Theme 1: Financing Coffee Farmers in Ethiopia: Challenges and Opportunities

Notwithstanding the severe price shocks which have been shaking its value chain, coffee remains a fundamental component of the Ethiopian economy and export. Nevertheless the prolonged price decline has substantially weakened its production basis and prospects, so that appropriate financial services are urgently needed to sustain rural communities. Despite the growing literature on microfinance, financial supply and demand of rural communities remain issues largely unexplored. To address these issues, in 2005 we carried out an original survey interviewing 120 Ethiopian coffee farmers; further, the statistical analysis was complemented by “focus group” discussions and individual interviews with “key-experts” of the coffee value chain. Several important findings emerge from this study.

First, there is a strong evidence of an overall gap between demand and supply of financial services, across the different sources (formal and informal ones). Second, existing financial services (loans) are too costly (except for the cases of microfinance institutions and cooperatives) and often not tailored to the farmers’ needs (in relation to timing, length and amounts). Concerning saving products, their diffusion is still very limited, since they have been recently introduced, but in the future they could become an important component for strengthening the microfinance outreach; currently, they also stand as a substitute for risk-insurance products, totally absent in the coffee production chain. Regarding policy recommendations, the main priorities appear those of enlarging the outreach of MFI and financially-active cooperatives. More generally, a need emerges for demand-oriented financial services and suitable “bottom-up” agricultural development and policy-making.

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