Financing Coffee Farmers in Jimma Zone, Ethiopia: Challenges and Opportunities

This paper examines how microfinance could impact the lives of coffee producers in Ethiopia. The paper makes the following points:

• Despite severe price shocks, coffee remains a fundamental component of the Ethiopian economy and export;
• Nevertheless the prolonged decline in the price of coffee has weakened its production basis and prospects;
• Appropriate financial services are urgently needed to sustain rural communities in Ethiopia.

The study conducts a survey of 120 Ethiopian coffee farmers, complementing the statistical analysis with focus group discussions and individual interviews with “key-experts” of the coffee value chain. The study finds that:

• There is an overall gap between the demand and supply of financial services, across the different sources (formal and informal ones);
• Existing financial services are too costly and are often not tailored to the farmers needs;
• The diffusion of saving products is very limited, since they have been recently introduced, but in the future they could become an important component for strengthening microfinance outreach;
• Currently, savings products also act as a substitute for risk-insurance products, which are totally absent in the coffee production chain.

The study concludes that there is a need for:

• Enlarging the outreach of microfinance institutions (MFIs) and financially-active cooperatives;
• Demand-oriented financial services and suitable “bottom-up” agricultural development and policymaking.