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Reducing Borrower and Lender Risk Through Context Sensitive Product and Portfolio Design: The Case of ‘Integrated’ Agricultural Development in Tajikistan

This paper is a case study that illustrates MEDA’s organizational approach to the development of sustainable financial services for rural households as exemplified by our experience in Tajikistan. Since 2004, MEDA has been implementing a four-year $4.5 million CIDA-funded agricultural development program that focuses on the horticulture subsector. A key component of the project is to partner with and develop the capacity of a local MFI (microfinance institution) to expand their loan portfolio from mainly urban clients to include smallholder farmers. A $1 million agricultural loan fund has been made available for this purpose, along with technical assistance and temporary operational support.

The primary technical challenges have been to accurately assess the local context, and based on the findings, assist the MFI to design appropriate products and develop a balanced portfolio to meet the needs of the borrower and lender, reducing the risk to both. Special attention has been paid to borrowers’ sources of income and agricultural cycles. The disbursement and repayment of the $1million loan portfolio has been so successful that it reached operational sustainability with almost no default within 18 months. Farmers continue to take loans, raise their incomes, and seek out additional loan products. The context-sensitive design of products and the portfolio has enabled the MFI to successfully expand into rural lending. Building on this success, the MFI has gone from a capitalization of $2 million to $6 million with increased agricultural lending to become the leader in rural finance in Tajikistan over the past three years.