Inclusion for smallholder farmers is a key element in inclusive growth. It allows for them to make longer-term investments, consumption decisions, participate in productive activities, and adapt to unexpected climate shocks through the role which financial instruments can play in risk reduction and transfer.

Financial Access (FACS) and The Alliance of Bioversity International – CIAT are working to advance this cause in Africa. Together they will undertake several projects that have the objective of supporting the capacity building and development of climate-smart lending for smallholder farmers, as a form of providing risk transfer against the impacts of climate change.

This partnership was established in 2022 and is expected to provide technical assistance, tools, systems, and capacity to key institutions and stakeholders, to assess climate risk in their product portfolio and transfer agricultural climate risks for smallholders. As a start, the partnership is focusing on Kenya and Zambia and on the dairy and sorghum sectors.

This update provides an overview on three projects pursued jointly by FACS and CIAT.

Driving financial inclusion in the dairy value chain in Kenya

The partners are joining forces to enhance climate resilience in the dairy industry through the One CGIAR Livestock and Resilience (LCSR), and Climate Resilience (ClimBeR) initiatives.

The Livestock and Resilience Initiative aims to address the “double burden” that climate change poses for livestock production across Africa and Latin America. Researchers are working with public and private actors to identify existing solutions and to co-create and deliver innovations that quantifiably help producers, businesses and governments adapt livestock agrifood systems to climate change and reduce greenhouse gas emissions. Within this project this work will support farmers in accessing climate risk management tools.

The Climate Resilience initiative on the other hand aims to aims to transform the climate adaptation capacity of food and agricultural systems in low- and middle-income countries. Its goal is to tackle vulnerability to climate change at its roots and support countries as they adapt and build equitable and sustainable futures. Through the partnership between the CIAT and FACS, the project will focus on contributing to the reduction of risk for producers’ livelihoods and in value chains at scale.

The goal of the partnership is to minimize disruptions and risks for dairy producers’ livelihoods and value chains. The project aims to develop a dairy sector-focused climate risk scoring model proof of concept which would be further developed into a highly effective and practical credit profiling tool that can be incorporated in the loan application process of financial institutions. The initiative will focus on leveraging financial inclusion to strengthen the capacity for adaptation in food, land, and water systems and improve the ability of dairy farmers’ production systems to withstand drought, flooding, and high temperatures. This effort is in collaboration with ClimBeR and AICCRA.

Promoting financing for climate smart agriculture among smallholders in Kenya

The partners are working to address the climate-related challenges faced by sorghum farmers in arid regions of Kenya. One of the ways they plan to do this is by developing a climate-smart lending business case that will encourage financial institutions to lend to these farmers. This will help farmers to access the climate-smart inputs that they need, such as certified drought-resistant seeds, organic and mineral fertilizers, and climate risk insurance. By doing this, the partners aim to help farmers to become more resilient to the effects of climate change.

With this in place, FACS anticipates that sorghum farmers will be able to harvest around 1,000 kgs of sorghum per acre, which they can sell for KES 40. This will bring their revenues up to KES 40,000. Their profitability is therefore estimated to be KES 11,455 after netting off the loan financing expenses.

This project aligns with the AICCRA project which works to scale climate information services and climate-smart agriculture, increasing access and use of CGIAR innovations for millions of smallholder farmers in Africa.

Supporting digitalization for agri-financing in Zambia

The collaboration with Agora Microfinance Zambia (AMZ) is an important step in achieving the objective of reducing risk and digitalizing value chains within the Diversification in East and Southern Africa initiative, known as Ukama Ustawi.  AMZ is a microfinance institution dedicated to serving low-income, rural households in Zambia with appropriate financial products. Its mission is to contribute to the economic well-being of the poor through effective provision of appropriate financial services. Ukama Ustawi aims to support climate-resilient agriculture and livelihoods in 12 countries in East and Southern Africa by helping millions of smallholders intensify, diversify, and reduce the risks in maize-based farming through improved extension services, small- and medium-enterprise development, supporting governance frameworks, and increased investment with a gender and social inclusion lens.

This partnership will allow AMZ to develop innovative financial products that take into account the unique risks faced by smallholder farmers in the region and will also help to increase access to digital tools and services that can improve the efficiency and transparency of agricultural value chains. By contributing to this initiative, AMZ is helping to create a more resilient and sustainable agricultural sector in East and Southern Africa.

The way forward

The Alliance of Bioversity – CIAT, through the One CGIAR Initiatives, will look to continue the research and development of products to support the reduction of climate risks and the digitalization of access to financial products. In 2023, work will continue through this partnership for the design of the climate risk assessment tool and a potential risk contingent credit product, to be tested in Zambia. Ukama Ustawi will support a phase two of the work in the sorghum value chain in Kenya, whilst through the climber initiative the two institutions will continue to support the development of a Dairy product.

The partners

FACS is part of the Financial Access group, the ex-ING Bank emerging markets financial sector advisory business taken private by management in 2007. As a financial advisory and solutions provider with long-standing operational experience in banking and finance, FACS addresses key hurdles and challenges financial institutions face to provide financing to small agri-enterprises and smallholder farmers. FACS breaks down these hurdles through supply chain mapping, data-driven farmer selection, cash flow-based credit assessment, and the development of loan portfolios tailored to the requirements of agri-lenders.

The Alliance of Bioversity International and the International Center for Tropical Agriculture (CIAT) is part of CGIAR, a global research partnership for a food-secure future, dedicated to reducing poverty, enhancing food and nutrition security, and improving natural resources and ecosystem services. The Alliance of Bioversity International and CIAT delivers research-based solutions that harness agricultural biodiversity and sustainably transform food systems to improve people’s lives in response to today’s global challenges of climate change, biodiversity loss, environmental degradation, and malnutrition. To do so, the Alliance works with local, national and multinational partners across Latin America and the Caribbean, Asia and Africa, and with the public and private sectors.