One of the ways through which farmers can acquire expensive agricultural equipment and machinery is through micro leasing. Micro leasing allows farmers to acquire machines without offering collateral because most farmers do not have acceptable collateral to the traditional banks like land titles in prime locations.
What is needed, however, is a consolidated financial inflow, reflecting the farmerâ€™s ability to pay rentals of the leased equipment/machinery as demanded by the bank.
Unlike other loan schemes which are not farmer friendly, micro leasing enables a farmer to hire the machine for agricultural production while using the income generated by the use of the machine to pay rentals for the leased item.
The farmer also has an advantage of acquiring brand new machinery from the supplier with a guaranteed period of not less than a year. Suppliers also provide after-sales service like spare parts at affordable prices.
Besides, when the agreed period of financing the lease elapses, the client pays a nominal fee and eventually owns the equipment. The leased equipment/machinery can be used to generate more income and/or pledge as collateral against future working capital borrowings.
In doing so, farmers increase their levels of productivity and general well being because of having sufficient money to invest.
Under micro leasing, farmers are offered flexible repayment terms. Grace periods are given on case-by-case basis and the repayments are tied to cash flow pattern of a farmer. Repayments may be on quarter, bi-annual or annual basis.
Additionally, a farmer is given enough time in which to repay the facility as micro-leasing is a medium to longer term financing. A farmer can repay the facility within a period of one to eight years.
Nevertheless, micro leasing allows the bank to do maintenance follow up. This is intended to keep machines in good mechanical conditions until the lease is completely serviced.
The farmer who purchases equipment may benefit from the Agricultural Credit Fund at a subsidised interest rate of 10%.
How to gain access to a micro leasing facility?
A farmer who needs the machinery approaches a vendor/supplier and obtains a proforma invoice addressed to a bank.
The leasing officer assesses the financial cash flows and general financial position of the farmer. After the farmer has provided his/her financial information for a specified period of time, the bank determines the farmerâ€™s eligibility for the lease scheme. Having an account in the bank is an added advantage to determine the saving culture of the client.
Micro leasing targets small scale farmers who would like to increase their produce yet have no financial means to do so. Among the machines that are readily available in the leasing scheme are tractors, simple agricultural machines, processing machines like milk coolers and plants and mobile water tanks.
To a some extent, micro leasing incorporates commercial lease which includes leasing out of big trucks (magulukumi) for commercial purpose. But to a large extent, it agricultural-based.
How can small scale farmers benefit from micro finance
Micro finance provides much needed financial services to boost the agribusiness of small scale farmers through insurance, credit and savings.
Farmers should know how to save first so that they can finance part of their investments. There is relatively poor saving culture among many small scale farmers, yet the culture of saving helps farmers to tailor their budget expenditure and saving basing on their financial inflow.
Credit loan comes in a time when a farmer wants to make an investment but has no money to do so. During the time of buffer harvest, the farmer can then pay off the credit.
Insurance helps farmer to settle issues brought by natural disasters. For instance, if a farmer acquires the loan and suddenly dies, it is insurance to settle the loan.
However, there are few insurance companies which offer products like agricultural credit insurance. As a result, very few insurance companies are willing to go in for business and vice versa.
But if there is favourable environment with fewer risks involved, bankers would be all over offering micro insurance services.
The writer is the manager, Agricultural
Development Bank Ltd
Why farmers should consider micro leasing scheme