Financial products to support smallholder mechanization in the FACASI countries of SSA

Abstract

Financial institutions in the FACASI project countries face opportunities as well as challenges in providing financial services to small scale farmers and rural entrepreneurs. The results of the economic analyses suggest that 2WT based mechanization is only likely to be viable for farmers and rural entrepreneurs utilizing the machinery by providing hire services to other farmers. The mechanization sector in all four countries clearly lack financing. Farmers and rural entrepreneurs are a very heterogeneous group with varied plot sizes, production capacity, resources, and expertise. However, they all share a common challenge, the ability to access appropriate financial services and in particular term lending for their farm and non-farm activities. In this context, opportunities to expand financial services to support rural mechanization are highlighted by the need for innovative financing and risk mitigation products. Innovation can be understood as developing new financial products that are not used in the target countries of FACASI and/ or the adaptation of existing products that have worked in other developing country contexts and can be introduced to the project countries. Innovative financial products are most likely to require additional resources through private sector institutions to support term lending for both rural enterprises and farmers. In some cases this will require the need to forge partnerships between various private sector actors along the mechanization supply chain, as well as between private and public sector institutions. The development and introduction of innovative products are beyond the remit of FACASI but could be of particular value to raise awareness of these possibilities amongst policy makers and managers of financial institutions.