Loans to farmers work.

When we started working with farmers in the Dominican Republic, we asked them how we could be of service to them. The most urgent need they identified? Access to credit to maintain farms before harvest. Most of the farmers had no access to capital at that time. And the ones that did were charged rates as high as 24 – 36% annually.

In 2010, after discussions with farmers, Liga Masiva tried to partner with a microfinance institution to get the farmers access to the credit they needed.  Yet after 21 different institutions, not a single one had terms were acceptable to either the farmers or us.

But we refused to believe the farmers were as “risky” as the microfinance organizations claimed they were.  So, we decided to try it ourselves. Thanks to an social enterprise investor, Rafe Furst, Liga Masiva raised the capital to launch a pilot project last October.

Again and again, we were told it wouldn’t work. The lawyers said we’d land in jail; the locals said the farmers would misuse the funds; and social enterprise experts said the loans would never be repaid. We went ahead anyway.

Right from the start, there were surprises.  Farmers were very careful about borrowing only as much as they needed for coffee maintenance. Even more heartening was that the farmers talked about the money as a mutual investment and commitment, since it came as part of our broader program.

Today, we are pleased to announce that the Socios program proved microfinance institutions, lawyers, and even community activists wrong.  By the end of the harvest, all of the loans were paid back in full.  The money was used for coffee related expenses, from planting seedlings to repairs on machinery and pruning.

Last week, we issued the farmers certificate sstating they paid the loans in full. We also issued letters showing payment records and “good standing” as borrowers. While a simple certificate may not seem like a lot, the farmers’ payment histories serve as credit histories, something they never had before. We designed these records not just as a point of pride for the farmers, but as a tool to allow them to access other sources of credit in the future.

Were there hiccups?  Absolutely.  Our original plan for repaying a percentage each time the farmers got paid did not to work for them.  Rather, farmers paid off their loan in chunks.  Arriving this summer, we were also informed that there is need for money during this season as well as just preharvest.  This information allows us to iterate on the program, making it more useful, applicable, and tailored to the farmers’ needs.

We’ll keep working with farmers to improve the program.  But so far, this pilot supports the idea that relationship-based business is a viable model for changing the way trade works for small-scale farmers.  Cheers to that.