July 31, 2016

Center for Agricultural and Rural Development Financial NGO (CARD-FNGO)

USAID Incentive Grant Leads to Increased Financing and Improved Farming

 Microfinance Institution uses funds to achieve 100% loan recovery and higher produce yields

For over twenty-five years, Naresh Shukla has been working in rural and agricultural lending, focused on improving food security through innovative financing for smallholder farmers. As Group Manager of the Center for Agricultural and Rural Development Financial NGO (CARD-FNGO), a microfinance institution based in northern Ghana, Shukla has implemented the Crops Cashless Financing Services (CCFS) model, an input credit program that has seen varying amount of success in terms of repayment. Recovery rates ranged from 42-88% until the 2015/16 farming season when CARD-FNGO supplemented this model with a USAID-funded Pay-for-Performance grant. With strategic implementation of the grant money, loan recovery reached a satisfying 100%.

CARD-FNGO and 13 other financial institutions (FIs) are grantees under the first grant incentive program implemented by the USAID Financing Ghanaian Agriculture Project (USAID-FinGAP), a five-year project established to facilitate financing and investment for agribusinesses operating in the maize, rice, and soy value chains in the north of Ghana.

These institutions increased financing by approximately $74.7 million in return for grant awards to enhance their agribusiness lending operations. Grant awards drawn by FIs have been used to set up agribusiness desks, build capacity of staff in agribusiness lending, and acquire vehicles, motorbikes, and equipment to improve loan administration and monitoring.

“Investing in organizational operations leads to a reduction in the default rate,” said Shukla, whose firm received a fixed amount award of $60,000. “FIs must have the requisite logistics to be profitable. The grant award from USAID-FinGAP helped us to acquire motorbikes for our credit officers to regularly monitor loans, resulting in us achieving a 100% loan recovery.”

Aside from the acquisition of motorbikes to intensify loan monitoring and recovery in target districts, the grant was used for logistics support, including purchasing jute sacks, tarpaulins, and wooden-pallets to improve handling, storage, and marketing of aggregated produce, and reduce postharvest losses and increase revenues.

To fulfill its pledge under the performance-based incentive grant, CARD-FNGO provided $1.5 million in financing. The funds came in the form of input credit through the CCFS model, technical support, and agribusiness training to 6,615 smallholder farmers of maize, rice, and soy in 12 districts in the Northern Region, leveraging the aid 25:1. The farmer groups, located in Tamale, Sagnarigu, Yendi, Mion, Savelugu-Nanton, Central and East Gonja, Tolon, Kumbungu, Karaga, Tatale/Sanguli, and Zabzugu districts, received seed, fertilizer, weedicides, plowing and harrowing services on credit at the beginning of the cropping season.

The benefit of the CCFS model is that farmers receive credit-in-kind in the form of farm inputs and services which are guaranteed to be put to good use for farming, rather than cash which could be diverted for unapproved purposes. This season, each farmer received inputs valued between $100 and $200, based on a consultative list of items requested. CARD-FNGO worked with input service providers to deliver the credited inputs in a timely manner directly to the farmers’ doorsteps.

At harvest time, the farmers repaid the input credit-in-kind with bags of produce. Executives of the farmer groups helped to ensure timely recovery and aggregation of the products from beneficiary farmers for onward transportation and storage. CARD-FNGO then aggregated the grains and stored them for an extended period in anticipation of price appreciation.

For many smallholder farmers with two to four acres and no cash or access to agricultural credit, planting was oftentimes constrained to less than 50% of available land, limiting their ability to grow sufficient food for their families and for market. Now, with CARD-FNGO providing inputs and plowing services on credit, farmers are able to increase acreages cultivated, thereby increasing production to repay their loans, feed their families, and sell the surplus for income to meet other needs.

“Plowing services and input credit provided by CARD-FNGO in the 2015/16 season helped me to cultivate two more acres of farm land. I produced more maize to feed my family, repaid my loan, and sold the remainder for income.”

– Jado Nikpe, a smallholder farmer in the Mion District who has been cultivating maize for 15 years

To scale up the successes of its CCFS model, CARD-FNGO has signed up for participation in the second window of the USAID-FinGAP performance-based incentive grant program which opened on June 16, 2016.