By Robyn Joubert
A new financing model offering low-interest loans to Ghanaian cocoa farmers for solar-powered irrigation could mark a turning point for the sector. Designed to address small farmers’ financial hurdles and climate challenges, the model could expand to South Africa.
While Ghana’s small scale farmers produce a significant share of global cocoa production, they face lower yields and deteriorating crop quality due to erratic rainfall.
“Affordable, low-interest loans empower farmers to invest in solar irrigation technology crucial for enhancing productivity and resilience. This initiative not only secures the livelihoods of cocoa farmers but also sets a precedent for sustainable agricultural practices across the global South,” said Kekeli Gbodji, research officer: Inclusive Agricultural Finance, International Water Management Institute (IMWI).
Developed by IWMI under CGIAR’s Excellence in Agronomy Initiative (EiA), in partnership with the Mastercard Foundation and local Ghanaian banks, the loans offer a 7% interest rate and repayment terms of up to four years, with a six-month moratorium. Farmers can also share the cost of irrigation equipment through group ownership.
“To overcome credit barriers, IWMI has partnered with financial institutions and equipment suppliers to create credit scoring mechanisms that improve farmers’ eligibility for asset-based financing options, such as “pay as you own” schemes. This includes gender responsive credit scoring as women often do have off-farm income activities which are often not accounted for,” said Barbra Sehlule Muzata, EiA global communications and brand leader.
Minimal collateral is required for loans under US$50 000. “As solar irrigation investments for these farmers are below US$50 000, banks often do follow the asset-based financing modality which avoids the need for additional collateral,” she said.
Since the rollout is in its early stages, there is limited data on the consequences of loan defaulting. “Companies are generally extending payment terms depending on the reasons for default,” Barbra said.
The Ghanian model can serve as a blueprint for other sectors and may be scaled to South Africa if multi-stakeholder buy-in exists.
“If there is interest from banks, solar companies and other investment institutions, IWMI is happy to explore bringing this model to South Africa. The models are co-created locally to ensure they meet specific needs and are adapted to the local context,” Barbra said.
Teresa le Roux, Ukunika Investments director, said it is “hugely important to invest in climate-smart technology, whether it is energy or water, as it makes farming more sustainable”.
“The aggregated funding model could also benefit small scale farmers in South Africa who struggle to get funding because they do not necessarily comply with credit requirements. If they are not aggregated with a track report, they keep falling off the bus on loan applications, let alone on loan applications for smart or regenerative agriculture,” said Teresa.
Agbiz chief economist Wandile Sihlobo said loan innovations could only benefit South Africa’s agriculture sector.
“Any finance instrument that promises to be patient, low interest and relatively affordable is of value. We are building a new cohort of commercial black farmers who need affordable financing to commercialise,” said Wandile.
South Africa already has a range of financial instruments aimed at supporting investments in alternative energy solutions in agriculture. This includes the Agro Energy Fund (launched in August 2023 with a fund of R1.2bn) and FNB’s Sustainable Agriculture Loan (launched in May 2024).
For more information, contact IWMI at iwmi@cgiar.org
