- Farmer-led irrigation is a huge opportunity for improving food security in Africa, but financing remains a major challenge.
- A study on microfinance for small-scale irrigation explored pilot initiatives to reduce gaps between the demand for irrigation equipment and the supply of finance for obtaining it.
- The study revealed three models with the most promise. The first entails partnerships among finance and other institutions, such as manufacturers, retailers and agricultural advisors. The second, pay-as-you-go model spreads out payments and enables farmers to benefit immediately, while minimizing risk for lenders. In the third model, entrepreneurs offer irrigation services as contractors rather than selling equipment.
- It’s recommended that African governments create policy and legal frameworks that strengthen incentives for financial institutions to provide better services and a wider array of products, and make special efforts to provide women and youth with equitable opportunities.
“Uber for Irrigation” and Other Novel Ways to Finance a Farmer-Led Revolution in Africa
Farmer-led irrigation offers one of sub-Saharan Africa’s brightest prospects for defeating chronic hunger and making good on the promise of a more sustainable future. In many countries, the number of smallholders using their own pumps or other methods to irrigate crops already exceeds, by far, the number involved in large-scale public irrigation schemes. If more farmers follow in the footsteps of these pioneers, Africa could reap enormous benefits – estimated at USD 22 billion per year for 185 million people, according to the International Water Management Institute (IWMI).
But several obstacles are holding them back. Across the continent, if you ask smallholders why they have not yet made the switch from unpredictable rainfed cropping to more reliable irrigated production, they most often cite a lack of affordable credit to purchase pumps and other equipment. Study after study has shown that this is the number one barrier, especially for women. Until farmers find a way around it, there is a danger that the emerging revolution in smallholder irrigation could stall.
Searching far and wide
In search of solutions, we recently undertook a study on microfinance for small-scale irrigation, with support from the USAID Feed the Future Innovation Lab for Small Scale Irrigation and International Fund for Agricultural Development (IFAD). The research involved an extensive review of published and unpublished material, conducted through the CGIAR Research Program on Water, Land and Ecosystems (WLE). We identified a variety of promising models under pilot testing – including one called “Uber for the farm” or potentially “Uber for irrigation” – and formulated a set of lessons learned to help improve the availability and effectiveness of this and other options.
The microcredit revolution, initiated by Muhamad Yunus and the Grameen Bank, offered an obvious point of departure for our search. Since the 1980s, many microfinance services have sprung up across sub-Saharan Africa. Yet, we concluded that their impacts on poverty, gender equity and broader economic development have been mixed at best.
These programs generally target well-off, male-headed and relatively well-educated households, thus reducing risk to the lender. In addition, they mostly offer short-term credit for seasonal inputs, such as seeds and fertilizers, rather than long-term credit for the purchase of irrigation equipment costing a hundred dollars or more. These programs also ignore the fact that finance is just one constraint on the adoption of smallholder irrigation. In addition to credit, farmers need access to value chains that offer a ready supply of fuel, technologies at affordable prices and maintenance expertise, as well as the timely availability of quality seeds and fertilizer.
In light of these challenges, we explored various pilot initiatives and “out-of-the-box” ideas that show potential to reduce gaps between the demand for irrigation equipment and the supply of finance for obtaining it. Of the seven models examined, we identified three that seem especially promising.
The first involves partnerships among finance and other institutions, such as manufacturers, retailers and agricultural advisors. For example, the Water and Microfinance Initiative (WMI) in Senegal fosters partnerships between a microfinance institution and organizations that specialize in irrigated agriculture. By taking both forms of expertise into account, WMI designs an economically viable credit product.
The second “pay-as-you-go” (or “rent-to-own”) model spreads out payments and enables farmers to begin benefitting immediately. It also minimizes risk for lenders, because the irrigation technology serves as collateral. For example, Agriworks Uganda implements this model, requiring farmers to first make a down payment to acquire the technology, then three additional payments based on the income earned from using it. Internet-based options complement the “pay-as-you-go” model particularly well. By enabling lenders to monitor their technology and farmers to make payments online, Internet-based services both reduce the transaction cost of lending and enable the expansion of irrigation technology to more remote areas.
The third model is the contractor or utility model, in which entrepreneurs offer irrigation services rather than selling equipment. For instance, a Nigerian start-up called Hello Tractor uses a web-based platform to connect farmers with owners of small tractors, earning it the nickname “Uber for the farm.”
Pulling from the top
Our study cautions that these models have not yet been the subject of detailed studies to document their effectiveness and impact. None of them is likely to offer a “silver bullet” solution. On the contrary, it is important to provide farmers with multiple options to finance irrigation, so they can choose the one that best fits their circumstances.
To this end, we recommend that African governments create policy and legal frameworks that offer financial institutions stronger incentives to provide better services and a wider array of products, including savings, insurance and credit. We also call for special efforts to provide women and youth with equitable opportunities. While the revolution in farmer-led irrigation is by definition a bottom-up movement, there is a lot that governments and businesses can do to pull from the top.
This post was written by Douglas J. Merrey and Nicole Lefore, who are researchers with the International Water Management Institute (IWMI).