited supportive agricultural policies and underutilized agricultural land further limit growth.

Smallholder farmers in places like Nigeria, Ethiopia, Cameroon, Mali, Sudan and Nigeria have abandoned their farms with the rise of armed militias, internal conflicts and political instability. Some places in Africa have experienced severe weather changes that have halted agricultural processes and cost lives and property. But farmers who are still farming do not have access to finance to buy good seeds, use mechanized farming systems or smart technologies. Thus, they resort to crude farming.

Foreign loans and government interventions intervening

We noted earlier that lack of political will, insufficient funding and limited supportive agricultural policies are some of the challenges unique to smallholder farmers. It is not because the governments of the regions do not create sound agricultural credit policies or that the development banks do not lend money to agriculture. On July 19, the Board of Directors of the African Development Bank (AfDB) Group, approved over $1 billion for an emergency food production plan. The bank has targeted the facility to 20 million African smallholder farmers to end reliance on imported food from Russia and Ukraine.

The facility will allow farmers in approximately 24 African countries to access climate-appropriate seeds, fertilizers and other forms of support to boost Africa’s food security. According to the bank, this would further support governance and policy reform to encourage more investment in the agricultural sector. This is just one of countless loans to finance agriculture on the continent.

When loans like these are disbursed, they usually go through central banks or a nominated bank acceptable to the central bank. The problem is that most government policies do not at all include smallholder farmers who are neither supported nor educated. Many of these farmers do not have a registered business or documents to access loans. But for places like Nigeria, the government has gone a step further by partnering with private actors such as non-governmental institutions (NGOs) to bridge the gap. But that too is a problem. There have been complaints of non-payment by some of these farmers. While some farmers claimed to have lost their harvest due to climate change, internal conflicts and herds of cattle, some lost theirs due to the fight against poverty.