Last week I sat down with a banker who I am grateful shared his wealth of experience with me, his experience of lending to farmers in a division of one big bank in Zimbabwe.
He spoke like a true banker, talking about risks, risks, and risks. By the time I left his office I knew about risks, risks, and risks of lending to small-scale farmers in Zimbabwe.
Their bank used to lend to small-scale farmers, but now it doesn’t and it lends only to large-scale commercial farmers.
There are a lot of experiences he shared with me which I cannot share with you for confidentiality reasons.
It so happens that the bank left the small-scale market at a time when we now target small-scale and medium-scale farmers more than large-scale farmers. In fact, think of a pyramid. Our main target market is going to be the bottom of that pyramid, the small-scale farmers he said are risky.
However, the idea that small-scale farmers are risky is one I dispute, and I also base this on his other experience he shared. I would say it all depends on how you approach the market and what your approach to the market is.
Their business model is lending to farmers. People behave in funny ways when they are in debt and they are miss paying loan repayment installments, – from ghosting to skipping town – , but if you remove the yoke of debt, they are likely to be more cooperative. Unfortunately, a bank cannot do that do debt-free business, it’s business is to give loans.
The way Prosper on Farms operates is different from a bank. Our business is not giving loans. We are not a bank whose business it is to lend money, but a facilitator of agricultural production under irrigation and buyer of agricultural production. We don’t make money from interest payments, but from value addition.
I would say the bank exited the market too soon and had entered the small-scale market unprepared and it prematurely left the small-scale market when it had learned the lessons for it to now succeed going forward.
It was their business model and the nature of their business, that made them fail to succeed in the small-scale market, but for confidentiality reasons I can’t go deep into it.
But I learned my lessons.