Microfinance – Empowering a new generation of smallholder producers

Microfinance schemes have attracted growing attention in recent years as an effective means of supporting small-scale entrepreneurism among the urban and rural poor - reports the Global Mechanism of the UNCCD (GM). Through the provision of basic financial services, such as credit and insurance at reasonable interest rates, many microfinance initiatives had provided a vital hand-up to the world’s poorest by stimulating access to markets, opening new economic opportunities and creating an increased supply of goods and services.

Yet, far too often, microfinance schemes had remained isolated, project-based initiatives, separated from national development objectives and planning processes. In addition, the provision of microfinance for sustainable land management (SLM) and agricultural production had, to date, been sporadic. This was changing however, with Ecuador a striking example of a country making important strides to integrate microfinance into broader development processes that are directly linked with national priorities and budget lines, for enhanced sustainable agricultural production.

Upon the request of the Government of Ecuador, the GM supported the development of an SLM-Climate Change (CC) Microfinance Strategy, a comprehensive and sustainable approach for mobilizing fresh financial resources for SLM and climate change adaptation activities through the microfinance system in Ecuador. As a direct result of the strategy, a dedicated credit line for SLM and CC adaptation has now been established under the national microfinance programme (National Programme of Popular Finance and Entrepreneurial Solidarity, PNFPEES) - a governmental initiative of the Ministry of Social Development - which supports Ecuador's most vulnerable populations.

The PNFPEES has to date leveraged USD 80 million from the national budget into around 150 local micro-financing institutions, such as communal credit and saving cooperatives. The strategy, which will be implemented by the PNFPEES together with the Undersecretary of Climate Change of the Ministry of Environment, will aim to gain access to some of this financing and mobilise small and secure loans for local agricultural producers and smallholder farmers, according to particular investment needs and the distinct nature of local ecosystems.

As part of the terms for the loans, incentives will be provided for the adoption of good practices, including through reductions in loan repayments. The second key objective of the strategy is to build long-term capacities and national expertise on microfinance opportunities and procedures. The GM is in the process of supporting the Government in organising a series of national-level workshops and multi-stakeholder platforms, bringing together key players from local government, research and extension institutions, civil society organisations and international cooperation partners.

Ecuador is the first country worldwide to pilot the implementation of a broader microfinance model currently being initiated by the GM, which holds the potential to be replicated in other countries across the globe. There is a growing expectation that microfinance can be a key instrument in promoting a new generation of smallholder agricultural producers, helping them to emerge as a force in enhancing environmental resilience, whilst contributing towards broad development goals such as national food sovereignty and economic growth.

This news item orignates from news.global-mechanism.org

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