By Allison Nafziger, published by Mennonite Economic Development Associates, January 2020, 18 pages, available at https://www.meda.org/innovate/innovate-resources/944-experiences-in-gender-sensitive-solutions-to-collateral-constraints-meda-innovate-learning-series-paper
Many financial institutions and regulatory systems in low-income countries impose strict collateral requirements on smallholder farmers as well as other micro-, small and medium-sized enterprises (MSMEs) in the agricultural sector. These requirements especially are limiting to potential borrowers who are women, as they are often unbanked, lack property rights and face other gender-based constraints. Preliminary research has shown, however, that non-conventional collateral (NCC) can alleviate this issue, increasing financial access. Common uses of NCC include: (1) leasing, through which a lessee can generate cash from the use of a leased asset to service her lease payment; and (2) group lending, which is based on “social collateral.”
Ms Nafziger examines the potential of NCC to improve the access of smallholder women to affordable credit. Based on case studies in Bolivia, Tanzania and Zimbabwe, she finds that organizations accepting NCC, such as livestock and agricultural equipment, greatly improved access to credit for women. In countries that allow the use of NCC, Ms Nafziger recommends that financial institutions pilot its use, collect sex-disaggregated data on the results and experiment with collateral registries. To support the use of NCC, policymakers can standardize and centralize these collateral registries.
By Anna Gravois, Research Associate
Sources and Additional Resources
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