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A-CAT – A Tool for Risk Assessment in Agriculture Financing
Both farmers and MFIs have an interest to know how much it costs to produce a certain crop and whether or not a profitable return can be achieved. If only they had a tool that could assist them to calculate costs and returns of any crop during its crop-cycle.
ICCO Terrafina Microfinance and ICCO Cooperation developed the Agri-Credit Assessment Tool (A-CAT) which can be used by microfinance institutions (MFIs) to characterize the economic performance of a crop. This is needed because MFI loan officers usually don’t have sufficient knowledge on agricultural activities.
“A-CAT helps MFIs to better understand the seasonal needs of farmers as well as to better assess the risk of the loan. This changed the process of loan disbursements and increased the credit availability for farmers in Senegal, Burkina Faso, Rwanda and Ethiopia, ”Lassina Sanou, STARS Microfinance Advisor in Burkina Faso explains.
Through a market systems development approach, STARS program of ICCO Cooperation focuses on improving access to finance and markets for 210,000 smallholders in Ethiopia, Rwanda, Senegal, and Burkina Faso.
Tailor-made products
To reach this ambitious goal, STARS supports MFIs to develop tailor-made credit products that fit the needs of smallholder farmers. STARS also builds MFI capacity on risk management and business planning and the training of loan officers, for example, by introducing A-CAT. Thanks to this support, MFIs have become better equipped to provide loans for farmers that meet exactly their needs. The right loan amount results in increased income for the farmer.
Here is how it works: With A-CAT, a loan officer estimates the expected loan amount needed to finance inputs and other costs, as well as the expected income from agricultural activities (using estimated crop yields). Based on this cash flow, MFIs can determine the ideal loan size for a particular farmer based on his crops and whether the client can repay the loan from the investment. The A-CAT tool further keeps track of the timing, if a loan is too late, the farmer misses the season, if it comes too early the farmer might use the money for other purposes.
During the agri-cycle, farmers’ spending and actual crop yields are monitored. An additional advantage is that the client builds up an agricultural performance and credit history.
Reducing risks
“A-CAT helped us to reduce the risk of giving an agri-loan that is more than needed, as it reduces the risks for farmers to default on their loans,” says Louis Lambert Nzabandora, head of operations of the Clecam Ejoheza MFI in Rwanda.
About STARS
The Strengthening African Rural Smallholders (STARS) program is a five-year program (2016-2021) implemented by ICCO Cooperation in partnership with Mastercard Foundation. Through a market systems development approach it focuses on improving access to finance and markets for 210,000 smallholders in Ethiopia, Rwanda, Senegal, and Burkina Faso.