Providing Cost-effective Credit to Small-scale Single-Crop Farmers: The Case of Financiera El Comercio

This edition of InSight describes the partnership between Financiera El Comercio (a regulated financial institution in Paraguay) and silos that enables it to provide small loans to single crop soy-bean farmers.The document explains the partnership as follows:

• Silos are national or multi-national businesses that have the equipment and infrastructure to store the soybean;
• The silo staff provide training, purchase the soybean crop for resale, finance the harvest and provide services for drying and storing the soybean;
• El Comercio has formed strategic alliances with 12 silos in Paraguay and provides credit to these.

The document examines:

• The soy value chain that includes farmers, landlords, transportation services, associations of farmers, the silo, large-scale input suppliers, soybean processors, agricultural exporters;
• The central role of the silos in the agricultural production chain.

The document identifies the following conditions that make this financing of single-crop farmers successful:

• Strong value chain;
• Formalized contracts between participants;
• Strategic alliances with silos leading to improved information quality, reduced cost of providing and monitoring loans;
• Favorable growing and price conditions.

The document concludes by listing lessons learned about financing single-crop farmers:

• Single-crop, small-scale farmers can be integrated into the formal sector financial system in a cost-effective way under the right conditions;
• Including a financial intermediary can present a win-win situation for all parties involved;
• Competition minimizes the exploitation of small farmers;
• The seasonality of crop production affects the loan portfolio.