Improved Access to Credit Helps Boost Agricultural Production in Mali

BAMAKO, March 31, 2015 - In Mali, a smallholder farmer is refused a loan seven times out of ten. In the eyes of most commercial banks, agricultural loans for small scale farmers seeking to grow their businesses are regarded as high risk given the constraints of agricultural planting seasons, unpredictable weather conditions, low production rates, and limited technical or management skills of farmers and livestock breeders.

In addition to this, creating guarantees for this kind of credit remains challenging in an environment where the land property system is poorly defined and the judicial system discourages guarantees. Financial products proposed by banks in Mali are often not adapted to the needs of farmers, one example being the lack of access to long term credit which is often necessary for farmers starting out in the orchard industry producing mangos, papayas, bananas, or cashew nuts. Financing is more often than not provided at the end of an agricultural campaign, when farmers need it the least.

“Malian banks have a commercial focus and not an agricultural one which is why they struggle to accompany agricultural activities. A lack of knowledge in the domain also makes banks hesitant to provide agricultural lending. For farmers, the cycles of repayment and credit present a challenge as they require financing and receive income on a seasonal basis,” explains Moussa Sylvain Diakité, a mango producer and exporter based in Bamako.

To scale up the financial needs of smallholder farmers in Mali, boost agricultural production, and increase the number of small and medium enterprises (SMEs) in the country, the World Bank and the Malian government have teamed up to implement the Agricultural Competitiveness and Diversification Project, which aims to provide support to both Malian farmers and commercial banks as they work together to advance agricultural development in the country.

The project’s main objective is to enhance the performance of supply chains for a range of agricultural, livestock, and fishery products for which Mali has a strong comparative advantage. It focuses more specifically on private sector development, scaling up investments, and creating access to funding and commercial infrastructure.

In order to best achieve this, World Bank financing will provide technical support to entrepreneurs as they apply to commercial banks for funding, strengthen the financial management capacity of these entrepreneurs, and build the capacity of commercial banks' staff so that they better understand agriculture development

According to project coordinator Sory Ibrehima Diarra, the project is using two financial instruments to tackle the challenge of guaranteeing agricultural credit: the Innovation and Investment Fund and the Guarantee Fund.

“Through the Innovation and Investment Fund (IIF), the Agricultural Competitiveness and Diversification Project can grant financing to beneficiaries at a shared cost based on a three tiered system. The first tier is reserved for micro-enterprises who require an investment under 15 million West African francs. The project subsidizes 75 % of the investment and the beneficiary contributes the remaining 25% using personal funds. The second tier is for small and medium enterprises in which case the project finances 50% of the investment and the beneficiary finances the other 50%. The last tier is for large enterprises whose investments are superior to 50 million West African francs. In this case, we support them through technical assistance or expertise that does not go over 30 million West African francs,” explains Mr. Diarra.

This system works much like a bank in that the financial risk is shared between the beneficiary and the project. The financial contribution made by the beneficiary with personal funds ensures commitment and ownership of the loan, as well as the risk it entails.

The Guarantee Fund, with a deposit of 500 million West African francs held in two commercial banks, provides up to 50% of the guarantee.

“The Agricultural Competitiveness and Diversification Project aims to reduce the risk of investing in agriculture endeavors through technical assistance, new technologies, and greater knowledge of the supply chain and key actors,” explains Yeyande Kasse Sangho, Agribusiness Specialist at the World Bank.

The project will also help improve other aspects of the industry such as commercialization and business management. The subsidies and technical surveys provided by the Innovation and Investment Fund will contribute to putting entrepreneurs in contact with banks, building management skills of agricultural developers, and familiarizing bankers with real agriculture risks.