Case Study

Financing Coffee Farmers in Jimma Zone, Ethiopia: Challenges and Opportunities

Paper presented at FAO, the Ford Foundation, and IFAD’'s conference on rural finance research

This paper examines how microfinance could impact the lives of coffee producers in Ethiopia. The paper makes the following points:

  • Despite severe price shocks, coffee remains a fundamental component of the Ethiopian economy and export;
  • Nevertheless the prolonged decline in the price of coffee has weakened its production basis and prospects;
  • Appropriate financial services are urgently needed to sustain rural communities in Ethiopia.

The study conducts a survey of 120 Ethiopian coffee farmers, complementing the statistical analysis with focus group discussions and individual interviews with “key-experts” of the coffee value chain. The study finds that:

  • There is an overall gap between the demand and supply of financial services, across the different sources (formal and informal ones);
  • Existing financial services are too costly and are often not tailored to the farmers needs;
  • The diffusion of saving products is very limited, since they have been recently introduced, but in the future they could become an important component for strengthening microfinance outreach;
  • Currently, savings products also act as a substitute for risk-insurance products, which are totally absent in the coffee production chain.

The study concludes that there is a need for:

  • Enlarging the outreach of microfinance institutions (MFIs) and financially-active cooperatives;
  • Demand-oriented financial services and suitable “bottom-up” agricultural development and policymaking.