A chance encounter in 1981 changed the path of Henry’s career. The young economist was on his way to the American Embassy (to get a student visa, ahead of taking up his Harvard scholarship). On the way he met a consultant who was planning research on Kenya’s five large herbivores in Masai Mara Game Reserve, a region Henry was already interested in. Just like that, his decision was made: Henry’s career in agriculture began.
Henry Bagazonzya has 40 years of experience as technical advisor on rural development and access to finance for farmers and SMEs (small and medium-sized enterprises). In this blog he talks about what he has learned in his career so far and explains how technology has the power to revolutionize the relationships between technology, agriculture, development, and microfinance.
The economics of agriculture
What is it about farmers and agriculture that has inspired so much debate? There are about 500 million small farms in developing countries, supporting almost 2 billion people—one-third of humanity. In many African countries 25–40% of GDP comes from agriculture, and in rural regions agriculture brings in about 63% of income. There is no denying that agriculture is fundamental to poverty reduction and economic transformation in many countries. If we want a world without hunger by 2030 then we have to take care of our farmers.
Although governments have recognized that there is a need to assist farmers, their idea of assistance has traditionally been very wrong. Most programs have, and continue to, focus on credit when what these farmers really need is adequate services. They need a voice, good marketing, and cooperation. Cooperation is, of course, different from cooperatives—which are often conducted as political movements that undermine the very cooperative intentions they exist to promote.
What’s gone wrong in the past?
Politics. It’s as simple as that. Politicians have long used farmers for their political ends and ignored their actual needs. These farmers need infrastructure rather than empty promises and short-term solutions, especially when commercial banks are so unwilling to lend to them. They simply don’t fit the mold that banks want to serve: they have no credit history, they have seasonal, unreliable incomes, and they can’t pay back their loans when required.
Banks see smallholder subsistence farmers as too risky, so acquiring a loan as a farmer becomes very expensive. Of course, in reality the wrong delivery channels were being used and the products on offer were inappropriate.
If not banks, then who?
Microfinance institutions grew up in the 1970s and 1980s, beginning with Grameen Bank in Bangladesh, which decided to make loans to the impoverished, without requiring collateral, as an answer to lack of access to financial services by farmers and those who did not have the collateral to approach commercial banks. This lending methodology spread to other parts of the world including Africa, where farming groups were able to access formal loans from village development institutions. But many of the old problems persisted. Many lenders, for example, still couldn’t wrap their heads around the seasonal nature of agricultural income and the need for flexibility with payment reschedules. Their solution was to encourage secondary businesses. So a farmer would take a loan for their agricultural business and pay it back using a secondary business—which didn’t work well. After all, their specialty was agriculture!
Making microfinance work
Even microfinance institutions initially found farmers risky. The higher the perceived risk, the more visits have to be conducted—and the more it cost to deliver a loan. To make a difference, credit still had to be affordable. That’s where technology has stepped in. Digital financial services (DFS) reduce the cost of a loan to both the lender and the loanee. Technology has partly answered the question of how to reduce the cost of loans—but it has also raised further questions. Microfinance institutions are largely profitable ventures, so how much profit is appropriate, and how can they give back to those who are making them their profits?
How far can technology go?
DFS may sound like the solution to the high price of loans, but digital finance services can only be used where digital services are available! Affordable credit has become increasingly about mobile technology penetration. In my home country of Uganda, for example, 78% of the population has access to a mobile phone network, while in India the figure is 68%. These figures might seem high, but people without access to mobile technology are most likely to be in poverty—and they are precisely the people DFS cannot reach. So how can they be reached with affordable loans?
Partnership models have begun to answer this final question. Corporations that are willing to aggregate their activities and services, sometimes including technical assistance, are entering into partnerships with financial agents who work with this system to deliver affordable loans.
Making it human
This is where Village Invest steps in. It helps to bring communities and women together by providing technical assistance and building women’s credit history through local credit organizations. Women receive loans which they pay back through their local system. At the same time, Village Invest educates people on gender equality, financial literacy, and how they can be empowered. That’s what makes this approach different. It looks at the whole—not the only the whole financial situation, but also the whole person, the human being receiving the loan, in order to improve their economic situation and change their life.
It is sustainable because it considers every part of a loanee’s life: how they will manage loan repayments and an unexpected medical bill, the seasonal nature of their income, and how they will market their produce, for example. Taking this approach isn’t just about reducing the costs, although that’s a very important factor; it’s also about recognizing the role microfinance can play in boosting national income.
Going back to the figures on African GDP mentioned earlier, when a farmer receives this kind of investment, both educational and financial, they become loyal to your organization. They don’t need the loan to survive, but taking it means they can contribute more to their country’s GDP and can become more resilient themselves. That is how agriculture, microfinance, and technology combine to push for development.
 Uganda Quicksight Report, Fifth Annual FII Tracker Survey. Conducted July–August 2017.
 India Quicksight Report, Fifth Annual FII Tracker Survey. Conducted August–December 2017.