Catalysing investments in sustainable agriculture with climate-smart credit for smallholders.
Small-scale agriculture is of critical importance for meeting the food security and livelihood needs of millions of people across developing countries. But with a changing climate reducing yields and failing harvests, the system is under increasingly threat.
In sub-Saharan Africa, economic loss associated with land degradation has been estimated at US$68 billion a year. Without secure tenure, market access or financial credit, smallholders have little support to adopt the climate-smart practices needed to keep their farms in good health.
Better access to finance, modern technologies, improved farming practices and improved resilience to climate-shocks on farms would mean better productivity and incomes for many of the world’s 450 million smallholder farmers. And although smallholder finance is growing in scale, a US$150 billion financing gap remains. Both smallholders and lenders with smallholder lending portfolios are constrained by their high vulnerability to climate change, perpetuating the inadequate flow of finance.
The Climate Smart Lending Platform (CSLP) is a pioneer model designed to connect smallholder farmers with financial institutions and tool providers to catalyse investment in climate-resilient farming.
Developed through a partnership between F3 Life, Financial Access, the International Union for the Conservation of Nature (IUCN) and the Climate Policy Initiative’s Global Innovation Lab for Climate Finance, the long-term goal of the Platform is to mainstream Climate-Smart Agriculture (CSA) metrics into credit scoring systems. They hope to improve the climate resilience of agricultural lending portfolios and create strong incentives for farmers to adopt climate-smart agriculture approaches.
With better access to private finance, smallholders can access the tools needed to adapt their practices and feel incentivised to do so. Practices like tree-planting and agroforestry would not only combat land degradation but also increase farmer’s incomes in the long-term, securing their livelihoods and improving wellbeing. And, bolstered with the monitoring platforms and guarantees they need, the risk of environmental and weather-related default would no longer inhibit lending institutions from providing this transformative capital to smallholders.
The CSLP consists of three elements: climate-smart credit products and process designs; a climate-smart credit-scoring tool; and a climate-smart agriculture compliance monitoring tool. Together, this package of technological innovations creates a model that would work across a range of agricultural commodities and geographical contexts, as well as being accessible and affordable to micro-finance institutions.
P4F is supporting CSLP to expand its model and make sustainable land-management a profitable investment, both for farmers and for lenders across sub-Saharan Africa.
The CSLP has made important progress since it was first launched. From an initial pilot of 75 farmers in Nyandarua County, Kenya, the project partners are planning scale-ups across other countries in sub-Saharan Africa, with the aim of issuing climate-smart loans to 45,000 famers, covering approximately 67,500 hectares and leveraging £20m by the end of 2020.
Already, a micro-finance institution has agreed to join the platform and will be using it to trial loans embedded with CSA practices to their smallholder farmer clients.
The portfolio of climate-smart products so far includes coffee, tea, cotton, and potato, but the CSLP partners have ambitious targets to expand. They plan to reach up to 1 million farmers by 2026 and, in West Africa, are targeting palm oil and cocoa to address the region’s key commodities and drivers of deforestation.