For many smallholder farmers around the world, access to finance is a major challenge. Without available credit, many farmers are not able to realize the potential of their fields, because they cannot buy enough inputs such as fertilizer or seeds.
Natalia Castro Landero lives in the community of San Bartolo in northern Nicaragua. For several years, she was part of a WFP food-for-work program that supplies smallholder farmers like her with food so that they could spend time to improve their fields with soil conservation techniques. Receiving only a small loan of US$25 to purchase inputs, Natalia used to grow one hectare of maize and harvested each year around 1.3 metric tons.
With her harvest, she had to repay the loan and of course also feed her family. Over time, Natalia could improve her plot and with the proceeds slowly start cultivating more land. This enabled her to quit the food-for-work program and to take part in the Purchase for Progress (P4P) pilot: she no longer receives food assistance, but can now sell food to WFP and other buyers.
But to really expand her production, Natalia faced one bottleneck: access to finance. With a higher loan, she would be able to purchase more inputs and cultivate more land. Thanks to P4P, Natalia is now able to do this. From a revolving fund of US$ 95,000 set up through P4P and managed by her farmers’ organization “Union of Cattleman and Farmers of Quilalí”, she receives inputs in time for the planting season. With more inputs of higher quality, Natalia and her fellow farmers achieve better yields – and can then repay the revolving fund, including a 12% interest rate, after selling their crops a few months later.
Since 2008, WFP has set up revolving funds under the P4P pilot in Nicaragua totaling US$ 420,000. The interest rate for the farmers is between 12 and 24%, depending on the farmer organization – considerably lower than the rates offered by private banks, which tend to range from 28 to 32% in rural areas. Until now, the repayment rate of the loans has been quite high - at 78% - and is still increasing. Some farmers’ organizations have been able to repay 100% of the loans.