Building Access to Finance in Malawi
15 co-ops with 3,400 farmers build digital economic identities to access loans and link to banks, reducing side-selling and connecting with formal export markets.
The Clinton Development Initiative (CDI), an initiative of the Clinton Foundation, empowers farming communities to identify and connect with business opportunities across Rwanda, Tanzania, and Malawi. By supporting the formation of new agricultural co-operatives (co-ops) to improve the quality, quantity and consistency of their crops, farmer groups unlock access to finance as well as new, more lucrative markets for their crops.
CDI has been operating in Malawi for more than a decade. Today, CDI is actively training over 32,000 smallholder farmers, on how to grow high quality soya, a cash crop with strong domestic and regional market demand. In order to achieve long- term impact after the projects, CDI sought to establish farming communities and co-ops as bankable entities, able to eventually access credit without CDI’s direct support. Farmforce became a central digital management tool for this aim; and, through the web and a mobile platform, CDI and the co-ops created a digital economic identity with robust credit histories both at farmer and co-op level – critical to mitigate risk between farmers and banks and to facilitate transparent access to the formal financial sector.
Creating economic identities and digital credit
histories for farmers
Access to formal credit for smallholder farmers and co-ops is often a catch-22; financial institutions require a credit history to disburse credit, a history that typical you can only create by having credit. The CDI team in Malawi saw this when planning and engaging communities in discussions around agribusiness development opportunities in 2017, realizing that to start they would need to first extend credit from the Clinton Foundation itself. For the last three seasons, since 2017/2018, over USD 401,000 in input loans were issued to support farming communities, all tracked in Farmforce. Through each loan being digitally linked to a specific farmer, representing a group in Farmforce, they built a digital financial history that could be recognized by banks. CDI uses Farmforce to:
- digitally build a clear farmer database with demographic, production and contact data, linked with GPS-mapped farmer plots;
- build a credit history detailing farmer credit received through loans disbursed and repaid, understand individual and group repayment rates;
- carry out ‘needs assessments’ to inform on the focus of new grant-funded projects; and
- conduct impact assessment to track farmers (and co-ops) over time, understanding the most impactful interventions.
Co-ops as Businesses – Opening Credit with Farmforce Repayment History
CDI’s focus is to enable farming communities to thrive after the team has moved to a new community in need. It is critical that farmer co-ops have a business relationship with local banks and establish their own credit ability to be recipients of credit, and access loans by themselves.
Need for Post-Harvest Loans
Often credit focuses on the start of the season, when farmers receive loans to purchase vital inputs like seed and fertilizer for a productive, high-yielding season. However, the CDI team and the co-ops they work alongside realized that post-harvest credit, released from banks as soon as the harvest is coming in, is critical for farmers to make a sustainable return, build long-term relationships with buyers, and generate greater buy-in at the cooperative level to the value of being a member of that entity.
With the post-harvest loan, co-ops will be able to purchase grain at fair market prices and aggregate it for sale on contract to buyers offering premium prices for quality crops across Africa. CDI built market connections with African Improved Foods Ltd (AIF), a Rwandan company that buys raw soybeans for their fortified maize-soy blend produced in Kigali. In the 2018-2019 season, they contracted and purchased nearly 1,000 metric tons from CDI supported co-ops and during the 2019–2020 season the co-ops sold nearly 1,800 MT on contract, with agreed premium grain prices, about double from the previous season. In order to secure these needed loans, CDI is working with local banks, acting as an intermediary with the co-ops to negotiate favorable terms, fostering a strong start to the banking relationship.
Accessing Co-op Business Loans
To receive a loan, co-ops in Malawi need:
- corporative governance reporting (trainings done by CDI);
- transparent record keeping (digital in Farmforce);
- credit history (loan history in Farmforce); and
- off-taker sales agreement (negotiated by CDI with
In the past, the credit history was impossible, but because co-ops have been using Farmforce for several years, they already have a robust, digital, detail loan repayment history for all the members of the co-op – precisely what the banks need to see. Banks request a 2–3 years of credit history, with repayment rates of at least 75%. 15 of the co-ops that CDI works with have farmers that received in-kind input loans through CDI in the 2018/2019 and the 2019/2020 season, with Farmforce precisely showing how much was given to each farmer and the repayment. Since it is a digital system, the banks see this as a trustworthy, and therefore creditworthy engagement.
Developing Formal Banking Relationships – the Standard Bank Partnership
In their role to facilitate relationships with banks and microfinance institutions (MFIs), CDI spent considerable time with several banks operating in Malawi who wanted to increase lending to smallholder farmers. Standard Bank came to the forefront as a strong, co-op focused bank that saw expanding their rural lending portfolio as key to their future growth and was willing to work closely with farmers, conducting trainings on entrepreneurship skills during on-farm visits.
As the bank is getting more confident in Farmforce’s digital financial history for each farmer, it is also keen to introduce more digital banking tools on its own platform, supporting digital banking transactions. Standard Bank is using these initial experiences in Malawi to learn and expand its agricultural lending across Africa. With the type of data gathered in Farmforce, the bank is seeing the value of using such data to support digital lending process and then empower farming communities to have access to competitive financial solutions to expand their operations.
CDI negotiated competitive interest rates with Standard Bank and continues talking with other banks with the aim of creating an open and competitive marketplace among financial institutions in Malawi. This would generate better terms and improved service for farmers – with all approved banks having access to the loan repayment history and credit worthiness data recorded in Farmforce. Confidence and trust between farmers, co-ops, and banks will take time, but efforts to date are building a solid foundation.
Global Ways Forward, Farmforce and the Clinton Foundation
The Clinton Foundation has already implemented Farmforce at their projects across Africa and Latin America, making Farmforce standard for all agribusiness ventures. It provides a professional operations management tool at the ground level as well as transparent oversight for the Clinton Foundation.
In 2021, the CDI team plans to pilot mobile money for harvest payments to farmers. Many Farmforce clients already use this functionality, uploading payment requests from the system into a local mobile network operator’s mobile money portal so payments are transferred after the client’s finance team has reviewed the proposed outgoings. Farmforce will continue to support the Malawi team to leverage the platform’s functionality to better engage and empower the farmers and co-ops they serve.
Learn More – CDI Leveraging Farmforce for Data-Driven Decisions
Analyzing Loan Repayment to Improve Farmer Support
Through managing loans in Farmforce, CDI has a rich dataset to analyze the factors influencing repayment. On average, CDI has achieved 88% repayment rate across farming communities, with 100% repayment in 2020. This improvement is attributed to sustained contact with farmers when carrying out extension and financial capacity building. Farmers understand that to receive a loan next season, they need to repay the current season. Season-on-season credit and the awareness of building a credit history is changing farming communities’ view of credit, preparing them to engage directly with banks.
Digital Data for Soybean Contract Volumes, Update Yield Estimates During Season
For security on the co-op’s loan, banks require proof of a market. Through the partnership with African Improved Foods, the farming co-ops have access to a large market – but how do they make sure they can satisfy the market demands and contract terms?
With clear digital database of all farmers in a co-op, GPS-mapped plots under production and historic data on yield, co-ops can project how much they are able to produce. As the growing season progresses, field staff record crop sampling data in Farmforce to forecast if the yield is on track. This ability to accurately project yields, and confirm in real time during the season, gives banks and buyers confidence in the co-op’s ability to deliver on the contract and repay the loan.