PROGRESS REPORT

40 PROGRESS REPORT PROGRAM LEVEL PROGRESS REPORT 41
Rural Financial Services:
Input Voucher System
6%
access to finance in rural areas, nationally
10%
agriculture sector share of the total loan
portfolio, nationally
9,196
number of RuSACCos nationally in 2014
82
woredas covered by Input Voucher System
in 2015
1.92
3.1
million
farmers reached by Input Voucher System
as of July 2015
billion ETB
total value of inputs sold using vouchers
as of July 2015
Access to the right inputs (such as fertilizer, improved seed and
labor-saving tools) is essential for farmers to increase production and
improve productivity in a sustainable manner. Unfortunately, limited
availability and high costs often prevent farmers from effectively
adopting and using the appropriate quantity of these inputs. While
other factors certainly play a role, lack of credit access is often a major
obstacle to the adoption of the appropriate package of improved
technologies. To overcome this obstacle and encourage increased
adoption of vital agricultural inputs (particularly fertilizer and improved
seed), the MoA and ATA have developed an Input Voucher System
(IVS) as part of an overall Rural Financial Services (RFS) strategy.
Distribution of inputs (mainly fertilizer and improved seeds) is primarily
financed by the regional governments and distributed through multipurpose
cooperatives by cash or partial credit. Since cooperatives do
not have the appropriate systems to handle the financial transactions
– including the collection of input loans – the regional governments,
who ultimately are financing the inputs, face various default issues.
The accumulation of large amounts of uncollected loans from farmers
also reduce the availability of future credit thus hampering full input
utilization and creating a viscous negative cycle.
The IVS was designed to address these problems by focusing on
financial institutions, mainly Microfinance Institutions (MFIs) and
Rural Savings and Credit Cooperatives (RuSACCOs), as the key
new intermediaries for all financial transactions on input purchases.
In this new model, the financial institution issues vouchers to
smallholder farmers for cash or credit to be redeemed for fertilizer and
improved seed at a primary cooperative store. By having the financial
institutions act as a payment agent for cash sales and a formal
lender for credit sales, the IVS minimizes the cash risk exposure for
participating farmers, cooperatives and regional governments. The
MFI also becomes responsible for collecting loan repayments from
farmers, allowing for effective audit and control processes by all
institutional participants, as well as supporting effective financial flows
between and among all stakeholders. In order to minimize travel and
transaction cost for farmers, these financial institutions also establish
satellite branches closer to the primary cooperatives, yielding many
additional benefits related to financial inclusion.
The IVS system was first piloted in the Amhara Region with the
Amhara Credit and Saving Institution (ACSI) in 2014. During the
pilot period, 243 million ETB ($12 million USD) worth of vouchers
were issued to 168,000 participating farmers through 55 newly
opened satellite ACSI branches in five woredas. Among the 168,000
smallholder farmers, 35,000 received credit worth over 52 million ETB,
100% of which was repaid in full before the loan
maturity dates. Most importantly, smallholder
farmers’ application of fertilizer in the woredas
in Amhara where the IVS was piloted increased
by 30%, as compared to an increase of 15% in
woredas without the system.
In 2015, the IVS was scaled-up in Amhara to 73
woredas, and piloted in 6 woredas in SNNP and
3 woredas in Tigray, with plans to include Oromia
in 2016. In the 2015 planting season (by July
2015), almost 1.76 million smallholder farmers
utilized the system to purchase inputs worth
2.95 billion ETB ($141 million USD) in Amhara
alone. Of this amount, almost 500 million ETB
($24 million USD) was on a credit basis to almost
400,000 smallholders. In addition, ACSI has been
establishing 800 new satellite branches for this
initiative who have already managed to mobilize
more than 71 million ETB ($3.5 million USD) in
savings from over 74,000 farmers.
In the Tigray pilot, RuSACCOs were used to issue
input vouchers on cash worth over 39 million ETB
($1.87 million USD) for almost 35,000 smallholder
farmers by July 2015. In SNNP, Omo Microfinance
was used to issue input vouchers worth over 115
million ETB ($5.52 million USD), reaching nearly
71,000 smallholders – almost 60,000 of whom
also received credit worth over 52 million ETB
($2.49 million USD).
To facilitate implementation of the IVS, training
on the overall system and on financial awareness
was given to more than 4,200 experts in Amhara,
645 in Tigray, and 1,000 in SNNP.
A financial awareness campaign was also
delivered through radio programs in all
four regions, leveraging Fana Broadcasting
Corporation. Activities are also underway to
automate the IVS, and to upgrade the system
from a paper-based platform to one using an
electronic “e-voucher”, in order to save costs and
streamline the process. The e-voucher system
has already been tested by recording over 200
transactions in parallel with the manual system,
in advance of a larger pilot planned for the 2016
irrigation and belg season.
Since its inception, the input voucher system
has vastly simplified the process of input
purchases and improved access to credit. It has
also helped to improve the savings culture of
rural communities and is assisting smallholder
farmers in planning their input purchases in
advance of planting seasons. Furthermore, since
the credit offered to farmers under the voucher
system now provides farmers with more flexible
terms to repay their loans, they have additional
options in storing and selling grain when prices
are attractive, rather than being forced to sell
immediately after harvest when prices are at their
lowest. Finally, the system has brought financial
institutions further into rural areas, increasing
the likelihood of farmers repaying their loans and
expanding access to savings and other financial
products while easing the burden on regional
governments’ budgets.