Credit requires trust – but a survey by the World Bank reveals that only a quarter of Nigerian smallholder farmers “fully trust” banks. They have even lower levels of trust in microfinance institutions (MFIs) because rates and withdrawal fees are perceived as prohibitively expensive, or because farmers do not want to risk losing their collateral.
It’s also well established that bankers tend to see the agricultural sector as very risky: unpredictable rainfall, plant diseases, poor post-harvest infrastructure, weak farmer organizations, market price fluctuations and last but not least, the difficulty in identifying genuine farmers as opposed to ‘briefcase’ farmers or opportunists. As a result, banks tend to insist on high collateral, often beyond the farmer’s reach.