Who Smoothes What? Asset Smoothing, Consumption Smoothing & Unmitigated Risk in Burkina Faso

In Mozambique, maize farmers average a paltry 700-800 kg/hectare, despite the availability of technologies such as hybrid seeds and fertilizer that can easily triple yields and substantially boost expected family income. Fertilizer voucher coupons and input market development are one response to this challenge, but the sustainability of voucher-induced technology uptake is uncertain. To address this issue, the BASIS Assets & Market Access Collaborative Research Support Program, in collaboration with IFDC and Opportunity Bank of Mozambique, is piloting a program to convert temporarily subsidized farmer incomes into savings and a source of self-finance. The program uses mobile banking, goal-oriented matched savings (Individual Development Accounts), and financial education to help farmers save and invest in their agricultural activities. Theoretical work suggests that these savings matches should be partially self-targeting and a smart form of subsidy. However, the program faced challenges in its first year, including a drought that reduced yields to 20-40% across major portions of the study area. The fertilizer had no positive impact, and the Opportunity Bank of Mozambique withdrew its mobile banks temporarily. Despite these challenges, farmers learned valuable lessons from the program, including the importance of protecting self-finance and other sources of liquidity with some form of agricultural insurance. In Ethiopia, the small-scale food grain farmers face a substantial yield gap, with a small fraction of farmers using improved varieties and fertilizers despite demonstrations that can work. The country's flimsy system of agricultural finance, based on state banking, almost completely collapsed in 2009 following a drought. Theoretical work indicates that interlinked credit-insurance that transfers correlated risk can relax lender portfolio restrictions on ag loans, undercut the destructive political economy that creates debt amnesties, and eliminate risk rationing of borrowers. The EPIICA project, a collaboration between BASIS I4 and ATAI, is working with Nyala Insurance to offer a rainfall-based index insurance contract to farmers. The contract has been used to coax in a new lender, Dashen Bank, that has never before offered agricultural loans. The bundled credit-insurance is marketed as "state contingent loan contracts" to farmers, and will be marketed and bundled by local co-ops. The project aims to interlink insurance with growth opportunities, avoiding the tradeoff of reduced variability at the cost of reduced average income. In Mali, smallholders leave significant "money on the table" every year by planting only one hectare in cotton. An interlinked contract that crowds in supply and demand for credit for that second hectare of cotton can create growth. The contract requires a high-quality design that is understood by farmers. In Mali, credit supply is currently generously, if unsustainably, supplied through a parastatal infrastructure. However, small farmers remain reluctant to borrow under group credit schemes. Working with farmers, I4 researchers designed a novel contract approach that identified farmer "loss aversion focal point" of 750kg/hectare and devised a double trigger contract that radically reduces basis risk while protecting against moral hazard.