Creative cash for crops: testing crop-based financial instruments to open credit to farmers

$230,145 | Sierra Leone | Stage 2

THE OPPORTUNITY: Poor farmers are often forced to sell their crops at harvest time, when prices are lowest, because they need immediate income and lack access to crop storage. There is an opportunity to test an approach that enables rural banks to adapt financial services to increase smallholder farmers' incomes.

THE PROJECT:  In partnership with the Government of Sierra Leone and several community banks in Kono and Kailahun districts, researchers at the Massachusetts Institute of Technology and Innovations for Poverty Action are using DIV funding to test a crop-based lending model in which private banks store farmers' crops at the time of harvest as collateral and give loans to the farmers, with the goal of reducing the damaging effects of price seasonality. The research institutions and partners are contributing more than 50 percent of the total cost to implement this project. The approach will be rigorously tested using a randomized control trial of palm oil-producing farmers, who make up half of households in Sierra Leone.

PROJECTED COST EFFICIENCY: Results from a prior pilot study indicate that farmers were able to sell their product at a 50 percent price increase compared to those that did not use the product. The expected outcomes to be measured under this grant are changes in income, investment, savings, and food security among farming households.