New voucher system to benefit Ethiopian smallholder farmers
Addis Abeba – The Agricultural Transformation Agency (ATA) announced that it has successfully piloted a voucher input sales system in the Amhara Regional State. In the pilot program, 156, 000 farmers were reached in five rural districs, said the ATA on 15th of Dec., in the regional state’s capital, Bahir Dar, a lakeside city located 578km north of Addis Abeba . The Voucher system is said to benefit farmers in meeting thier credit needs.
The Ethiopian economy is still dominated by agriculture which contributes 46 % of the national GDP‚ 73 % of employement and nearly 80 % of foriegn export items. However the sector is chiefly made up of smallholder farmers who live off less than 2 hectares of land.
The country’s a doption of agriculrural inputs like fertilizer and improved seeds has displayed growth in the past decade. Nonetheless‚ it still remains low even when it is comapred to other developing countries. Fertlizers, for instance, are used only by 30-40 % of the smallholder farmers‚ many have whom have a tendency to adopt the inputs below the recommended levels. Comparatively‚ less than 10 % of cultivated land across the country is covered with improved crop varieties.
Many variables affect the use of agricultural inputs constraining the productivity and production of smallholder farmers, limited access to credit being a major one. Insufficient incentive for rural population to save in formal institutions, lack of strong capacity in rural finance institutions, and the unavailable of risk mitigation mechanisms like insurance are identifieed by ATA as bottlneckes hindering the rural financial sector. To deal with this problem ATA, in collaboration with the Ministry of Agriculture (MoA) and other stakeholder has been working on developing a comprhensive Rural Financial Services (RFS) Strategy. A sustainable agricultural input sales voucher system is an important aspect of this Strategy.
The pilot program sees 230 million ETB in total input value distribution.It sets to improve smallholder farmers’ access to credit for agricultural input‚ by designing microfinance institutions (MFIs) as payment agents and formal lenders. The system is believed to minimize cash risk exposure for participating farmers, cooperatives, and MFIs.
“In the past, regional government were forced to cover considerable amounts of uncollected loans. This often resulted from incentive misalignment and lack of clear accountablity in the credit system,” said Ato Ayenew Belay, Head of the Amhara Regional Bureau of Finance and Development‚ speaking at a press conference in Bahir Dar. “Assigning MFIs the responsibilty of providing credit is an advantage because they have a positive record of low default rates and good client outreach.”
The new system assigns MFIs as responsible entities for qualifying farmers for credit, issuing “input credit voucher,” and collecting loan repayments from farmers. It also assigns MFIs for issuing vouchers in return for cash recieved from farmers (“input cash vouchers”). In this case, the farmer can use to redeem inputs from the cooperative.
It also allows for effective audit and control processes by all institutional participants. Furthermore, it supports effective financial flows between and among the smallholder farmers, MFIs, primary cooperative and cooperative unions, the CBE‚ and other financial partners.
The farmers are given up to 12 months to repay thier loans.
In the pilot program, the Amahara Credit and Savings Institution (ACSI) has facilitated this and opened 54 new satellite branches for this purpose. Of those farmers benefitting from this service, approximately 34 000 received inputs on credit and 2 000 of these were from female-headed households. Plans now are underway to roll out roll out the input sales voucher system to 73 woreds in Amhara for the coming planting season.”
The project was supported by the Royal Netherlands Embassy in Ethiopia, and the Department of Foreign Affairs‚ Trade and Development, Canada.
Chaired by the Prime Minister, a government body, Agricultural Transformation Council (ATC) provides strategic direction and leadership in prioritizing the key deliverable that are expected to transform Ethiopia’s agri sector. While the ATA supports the successful implementaion of the deliverables.
On the metric related to public spending on agriculture as a percentage of overall government expenditure, Ethiopia has invested an average of 14.7 % of government spending on the agricultural sector since 2003.
Cover Photo: Charity Water