Blog: Could microfinance help prevent a health crisis from becoming an even greater food crisis?

The UN report focuses on tracking the progress towards ending hunger and includes input from several organisations, such as the World Health Organization (WHO) and the Food and Agriculture Organisation (FAO). These organisations  are increasingly recognising the devasting impact that the pandemic is having on the poorest and most vulnerable communities in Africa, Asia and Latin America. Even before the Covid-19 outbreak, 135 million people worldwide, faced acute hunger[1]. The outbreak of coronavirus is creating a food crisis on top of the health crisis, which can lead to people to dying of malnutrition.

Social distancing and disrupted supply chains  are harming international trade of coffee and cocoa. But we should not forget that farmers who are farming food for themselves and selling surplus to surrounding communities, form the backbone of food supply in many developing countries. According to the ETC Group report, around 70% of the world population is fed by smallholder producers. With markets closed and farmers having difficulties getting the credit needed for the preparation of land and buying seeds, they run the risk of going hungry and being unable to meet the needs of the local market. As we know from the past, people who are food insecure are more likely to leave the rural areas and start looking for better prospects in the cities. This trend might enable further spreading of the virus. Disrupted local supply chains and lower production has already led to an increase in food prices for stable crops like rice and corn in many local markets.

In early May, Oikocredit colleagues in Nigeria reported that the streets were filled with people demonstrating against the lockdown and demanding food support from the government. This was different from Europe where, around the same time, we saw protests from people feeling that their freedom had been restricted. In developing countries people are not only concerned about dying from the virus, but from hunger.  

Food aid and support from governments are crucial for the most vulnerable, but the support is also needed for microfinance institutions who can play an important role in this crisis.

How is the microfinance sector a part of the solution?

Approximately one-third of the end-clients of the microfinance institutions we finance are farmers in rural areas. For years, Oikocredit has favoured organisations who have a significant part of their lending with smallholder farmers to provide funds necessary for the next crop. Often these are short-term loans for a few months, which the farmers use to buy seeds, fertilisers and pay for land preparation. They repay the loan from what they earn after they sell their products to neighbours and on local markets.

Many of the microfinance institutions supported by Oikocredit are relatively small. Even before the Covid-19 outbreak, it was difficult for them to get the capital needed to provide loans to these farmers. In the current crisis, getting new funding for them is even harder. Central banks are developing programmes to support the formal banking sector, however, small and non-regulated MFIs hardly ever qualify for this support.  

With its local network of offices in developing countries, Oikocredit knows these organisations, has been working with them for several years and will continue to support them. Continuing to support our partners during this crisis is not only important to the MFIs, but it’s even more important to the end-clients they serve. For example, Oikocredit has provided an additional investment to a long-time West African partner, a small MFI in the north of Mali with a strong rural focus. The additional investment of € 400,000 will be used to finance smallholder horticulture and cereal farmers who are busy preparing their farms ahead of the coming rainy season. This partner has few alternative sources of funds in order to respond to its members’ financing requests, since the National Agriculture Development Bank (BNDA), the MFI’s main funder, is lowering its commitments for this year. The end-clients will not have other options of where to turn to get the input finance needed to support their families. With support from Oikocredit, our partner will be able to provide credit to more than 2,000 farming families in rural Mali.

Our work these days is focused on the financial health of our partners and supporting them to weather the storm. How we act today and the support we are providing has vast consequences for now and the future. By providing strong and continuous support for our partners, we in turn support low-income people to have food on the table and are ultimately helping to prevent a health crisis from becoming a food crisis.

Written by Hans Perk, Oikocredit's Regional Director Africa