Microfinance and Agricultural Finance in Africa - Interview with Marc Mees, Head of Knowledge Management, SOS Faim Belgium

Feb 18, 2019
In this interview, Marc Mees, Head of Knowledge Management at SOS Faim Belgium, shares the experience of this Belgian and Luxemburg NGO that fights extreme poverty and promotes food sovereignty in 7 Sub-Saharan African countries. SOS Faim supports sustainable family farming and supports farmers in the South by providing technical, organizational and financial support, including through agricultural financing programs. 1-


Can you present SOS FAIM and its main and recent achievements regarding agricultural and rural financing on the African continent?
SOS Faim is operating in seven sub-Saharan African countries - Ethiopia, the Democratic Republic of Congo, and with significant operations in West Africa (Benin, Burkina Faso, Mali, Niger and Senegal). In the field of agricultural and rural financing, SOS Faim develops different lines of operations:
  • Support to rural and agricultural decentralized financial systems: this support can take different forms: support to create adapted products, support to develop rural networks, and building the capacity of the teams;
  • Support to producer organizations: building financial capacity, support for their ability to negotiate with the financial system (banks and microfinance institutions), establish credit and guarantee funds for organized producers, etc.…; and
  • Advocacy support for national and regional farmers' organizations (ROPPA in West Africa) to better consider family farming in agricultural financing policies.
In general, SOS Faim promotes a process of linking producers' associations and cooperatives with the financial system, with the aim of facilitating access to financing in the best possible conditions from the farmers' point of view. There are several concrete examples that can be highlighted. The ZOOM Microfinance No. 49 published in early 2018 highlights several cases of collaboration between agricultural producers’ cooperatives and rural financing institutions. SOS Faim Luxembourg implements a mandate from the Luxembourg Government in Burkina Faso and Mali (AGRI + program) to better articulate farmers' demand with the financial offer through financial tools (credit line and guarantee fund), as well as through a financial training program for peasants' organizations aimed at building their proposal and negotiation capacity. The training component is also carried out in Niger with support from Swiss Cooperation. 2-


Microfinance is at the center of SOS FAIM's strategy in the fight against extreme poverty. Based on your field experience, what is your view of the state of Africa's microfinance sector, especially in terms of social impact and efficiency in rural and peri-urban areas?
I would not say that microfinance is central to our strategy. In our opinion, it is above all, a tool that must be at the service of family farming. This tool is necessary, but not sufficient, and it must be encouraged by a series of public policies, be it in the field of agriculture, infrastructure and finance. It is clear that for an MFI or a DFI, it is more difficult to work in support of agriculture: the costs (distances, isolation) and the risks are necessarily higher and the need to count on acceptable financial ratios has sometimes required a reverting to urban areas. Digital finance is certainly a possible track (see Zoom Microfinance 48), but beware of the dependence on mobile network operators and the cost of installation. As we mentioned in the Zoom Microfinance No. 43 on regulation in West Africa, this one, which is based on the very good intention of protecting customers, has triggered a number of behaviours on the part of MFIs: a restructuring of mutual institutions, with less proximity; a prioritization of financial indicators; a trend towards standardization of products... 3-


Based on agricultural programs and projects in Africa in which SOS Faim is financially involved, do you think that there is an arbitration to be made between financial profitability and social impact? If not, under what conditions can these two objectives be jointly achieved?
For us, as an NGO, the social and environmental pillars of microfinance are unavoidable. This does not at all negate the importance of economic and financial sustainability. But it seems to us that one can imagine supportive measures at the level of public policies to strengthen the social and environmental aspects. For example, we are thinking of setting up guarantee funds and subsidy policies of interest rates for agriculture (as in Senegal). Not to mention that this type of public policy has also existed in OECD member countries. 4-


How do you see the future of microfinance in Africa in the face of new competition from financial service providers basing their offers on mobile money and the digital channel? Are there opportunities and practical cases of complementarity for better financing of agriculture in Africa?
We are watching with interest the development of digital technologies for access to finance, even though we have noted that these developments are still at the embryonic stage at the level of our partners. The question of access to adapted financial services seems broader than technology, in the sense that there is still a lack of financial products adapted to producers’ demand (especially for investment). The choice of digital technology can however be interesting, since it can drastically reduce the costs borne by financial institutions, in the interest of producers: a telephone transaction can cost up to 30 times less than a transaction in an isolated rural branch, which may require an adjustment of interest rates. But one of the biggest challenges in digital financial operations remains the issue of data ownership and the reliance on big mobile network operators. 5-


In the "Zoom Microfinance" Issue No. 43, you spoke about the adverse effects of the new regulation of 2007 on the development of microfinance in the WAEMU zone, more precisely in rural areas. Do you think that regulation is the main obstacle to microfinance's development in this region, compared to countries such as Nigeria, Ghana or Morocco?
As part of the preparation of this issue of ZOOM Microfinance, we took care to contact a number of field operators in West Africa to obtain their point of view on regulation. While the focus on protecting the customer (and especially the saver) seemed a clear positive intention, it also emerged that regulation was very much geared towards controlling financial performance to the detriment of social performance, which it pushed towards a form of standardization of the products offered rather than the development of customized products responding to the demands of agricultural producers. And in the case of the mutual systems, that it had pushed to a reorganization of the networks threatening their ownership, with mergers of funds to cope with the obligations of financial reporting and professionalization of elected officers. From our perspective, it is not the existence of regulations that hinders the development of micro-finance, but it is really necessary that these regulations take into account the realities of the actors of the African family farming.

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Microfinance is practiced in Africa by institutions with various legal forms. For example, mutual or cooperative structures dominate the WAEMU market, while NGOs and microcredit associations provide leadership in the Moroccan market. In Nigeria, specialized microfinance banks are witnessing increasing growth. In your opinion, which organizational or legal structures are best suited for microfinance institutions wishing to intervene in the financing of agriculture in Africa?
We believe that the issue of the legal status of financial institutions is not fundamental, even though our organization shows a preference for the cooperative model, without idealizing it. For SOS Faim, the cooperative model makes the difference insofar as it is the producers who own the institution and participate in its governance. On the contrary, what seems more important to us is that financial institutions take into consideration the needs of organized African agricultural producers (in peasant organizations or cooperatives). The various cases presented in the latest issue of ZOOM Microfinance show that it is possible regardless of the status of the institution, since it concerns both a public limited company under Ethiopian law, a Malian bank or mutual institutions in Senegal and Mali. The important issue lies in the dialogue between supply and demand, that the two "parties" learn to know each other better, to master the fields of mutual intervention. We often see a form of ignorance of the constraints of other actors and it is undoubtedly an important lever to change Africa's agricultural finance sector.
Marc Mees is a trained bio-engineer. He has been working in the field of international cooperation since 1983 and his experience in microfinance dates back to the early 1990s. For more than 20 years, he has been responsible for supporting SOS Faim's partners. Marc has also held management positions in various institutions related to agricultural financing, including the European Microfinance Platform, the Belgian ALTERFIN cooperative, the Latin America Guarantee Fund (FOGAL) and "Inter-Réseaux Développement rural”.