When the tractor at AA Ataqwaah Enterprise broke down for the last time in 2011, Managing Director Abdulazziz Munkaila did not know how he was going to accommodate the 50 farmers around Zabzugu District in Northern Ghana who depended on his services to prepare their farmlands for planting. He had tried to access mechanization services from other providers, but they proved unreliable and the high interest rates at Ghanaian banks made buying a new tractor financially impossible. Without dependable tractor services, Munkaila’s nucleus farming enterprise was forced to cease financing other agro-inputs to smallholder staple food farmers because it had become too risky.
Three years later, through a deal brokered by the USAID Financing Ghanaian Agriculture Project (USAID-FinGAP), AA Ataqwaah became one of fourteen “small to medium including large enterprises” (SMiLEs), working in the rice, soybeans, and maize value chains, to receive a loan from Sinapi Aba Savings and Loans (SASL), which they used to purchase a new John Deere tractor. USAID-FinGAP staff had negotiated with Danida for a low interest, guarantee-backed sum of capital worth US$3 million for USAID-FinGAP partner’s SASL to provide loans with the specific purpose of providing land preparation services. USAID-FinGAP then linked SASL and AFGRI, the local John Deere dealer, to create an appropriate tractor equipment loan product for agriculture service providers. To make the financing attractive and feasible, John Deere covers 4 percentage points of the interest charged by SASL and offers training and equipment warranties for the life of the loan. Repayment begins in July 2015 with bullet payments over three years.
“Access to the John Deere tractor has been a relief to me and smallholder farmers in the area. I plan to assist between 110 and 120 outgrowers in rice (about 100 acres) and maize (about 280 acres) during the upcoming season,” Munkaila said. “I will also cultivate 100 acres rice and 50 acres maize on my own farm.”
Now that agricultural service providers like AA Ataqwaah have the ability to provide land preparation services, they have the necessary confidence to extend new input financing to smallholder farmers. SASL has made 15 tractor loans worth almost US$450,000. Each loan represents expanded agricultural services to support on average of 200 rice and maize smallholder farmers, bringing the program’s reach to nearly 3,000.
Gerrie Jordaan, Country Director of AFGRI Ghana, who has seen sales of John Deere tractors and accessories increase by about 20%, said, “Farmers are able to buy full complements of tractor and accessories since they do not need to mobilize funds to cover 100% of the cost. Moreover, these farmers are able to buy mechanization equipment such as planters which are also financed under the same arrangement.”
USAID-FinGAP used internal staff resources to link agents already providing services and subsidies and unlock commercial financing at competitive rates. The result was successfully expanded critical agricultural services for Northern Ghana’s poorest agricultural entrepreneurs. USAID-FinGAP has discovered that, rather than investing in new subsidies or technologies, sometimes the innovation is in the bundling and linking of existing tools to create economies of scale that are commercially viable for everyone.
AFRGI Sales Manager Bernard Asamoah-Akrasi summarized it eloquently when he said, “The collaboration brokered by USAIDFinGAP is bridging the financing gap.”