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Managing Risks in Financing Agriculture

In Burkina Faso, rural smallholders need access to finance so they can buy inputs, use mechanized labor,  pay for irrigation where needed; they want to invest in their farms to grow them and make them sustainable. All these financing demands participation of financial institutions, which have shown interest in providing finance for rural small farmers through agriculture lending, especially microfinance institutions (MFIs). However most MFIs have issues such as governance and sustainability that impede their growth, threaten their survival and could compromise their sustainability, and therefore affect the rural communities that they usually serve.

Managing Risks in Financing Agriculture

Support MFIs to manage risks

For the development of MFIs, ICCO Cooperation partners with Oikocredit. This social investor works with MFIs for their refinancing by providing loans and is convinced that microfinance can be delivered responsibly if partners are carefully selected, supported and monitored. Oikocredit aims to create a real economic partnership, based on mutual respect.

In order to strengthen MFIs so they can secure their portfolios and hence their investments through a more effective risk management system, ICCO under its Strengthening African Rural Smallholders (STARS) program and Oikocredit together with the Professional Association of Decentralized Financial Systems of Burkina Faso (AP/SFD-BF) organized an awareness and capacity building workshop for local consultants and partners in the microfinance sector. They used Oikocredit’s approach and modules to risk management for MFIs.

“It’s crucial for MFIs to be aware of the risks as they develop agriculture financial products so they can put on strategies and tools for risk management”, said Dominique Owekisa, ICCO country lead in Burkina Faso. “Even before we look at external factors leading to risks, we must also analyze internal prospects in the institution so we can support in structuring and eventually in refinancing,” explained Owekisa.

Tools for risk management

MFIs are generally subject to risks from many sources; the objectives of the workshop were to support MFIs better assess risks and use a tool or management system to mitigate or avoid the impacts of risks in case they occur. After three years, through risk mapping and the establishment of a risk management system, MFIs are expected to lower their organizational risks up to 10%, external risks to 5% and the portfolio at risk to 2 – 5%. A team of experts made of consultants from the STARS program will provide tailored support to each institution.

According to Lassina Sanou, the national director of Oikocredit in Mali and Burkina Faso, the last 10 years, many analyses have shown that several MFIs were placed under temporary or failing administration, “It’s time for microfinance to use the right tools and not be questioned about their sustainability. We want MFIs to operate smoothly as they take into account the risks that surround them,” said Mr. Sanou.

The Executive Director of the Professional Association of Decentralized Financial Systems of Burkina Faso (AP / SFD-BF), Mme Perpétue Coulibaly, appreciated the workshop: “There is no doubt that the development of the microfinance sector requires commitment not only from government and private partners but mostly from all the leading players such as the decentralized financial systems and their clients. The Burkina Faso strategy for financial inclusion will also provide a solution and contributes in ensuring an increase in access to finance (from 40% to 70% of the Burkinabe adult population), as well as the use of a range of “affordable and adapted financial products and services by 2022”.

STARS: changing the lives of 50,500 Burkinabe

In Burkina Faso, STARS works with financial institutions to develop innovative risk mitigation tools so that they can provide loans to farmers so they can finance the diversification of their crop and buy equipment to increase production. The program aims to change the lives of 50,500 rural Burkinabe farmers by facilitating their access to markets and financial services.