GIZ – Access to Finance for Farmers, Zambia

The Challenge: Access to Finance for Farmers

Like elsewhere in Africa, Zambian farmers are in need of finance in order to modernize agriculture. Funds to access improved seed, fertilizer, pesticides and herbicides, irrigation equipment and mechanization services. However, most banks and micro-finance are not yet geared up to finance farmers, while others have taken heavy losses in the past.

Add to this a difficult macro-economic situation with high inflation, enormous currency fluctuations of the Kwacha and interest rates of 30% and more and finance really becomes a challenge. Sense was asked to look at 4 value chains and develop financial products with financial institutions that can be piloted: cotton, groundnuts, soybeans, and dairy.

Project activities

One of our local consultants interviewed an input dealer with a crop spraying service, interested in setting up a mechanization service.

Together with a team of local consultants and GIZ staff Sense visited farmers, processors, traders, input dealers, exporters, retailers, and consumers to spot the opportunities and issues in each value chain.

This required the team to look at the market for a large number of products, including cotton lint, animal feed and edible oils (based on soybean, cottonseed, peanuts, and sunflower), chicken and beef and dairy farming (as users of animal feed), snack peanuts, peanut butter, and finally dairy.

For each value chain, one business model was identified that seem profitable but required investment and working capital. These models were then analyzed in greater detail to confirm whether indeed they are profitable, what the need is for working capital and investment capital, and if the models can support the required loans.

The models were validated in a workshop with farmers, processors, microfinance organizations and commercial banks.

Finally, follow-up meetings were held with financial institutions to discuss the way forward, in particular, support that can be offered to banks to start pilots.

Business models analyzed

  • Emerging Dairy farmers with simple irrigation equipment to grow improved grasses year-round for grazing and baling for sale to other farmers
  • Emerging dairy farmers with mechanization to produce field crops and silage for dairy production, service other surrounding farmers and to do baling of communal grasslands in winter
  • Input dealer who also becomes a mechanization service provider by acquiring a tractor with implements for other farmers
  • Small scale professional soybean and sunflower crushing plant for animal feed and edible oils production
  • Professional exporter of snack peanuts to the EU, South Africa, and other surrounding countries, with an outgrower program
  • Manual Peanut sheller for farmers

“Any outgrower or mechanisation program that does not have a thorough beneficiary selection and tries to add thousands of people per year has failed. They all needed to be redesigned.”

Key insights

A key insight was that dairy farming can be very profitable if dairy farmers produce their own feed. However, if not properly managed dairy farming is loss-making. Most financial institutions are interested in financing dairy farmers because the market is assured, they have a regular income with cash coming in every week throughout the year, and animals are seen as good collateral. They can easily be sold and the social stigma associated with animals being taken is a strong driver for farmers to pay off loans.

Another key insight was that the peanut sector offers excellent opportunities for growth, but requires professional exporters and processors to thrive. Peanut export, however, can be very profitable if aflatoxin is managed properly with farmers. Experiences with peanut butter manufacturers and the existing exporter have shown this is possible.

There was also a great interest in mechanization and irrigation from various farmers. Demand from farmers for land preparation, spraying, and transport services are high. However, the successful introduction of mechanization is not easy and requires a very careful selection of tractor operators, together with proper training and hands-on business coaching.

Meanwhile, in the recent droughts irrigation is coming forward as essential for risk management as farmers shift from a low-input-low reward to a high-input-high reward business model. A farmer can do everything right, but without water, he will have a lot more to lose than before.
The cotton value chain proved to be problematic. Cotton farmers nor processors (the gins) make a profit. It seems as if the main reason farmers grow cotton is to access inputs on credit that are then converted to maize and other crops. Even with proper farming methods and inputs cotton is not profitable, which is probably why no commercial farmer in Zambia produces the crop.

Finally, it was clear from the interviews that any program that aims to add thousands of people every year and does not have a very strict selection of participants has failed.  Opportunism is so rife that stringent selection procedures are needed, plus tight management and control. This is impossible to achieve with a high number of participants.

The future

GIZ is currently developing financial products and pilots with financial institutions. While the commercial banks got cold feet, MicroCredit organizations have developed a range of credit products that are currently rolled out.


Client: GIZ (German Development Corporation)

Location: Zambia

Goal: Access to Finance

Produce: Cotton, groundnuts, soybeans, dairy