Family farming and financial services

Florian Grohs, Credit Director of Oikocredit International, will share experiences and lessons learned with loan programmes for family farmers, analysing both success and failure. How is Oikocredit now dealing with the multiple policy dilemmas involved? And on a parallel track, what are Oikocredit's experiences and lessons learned with programmes that aim to support smallholders in setting up their own organizations for savings and credit? What makes for success here?

Microfinance – as opposed to subsidized programs – can indeed be an effective way of financing, provided that agricultural lending (crops, harvest) constitutes only a part of the portfolio of rural credit programmes. For financial institutions, spreading risk over more sectors than just agriculture seems therefore advisable.
Albert Boogaard from Rabobank Foundation stressed that lack of finance is mostly a symptom of other, more structural underlying problems. Combining returns for investors and impact for smallholders is a big challenge; lendings with a big impact, are mostly very risky and it is hardly possible to make a return on it.
After one hour the focus shifted towards insurance, with Marcel van Asseldonk from WUR giving an overview of a number of pilot projects dealing with various types of risk, approaches in the organisation of insurance services and experiences. One of them, the FESA project, is index based insurance. This insurance offer prospects for relatively simple mechanisms for determining payments related to measurable indicators such as rainfall quantities. Applying FESA, the number of insured farmers has grown. In order to get access to credit, it helps to be insured, since lenders are more willing to provide credits if the crop has been insured.
Aaltje de Roos, Ministry of Foreign Affairs, emphasised the importance of insurances. She added that insurances are to be seen as a tool to empower farmers, since they are a linking pin to get access to finance. Therefore Aaltje underlined the importance of start-subsidizing insurances to small farmers. However, there is no ‘one-size-fits all’ approach; providers should be aware of that.

The introductions and conversation on the two types of services were to a major extent complementary and focussed on similar issues. The reporting below is therefore arranged under a number of topics with references to finance or insurance where useful.

Family Farms and risk
Family farms in the developing world face a variety of risks that directly affects the welfare of the family itself and their role in society. This makes the provision of sustainable services, i.e. services that can be provided commercially, thus without subsidy, difficult. The risks that were mentioned can be grouped into two groups: a) internal risks such as impaired health or death of family members causing reduced labour input and costs for health care or funeral or loss of livestock through accidents or diseases; b) external risks resulting from weather, market conditions affecting prices, government policies and policy chances that may cause great and sudden price fluctuations. These risks may make the provision of financial services entirely focussed on farmers, and especially groups of farmers dealing with one major crop, expensive or impossible.
Risk played a central role in the discussion on insurance as could be expected. Especially covariant risks such as weather require a portfolio covering various geographical areas and thus the scale of operations becomes a major issue. A central theme in the provision of insurance services is the provision of insurance services in combination with other services as finance, input supply and information on production technology. Successful insurance programmes on an operational scale were mentioned in Vietnam where life insurance and health insurances are combined with microfinance. At the end of the discussion saving services were brought forward as a simple risk reducing mechanism for the individual household. This means another plea for the combination of services as credit, savings and insurance all play a role in shaping an environment that enables family farms to deal with their risky environment.

Organisations in credit, savings and insurance
NGOs, Government co-operation programmes and commercial parties generally direct their support to national or local organisations dealing with farmers, specific groups of farmers or the rural population in general. The experience with the national and local partners revealed that the provision of capital only, either as a loan or as a gift, is not sufficient as capital is not the sole limiting factor in many organisations. Therefore some type of technical support is generally part of the assistance agreement. However, the additional technical assistance required or given may become so substantial that unwillingly the external agent, the donor, takes over the steering wheel from the local organisation. Such leads to serious negative consequences for the governance by staff as well as clients/members and the conclusion drawn is that responsibility must clearly lie and remain to lie with the national or local organisation. The conclusion was that only organisations with a certain level of internal organisation are suitable partners for external assistance.
This conclusion results in a dilemma: supporting a fairly strong organisation may lead to success in the sense of building a sustainable organisation that reaches the farmers, whereas supporting a less strong, often younger organisation, means a larger chance of failure. However, the stronger organisation might be able to draw funds from various sources which could lead to over-funding whereas the younger organisation could be socially very relevant if successful. The examples cited showed a wide variety of organisational characteristics and circumstances that either supported or hampered external assistance provided.

Finance and insurance in the wider context
Throughout the discussion mention was made of factors beyond finance and insurance that seriously affected the provision of these services and the situation of the family farms. The presence and stability of marketing services, on the input side as well as on the output side, was considered crucial for the transformation of family farms towards efficient surplus producers. In a similar way the availability of technical information on crops, production techniques, weather and disease situations is of increasing importance. It was recognised that all these services are complementary and that an analysis and intervention focussing on one factor, for example the provision of credit only, falls short and is seldom successful.
Special attention was paid to government policies and it was mentioned that food production and the supply of food to urban areas were both areas were governments tend to interfere. Subsidies, price controls or import/export control measures are all subject to policy changes in case the supply of staple food to the urban areas falls short. Also, consistent and long term government support to the production of food crops enables farmers to improve and fine-tune their production.

Finally
A theme throughout the discussion was the specific institutional and natural environment of organisations dealing with finance and insurance together with the possibility of changes. This requires attempts to generalisation, the formulation of "best practices" for example, to pay attention to the description of these circumstances as it is clear that "one size fits nobody".

]Vijverbergsession 10 September 2014 "Family Farming – Financial Services"

In samenwerking met WUR, Oikocredit, BuZa en Rabobank.

This seminar is preparatory to the conference on Family Farming, which will be held in Utrecht on December 15, 2014. Core question of this conference is: What support do African family farmers need in order to improve their entrepreneurial performance?

Representatives of ngo’s, the business community, the academy, politics and public administration will share and connect their lessons learned and current insights on supporting the successful transition of family farmers to rural entrepreneurs.