Financing coffee farmers in Ethiopia: challenges and opportunities

Notwithstanding the severe price shocks that have been shacking 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. To gather focused evidence on the financial supply and demand of small Ethiopian coffee producers, in 2005 we carried out an original survey interviewing 120 farmers from the Jimma zone (Oromia regional state); 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, informal financial services (loans) are very costly, while those from microfinance institutions (MFI) and cooperatives often appear not tailored to the farmers’ needs (in relation to timing, length and amounts). Concerning saving products, their diffusion is still very limited, because 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 Ethiopian coffee production chain. Regarding policy recommendations, the main priorities appear those of enlarging the outreach of MFI and financialy active cooperatives. More generally, a need emerges for demand-oriented financial services and suitable “bottom-up” agricultural development and policy-making.