The Ethiopian Government is replacing in some woredas the cash credit system farmers has to go through to secure fertilizer and improved seeds with vouchers.
A pilot project has been on place since 2012 n some woredas in Amhara State; Baso Liben, Gozamin, Debere Elias, South Achefer and Metecha woredas. It is following the pilot project the project is going ot be implemented in 73 woredas in the coming three months. The 73 woredas are half the number of the total woredas in the country and they have 2.2 million farmer households.
The intention of the new system is improving smallholder farmers’ access to credit for agricultural inputs, including fertilizers and improved seeds.
The previous system was established in a way that Commercial Bank of Ethiopia (CBE) provides fund for the bureaus of finance and economic development, which will pass the money to unions. The unions pass it to cooperatives, which in turn will extend loans to the farmers with a full guarantee provided by the bureaus of agriculture
The problem with this system was that the cooperatives distributed the money without any measures to make sure that the farmers would pay it back, says Teshome Walle (PhD), head of Amhara Regional Bureau of Agriculture. This lead to defaults of 143 Million Birr, 471 Million Birr, and 447 Million Birr, in the three years in Amhara region alone.
The new system is going to be set up as the Amhara Credit and Savings Association (ACSI) will issue vouchers to the Micro Finance Institutions (MFIs) under it. Farmers will not receive cash but these vouchers for the purpose of securing the inputs from the cooperatives. This relieves the agriculture bureau from providing guarantee and it will be replaced with a credit fund established at the ACSI.
The farmers, on the other hand, will not have to start paying immediately. They will have a grace period of one year and they will repay from the sale of their products.
According to ACSI’s CEO, Mekonen Yelewumwosen, the MFI’s will issue the vouchers based on an assessment of the farmers seeking the loan.
The existing system gives cooperatives and unions from five Birr to 12 Birr commission for every quintal of fertilizer. This figure is now going to be raised to 20 Birr in the aim of encouraging the cooperatives, Tekeba Tebabal, deputy head of Amhara Corporative Promotion Agency, explained.
The entire project is expected to extend an aggregate of 2.4 Billion Birr as loan. ACSI on its part will hire 4,200 employees that will implement the project.
The Netherlands Embassy and Department of Foreign Affairs, Trade & Development Canada are going ot support the project financially.
Source: Fortune
