Short Summary
This charity will work with existing financial institutions, such as savings cooperatives, to offer novel types of financial products, with a primary focus on asset-collateralized loans.
To achieve this, the charity will provide these institutions with technical assistance, offer default insurance (to reduce the lenders’ risk), and help with the marketing of these loans to farmers to increase take-up.
The Problem
What’s the problem?
Farmers often face barriers in accessing agricultural finance because they, for example, lack the required collateral, do not meet the strict eligibility criteria for loans, or cannot pay the high interest rate.
Why does it matter?
A lack of access to finance prevents farmers from purchasing productive assets – such as water tanks, which can be used to store drinking water for cattle and in turn, increase the cattle’s milk production. An asset-collateralized loan, which would be repaid using the increased income from the water tank, can be used to overcome the upfront cost barrier.
Neglectedness:
To our knowledge, no one is working on this idea outside of Kenya. Within Kenya, PxD is currently working with 5 savings cooperatives, but this intervention is not their core program.
The Solution
What’s the proposed solution?
Instead of providing financial assistance, this charity aims to convince cooperatives and other institutions to offer farmers asset-collateralized loans for water tanks.
Why do we trust this solution?
We primarily rely on one study from Kenya (n=1,804 farmers) demonstrating that asset-collateralized loans can increase milk sales, income, and consumption.
How robust is the evidence?
This study is fairly old (the study period was over 10 years ago), and its results are only statistically significant when trimming the data (although we think that this analytical approach is justified). However, newer published and unpublished evidence supports the original study’s findings.
The Impact
What impact could this have?
Assuming we can reach 30% of eligible farmers at scale in Kenya, we will create ~33,000 income doublings annually.
We do not anticipate negative effects on animal welfare. In fact, we expect welfare to potentially increase, as the affected animals will experience less thirst.
Estimated cost-effectiveness:
We assume that, after providing an asset-collateralized loan, (discounted) milk sales will increase by 9%, increasing incomes by approximately 400 Kenyan Shillings (Ksh) per household per month. This intervention is expected to be cost-effective, creating 82 consumption doublings per USD 1,000, or costing USD 12 per consumption doubling.
Ideal Founder Profile
Who is best suited to do this? *
We think financial knowledge and advising experience would be a strong plus for at least one founder.
In addition, experience with or willingness to work in rural areas in LMICs would be valuable.
*We think candidates with the following skills will have a comparative advantage/be especially promising for founding this idea, but we would like to still encourage applicants from people who do not match this criteria who are enthusiastic about this idea and believe they may be well-suited for reasons not captured here
