Microcredit for Farm Workers?

Microfinance involves extending small loans to persons in poverty to promote entrepreneurship.  The loans can range from just $100 to typically no more than $5,000.  Having developed an interest in microfinance as a development strategy, I was curious to see what sort of role microcredit has played in supporting agricultural initiatives and farm workers.

Agricultural microcredit is alive and well, but this sector carries unique and sometimes trying factors that separate it from other industries that have been helped by microfinance.  Since agricultural work is inherently tied to variables such as weather conditions and pest exposure, results become more difficult to predict.  Unlike a grocery store or a craft stand financed by a loan, farm workers cannot be guaranteed that their product will be available for sale.  For this reason, agricultural microfinance is considered to carry a greater financial risk for lenders. This risk is detailed in this article on microfinance risk management.

Many microcredit programs focus on rural agriculture or dedicate a portion of their organization to this sector.  Two interesting organizations are the Palli Karma Sahayak Foundation (PKSF) of Bangladesh and the Mennonite Economic Development Associates (MEDA) of Lancaster, PA.

PKSF was established by the government of Bangladesh in 1990 as a non-profit organization to deliver microcredit through nongovernmental organizations to those in poverty.  In the financial year 2008-09, PKSF disbursed Tk. 18,190 million through 229 microfinance institutions.  In the past year, the Bangladesh government set a goal of substantially increasing the amount of agricultural credit that it provides to farmers throughout Bangladesh.  Since about 60% of the country’s population depends on agriculture activities for its livelihood, an increase in small loans to these workers could dramatically aid development and food production.  PKSF is expected to be one of the leading organizations in promoting this credit since it has experience lending to this sector.

MEDA works to promote rural economic development and agriculture finance through a diverse set of programs throughout the globe.  MEDA currently has programs in Haiti, Mozambique, Ethiopia, Tajikistan, Peru, Afghanistan, Egypt, Morocco, Nicaragua, Pakistan, Tanzania, Ukraine, and Zambia.   MEDA focuses on five areas: microfinance, production and marketing linkages, investment fund development, community economic development, and member services. The success of these areas and their implications for future agricultural microcredit programs is detailed in this article by Meagan Andrews, a Senior Microfinance Consultant at MEDA.  MEDA programs work to provide small loans and basic training to farmers in developing countries.  For example, in 2006-2010, MEDA promoted Garden Gate, a project in Afghanistan that helped improve both the quality and quantity of food produced by family garden plots.  The program provided training for 90 lead farmers and specialized programs for the women of each village, aiding 2,349 women.

These microfinance programs help provide farm workers who already own farms with the knowledge and tools to more productively use their land.   For landless workers, these loans can help provide initial funding to lease land or to build up resources.   Although these loans may be riskier than other forms of microcredit, funding to agriculture helps an enormous portion of the world’s population and promotes the existence of small and family-owned farms.  It is exciting to see the work that NGOs are doing to aid these workers and I am hopeful that other organizations will use groups like MEDA and PFSK as models for their own agricultural microcredit programs.

The form of microcredit used by most organizations currently is attributed to 2006 Nobel Prize winner Muhammad Yunus, the founder of Grameen Bank. To read more about his work, check out his book, Banker to the Poor.

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