Just like any other business, women-led agribusinesses require a number of factors to be successful, such as availability of affordable high quality inputs, equipment and labour; availability of suitable land for growing crops, rearing animals or processing produce; technical support from experts; and financially strong buyers that offer competitive prices. The ability of women-led agribusiness to acquire the necessary capital for quality inputs on purely commercial terms (e.g. through loans from banks or input suppliers) is a significant challenge because the transaction costs and default risk for lending to such businesses is considered high. Thus, the very first step in setting up strong women-led agribusinesses is a difficult one. No matter how well the other stages of the business – such as technical support, post-harvest handling or timely buying of the harvest – are handled, the inability of the women-led agribusinesses to plant the crop due to lack of financing means that they will continue going through a vicious cycle.
The gaps in inclusive financing
Banks, which in the case of Malawi account for over 92% of formal credit, appear to lag behind microfinance institutions (MFIs) and village savings and loans associations (VSLAs) in providing credit to women-led agribusinesses. Despite the significant contribution of MFIs and VSLAs in financing women-led agribusinesses, it is clear that there is a large gap that still needs to be covered. There are a number of concerns regarding these sources of lending, including:
- Limited MFI capital available for awarding sizeable loans
- Individual women requesting large loans require collateral in the form of fixed assets
- Requirement of husband’s consent before advancing loans
- The cost of the loans is much higher than the interest charged by commercial banks because it is high risk for MFIs to invest in small rural businesses, and borrowers do not have any alternative options
If the size of loans is limited, it is unlikely that the available amounts would be enough to finance the resources and equipment required to grow an agribusiness, such as:
- Machinery for mechanised farming, processing of food for livestock, or processing various types of agriculture produce
- Warehousing facilities to minimise post-harvest losses, and to support centralised storage of produce for aggregated buying
- Land, labour and inputs required to grow enough crop or rear large numbers of livestock, to support access to export markets or large local buyers
Developing a tailored solution
Publicly available figures show that in the case of Malawi, most banks have excess liquidity, a small proportion of which would be enough to meet the additional borrowing needs of women-led agribusinesses. It is therefore important that banks develop lending products whose features enable women-led agribusinesses to increase production, minimise losses and establish reliable markets for their crops and products. Banks may initially focus on reducing the cost and default risk of dealing with women-led agribusinesses, and then begin to support the value chain of women-led agribusinesses to ensure that women can add as much value as possible to their products to increase returns.
When the banks are satisfied with the proposed risk mitigation approaches that other institutions, such as MFIs and VSLAs, have successfully used, and either start to provide or increase their offering of needs-based financing to women, they will enable women to increase their production levels and revenues. In turn, this will allow banks to profitably lend more money and extend their operations to reach a satisfactory level in rural areas. However, the current reliance on MFIs and group loans will continue to limit the growth of women-led agribusinesses, and may limit the profitability of their businesses.