Opportunities for Tanzanian smallholder farmers to access credit from Financial Service Providers

By Dr Peter Kingu

There has been a lot of discussion about financial inclusion in Tanzania and the considerable progress that has been made over the last decade. New thinking and technological innovation has brought about a wide range of new products and services that are accessible via mobile phones from anywhere in the country, resulting in a fourfold increase in the numbers of people accessing formal financial services.

But where do women stand in this new era of improved financial inclusion? Women make up over 50% of the population and workforce in Tanzania and own over half (54%) of the country’s micro and small enterprises, but their contribution in economic activity, growth and financial well-being is far below their potential. In Tanzania, where many households face the challenges of financial instability, the role of women in sustaining household resilience, improving their families’ prosperity and driving economic growth cannot be overemphasised.

Over the past decade, there has been great progress in improving financial inclusion, and in Tanzania, there has considerable rise in the proportion of the adult population using financial services from 44% in 2009 to 65% in 2017, as reported by FinScope Tanzania. However, like in many developing countries across the world, there is still a gender gap of 10% between men and women accessing formal financial services.

Financial services offer the means for women to take control of their own finances by making and receiving payments using digital financial services, investing in business operations and building a credit history through savings accounts, managing risks through credit services and protecting their family and businesses through appropriate insurance products.

The agriculture sector contributes 28.7% of the GDP as well as 65.5% of direct labor force and 10% indirect labor force.

However, out of 24 surveyed banks, only 13 banks were found to have any agriculture lending products.

Many banks concentrate their activities in urban and semi-urban areas, with limited presence of branches in the rural areas where smallholder farmers are often located. Limited presence in rural areas leaves most banks out of touch and incapable of understanding the specific needs of farmers. As a result, they view smallholder farmers as unreliable borrowers because of unstable income, lack of savings, and volatile productivity that is dependent on rainfall. Therefore, banks need to reconsider their rural penetration strategies and develop business models that improve delivery of credit products to smallholder farmers.

Despite making up over 70% of the agricultural sector in Tanzania, farmers have little capacity to improve production and increase their revenues, because they cling to low-technology farming techniques. Farming is labour-intensive and dependent on family members working on the land, which can be problematic if someone falls ill or suffers an injury. “As a result, farmers are stuck in a vicious cycle where volatile prices, variable outputs and weakening resource conditions, perpetuate current practices and technologies of farming that lower their productivity and increase their sensitivity to unexpected life events,” says the report.

Improve policies and raise awareness

Tanzania’s agricultural sector is mostly subsistence based where farmers rely almost exclusively on rainfall for farming. This has largely contributed to the slow growth of the sector, as many regions have experienced limited rainfall for the past 3 years.

The government has recognised the need to modernize agriculture by launching initiatives such as Kilimo Kwanza, which is a set of policy instruments and strategic interventions aimed at commercialising agriculture and improving cultivation methods. However, the report says that more should be done in the way of informing farmers on technologies to help them improve their farming practices and increase productivity. This in turn has positive impact in terms of access to markets for their agricultural produce and linkages with financial service providers. The report recommends to launch awareness raising campaigns on the importance of affordable irrigation technologies for smallholder farmers.

“Agricultural sector stakeholders are advised to improve coordination of agriculture and financial sector policies in order to improve capacity of smallholder farmers and subsequent supply of credit, reducing the emerging agro-credit markets through market shocks. This will encourage more credit market players to engage in agro lending with more reasonable product designs,” says the report.

Increase the outreach for rural areas and smallholder farmers

The establishment of the state-owned Tanzania Agricultural Development Bank (TADB) in 2015 is a major step towards increasing the flow of credit to rural farmers. The bank has an opportunity to use its existing mandate and infrastructure to raise more awareness and facilitate agro loans.“ It is advised that the bank should reflect on its business model, increase its regional presence and participate more effectively on awareness and access to finance in rural areas for smallholder farmers,” the report says.

Awareness would be raised by strengthening the role of Farmer Based Organizations (FBOs) and Community Based Financial Groups (CBFGs). These organizations would help facilitate access to finance and improve the efficiency of value chains by encouraging best practices, such as clearly defined market-oriented objectives, mandatory supply agreements, proper capitalization structures, as well as sound business and governance principles.

All Financial Service Providers – formal and informal – can enhance their impact by obtaining input from all the stakeholders in the value chains, including producers, suppliers, processors and distributors. Together they can design suitable financial products, build capacity to manage pre-financing to smallholder farmers, set up supply contracts with high-quality suppliers or provide training on good agricultural practices and financial literacy to smallholders.

“Adapting a value chain approach can lead to increasing agriculture sector competitiveness alongside tailored credit products and capacity building,”

Improved information and alternative collateral

A further step that could be taken to raise the prospects of farmers obtaining credit would be to expand on what is considered collateral for loans and the kind of information that can be used to profile a loan applicant. The report suggests inter-ministerial collaboration for the establishment of a conducive infrastructure for agro lending, development of secured transaction law and establishment of collateral registry.


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