Christine Afandi
19 February 2008
Dar es Salaam — The Tanzania National Microfinance Bank (NMB) in partnership with the Alliance for a Green Revolution in Africa (Agra) has unveiled a $6.1 million farm input credit scheme to benefit poor Tanzanian farmers and improve the country's network of rural agro-dealers.
A memorandum of understanding signed in Dodoma between the two institutions spells out that the financial scheme will boost subsistence farmers in five pilot districts to access farm inputs.
NMB will provide a total of $5 million for loans to be made available to agro-dealers in five pilot districts while Agra and the Financial Sector Deepening Trust (FSDT), a Tanzanian government finance initiative, will provide $1.1 million in a guarantee fund to help reduce the risk of lending by NMB to agro-dealers.
The guarantee fund will be held in a specially established account that is locked for the sole use as a guarantee fund for the NMB's agro-dealer loan programme, with an initial term of three years.
Stephen Wassira, Minister for Agriculture, Food Security and Co-operatives told The EastAfrican in Dar es Salaam last week that the move by Agra was commendable in trying to bring about a green revolution in the country by involving all stakeholders.
"Tanzania is ready for a green revolution and we believe our partnership with Agra and others will help achieve it," Mr Wassira said.
The use of agro-dealers such as CNSA, a local NGO, to get farm inputs such as seeds and fertilisers closer to farmers is bearing fruit, he added.
"Peasant farmers have been unable to harvest high yields and improve their living conditions due to lack of training in good farming practices and credit facilities," he said.
Infertile soil is a major cause of poverty and hunger in Tanzania and Agra's programme is expected to curb rapid soil nutrient loss, which is the major cause of inability of farmlands to sustain crops.
Through the farm input credit scheme, farmers will be able to access fertilisers and seeds at affordable prices and cultivate on time, hence boosting farm yields and income.
An innovative financial tool, the guarantee fund is a hedge against default by borrowers and will cushion NMB since loss will be shared through the guarantee fund.
Agra Vice President for Policy and Partnerships, Dr Akin Adesina, told The EastAfrican that while there is excess liquidity in the banking sector, banks do not lend to smallholder agriculture.
Dr Adesina said part of the reason is the high risk of lending, unpredictable demand for loans, seasonality of farming, high levels of poverty and lack of security pledged for repayment of loans.
"Unless we provide access to finance for agro-dealers in rural areas, farmers will not be able to secure farm inputs. The guarantee fund provides the security needed by the banks," he said.
Smallholder farmers in rural Tanzania are starved of basic farm supplies such as seeds and fertilisers. Agro-dealers who operate small retail businesses in rural areas can get the farmers the supplies they need, but they too cannot get the training and start-up capital necessary to open their businesses.
Agra is working across Africa with local partners to help millions of small-scale farmers and their families lift themselves from poverty and hunger through practical solutions that significantly boost farm productivity.
According to Dr Adesina, the agricultural sector in Tanzania is under-capitalised. It accounts for only one per cent of all loans. Only six per cent of the population has access to loans from the financial sector.
As a result, less than 15 per cent of farmers use improved seeds and fertilisers. The rural input markets are also poorly developed and farmers in many parts of the country are unable to find farm inputs.
NMB will implement a credit facility for trained and certified local agro-dealers in five districts - Songea Rural, Mbeya Rural, Mbarali, Mufindi and Kilombero.
The pilot project will be scaled up nationally by NMB and partners in the next two years. This will lead to greater uptake of improved seeds, fertilisers and other complementary inputs as well as higher farm productivity and food security for farmers.
"We see in this arrangement the need to leverage commercial banks by providing more funds for small holder farmers found in rural Tanzania," said Dr Adesina.
NMB is the largest bank in Tanzania by customer base and branch network. With 120 branches, it covers more than 80 per cent of the country's districts, and it is more represented in rural areas than any other bank.
While private equity funds exist in Tanzania, and in the East Africa region, they are not appropriate for financing agro-dealers since they focus on equity investments in medium and large agribusinesses.
Microfinance lending is also not appropriate for agro-dealers since it lends very small amounts at exorbitant interest rates. Therefore, missing financial markets undermine the ability of agro-dealers to develop and serve the needs of smallholder farmers.
Agra has given grants worth $13 million to develop thousands of agro-dealers in Tanzania, Kenya and Malawi. In Tanzania, it has given a grant of $4.3 million to Citizen Network for Foreign Affairs (CNFA) to implement the Tanzania Agro-dealer Strengthening Programme. The programme will develop a network of 833 agro-dealers and expand access to farm inputs for 325,000 farmers in 16 districts.
Agra's support for agro-dealers is part of innovative financing in smallholder agriculture, a concept that is gaining recognition as the best way to boost agricultural production in Africa. The organisation is taking this initiative through its Agro-dealer Development Program (ADP), whose objective is to provide training and credit to establish and support the growth of small agro-dealers who are a primary conduit for seeds, fertilisers, chemicals and knowledge to smallholder farmers.
The agro-dealers will operate small businesses that reach poor farmers in remote areas. In addition to selling affordable farm supplies in the quantities needed by small-scale farmers, they will be trained in the safe handling, efficient and environmentally sound use of farm inputs, and will pass this knowledge on to farmers.
The funding scheme will give special attention to women farmers who form the vast majority of peasant farmers in Tanzania.
Last week, Agra unveiled a $180 million five-year programme to enable sub-Saharan African countries restore soil fertility. The initiative will involve 4.1 million farmers in the improvement of soil management in order to regenerate 6.3 million hectares of farmland.
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