maize; summer; inputs; land

Finance for African smallholder farmers without land still a challenge

Farmers borrow money to improve and maintain farm infrastructure, to upgrade equipment, to finance the production of the coming season’s crop, to buy in animals or to buy more land. Briefly put, they use borrowed money for recapitalisation, production and expansion.

The banks will lend farmers between 60% and 80% of the value of their land (depending on the bank), and some institutions grant loans where the farmer’s livestock herd (or flock) is used as security, but for a far smaller percentage of the total herd value.

Disease outbreaks and animal mobility have made banks wary of using animals as collateral.


In Africa, it is only in Namibia, South Africa, parts of Botswana and Zambia that farmers have title to their land, says Dr. Theo de Jager, President of the World Farmers’ Organisation.

In South Africa, the government is holding back on granting title deeds to black farmers, although a few land claimants were given title deeds in the early years of the new democracy.

With nothing to offer as security, it is virtually impossible for small-scale commercial farmers to borrow money.

There is some anecdotal evidence to show that many small-scale farmers have full-time jobs in other sectors. They recruit crop or animal caretakers who stay on their farms and who contact them when there are problems, and they farm flat-out on weekends.

These farmers see their jobs as a means to finance their farming operations. Their vision is to farm full-time once the farm is profitable enough to stand alone.

The fulfilment of this vision requires enormous drive and the stamina to work virtually without ceasing for a good long while. The problem of access to finance has not disappeared.

It is a pragmatic and admirable strategy with 1 obvious flaw. The small-scale farmer is too often away from his or her flocks, herds and fields. Small farming businesses need an owner-driven, eyes- and hands-on approach to succeed.


In 2012 at a meeting in Kenya the Bill and Melinda Gates Foundation offered to secure the financial risk for a few pilot agricultural projects. These projects sought to create and test innovative, alternative financing models in which land was not used as security.

De Jager describes one such project carried out in Arusha, Tanzania, in which 69 smallholder farmers cooperated in a plan to plant white maize on 2 200 ha of land. Most of the farms were between 3 ha and 10 ha, there were a few farmers with 20 ha to 30 ha and 1 farmer with 200 ha of land available for planting.

“We borrowed money from a reputable South African-based bank with a footprint in the rest of Africa,” de Jager says.

Crop insurance is mandatory in loans where the money is repaid by the crop offtake, and for crop insurance there must be at least 10 years of reliable data which, in this case, was not available.

Then, a British insurance company agreed to insure the crop without the necessary data, seeing it as a way to enter the African crop insurance market. “With the crop insurance in place, we could access, at best, 70% of what we needed,” de Jager says.

Once again standard practice, the lending bank wants the borrowing farmer to contribute 30%, which seems fair enough. But, as the De Jager points out, this [30%] is exactly what the smallholder farmer does not have.

“So, we approached 5 input providers (a seed company, fertiliser company, agro-chemical provider, diesel provider and mechanisation company) and asked each 1 if they would keep 6% of the total value in the pool, until we honoured the offtake agreement. Effectively, we were asking the input providers to park part of their profit from the project.”

A contract was signed with the buyer, a big African company, to take the crop at an agreed time for US$320/t. “Things went very well in Arusha. It was 2015 and the rains were excellent. We had a bumper crop,” says De Jager.

“Then, on the day we sent the harvesters in, the Kenyan and Tanzanian governments dumped 200 000 tons of white maize onto the market and the price fell to below US$180/t.” The buyers said they could not buy at the agreed contract price while maize was so cheap.

Reminded of their contract, and called upon to honour it, they told project members and investors that the law in Tanzania worked only as far as the court process. After that, they said, there was no capacity to enforce the court’s decision.

The price recovered, as predicted, after 4 months, but this is too long a wait for small-scale famers, with no financial buffer, and they began to harvest at night to get some cash.

“The farmers’ night-time harvesting was more efficient than our daytime harvesting and we ended up with less than half the crop to sell after 4 months. At the end of the project, the smallholders made no profit and the agri-businesses made no profit,” he adds.


The Gates Foundation awarded the Arusha project a prize for financial innovation and certainly, the project designers had crafted a workable product in a workshop equipped with tools that could just as well have come from Mars.

With the finance in place, the farmers did a good job and grew a decent crop. How to predict the random and irrational actions of government is a tool yet to be discovered.

“A sound legal system [with teeth] is at the very foundation of investment. Without it you can forget about investment,” says De Jager. “Most African countries don’t have these structures and it ends up coming down hard on our smallholder farmers.”


Eager to replicate this model in other African countries and in the communal farming areas of South Africa, De Jager says the sector needs input providers and buyers willing to sign agreements like this.

Investment, from the private sector, can cut a path to a new agricultural landscape for smallholder farmers. In this landscape they can become a great deal more productive than they are now, and they can begin to make significant contributions to national food security and trade.

The private sector cannot be held responsible for fixing all the ills that beset agricultural endeavour in Africa, especially when it is hamstrung by hostile policy environments, onerous regulations, as well as endless and time-wasting administration.

African governments are responsible for granting (or not) land ownership through title to farmers, and they are obliged to protect their citizens through strong and supportive legal systems backed by a police force with the power to enforce the law.

They are to be blamed for unfriendly trade and business environments, but are also credited if they have earned a reputation for ease of doing business, have put streamlined administrative processes in place and somehow ensured reasonably clean systems, as it seems Nigeria has.

“It could take decades for policy to change and in the meantime everybody stays poor,” De Jager reminds. “If we do not replace the model of land as collateral are we going to sit around waiting for change?” he asks. “Or is there enough appetite for risk to see if we can develop a track record on a different kind of collateral?

Also read:
Farmer unity – a powerful influence on state policy
Zambian Chief Liteta empowers subjects with land certificates
Attracting investment – the challenge for Africa’s smallholder farmers

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