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Innovative Finance for Agriculture Technology Adoption

Development Challenge

Adoption of modern agricultural technologies—inorganic fertilizer and hybrid seeds in particular—can lead to large increases in productivity and profitability for many African smallholder farmers. Yet actual adoption rates for these technologies are low: fertilizer use in Sub-Saharan African countries is about twelve times lower than other developing countries and adoption of modern crop varieties is about five times lower than in Asian countries. One potential explanation is that low adoption is linked to poor access to credit or savings, meaning that farmers often have difficulty finding enough cash when it comes time to make these purchases.

Context

In Kenya, credit is relatively expensive and inflexible compared to savings. Savings products could help farmers accumulate cash to make fertilizer or seed purchases, but it may be difficult for farmers to save due to competing uses for their money and demands from family or friends. While credit and savings may potentially benefit farmers, there is little evidence about the relative effectiveness of either tool for increasing use of agricultural technologies.

Evaluation Strategy

In partnership with One Acre Fund (OAF), researchers are examining the effect of different credit and savings products on the adoption of fertilizer and hybrid seeds, farm productivity, and farmer spending on health, education, and food. In particular, they are currently evaluating whether well-timed access to credit allows farmers to make better use of storage and sell their output at higher prices, and they are studying how any additional profits are re-invested. Researchers have randomly divided 232 groups of farmers (5-7 per group) in Western and Nyanza provinces into one of the following groups:

Post-Harvest Loan: 77 groups (474 farmers) were randomly selected to be offered a loan directly following harvest in September or October.

Post-Harvest +3 Loan: 75 groups (480 farmers) were randomly selected to be offered a loan three months after Harvest in January. 

Comparison Group: 80 groups (635 farmers) were offered no loan  

Stored maize served as loan collateral, and all farmers who received loans also received a laminated tag with OAF’s logo attached to farmers’ stored maize. Following random assignment of the loan treatments, a subset of individuals within each group was randomly selected to receive a simple cash lockbox to promote savings. Additionally, researchers randomly selected 159 farmers within the comparison group to receive laminated tags to test whether the tag alone allows farmers to credibly claim to friends and family that they cannot give away their stored maize. Stored maize is easily visible to family and visitors and local norms promote sharing of surplus maize, so the tag may allow farmers to justify not sharing.

Results and Policy Implications

Project ongoing, results forthcoming

Timeline

2011-Ongoing