Donkey Carts and Nervous Banks: Agriculture Lending in Egypt


This post was sent in by IESC volunteer Michael Braden. Michael is currently vice president, senior underwriter, and portfolio manager for agriculture finance at Key Bank in Salem, Oregon. He is an expert in finance and agriculture lending. Michael has an MBA from the University of Texas at Austin, and a bachelor’s degree in business administration from Texas A&M University. He traveled to Egypt in October 2014 as part of the Farmer to Farmer Program. The post originally appeared on Michael’s blog, here.

Volunteer expert Michael Braden in Egypt

Seeing the donkey-drawn carts heaped with hand-harvested corn gave me a taste of the challenges facing Egypt’s agriculture finance sector. Driving past fields in Sohag, Egypt, I contrasted the back breaking field labor these villagers exert to eke out a living on three feddan (3.12 acres), against the efficiencies of behemoth corn choppers I see American farm clients use, machines that harvest the same area in about a minute.

The United States Agency for International Development sponsors the John Ogonowski and Doug Beureuter Farmer-to-Farmer Program, which matches volunteer technical talent in the USA with agricultural needs in the developing world.  USAID is partnering with Land O’Lakes International Development, a division of Land O’Lakes, Inc. to implement the Farmer-to-Farmer program in Egypt.

The Farmer-to-Farmer program in Egypt brings U.S. technical experts to improve food safety and quality of fresh and processed food products. Part of that includes an access to finance component that will improve the capacity of Egyptian banks and microfinance institutions to provide capital to agribusinesses wishing to invest improving the quality of their products.

In October, IESC, who is Land O’Lakes’ partner in the Farmer-to-Farmer Program, asked me spend two weeks in Egypt assessing the agriculture finance market and creating a strategy to build capacity over the next several years. My employer Key Bank ‘ Agribusiness Group  was kind enough to let me go.

Volunteer Michael Braden was struck by the donkey-led carts used to harvest crops in Egypt, especially when compared to U.S. industrial farming equipment.

If the donkey carts were my first clue, discussing agriculture lending with more than a dozen banks and microfinance institutions (MFIs) brought to light recurring, challenging themes:

  • For one reason or another’reputation, culture, historical experience’most MFIs and banks do not feel secure lending to production agriculture.
  • If loan officers are comfortable with farming, it’s probably limited to traditional crops and livestock, not higher-value produce.
  • Recent political turmoil wreaked havoc with loan portfolios. As one lender put it, ‘Borrowers felt repayment became optional during the revolution.’
  • Geographically remote borrowers require innovative methods of efficient loan servicing.
  • For urban borrowers, many MFIs employ a ‘one size fits all’ loan program, not suitable for seasonal crop production.
  • Loan tenor is limited to only 12 months in most cases, so it would be difficult to finance long-term equipment that would improve farm efficiency.
  • Rudimentary computer systems have trouble managing volumes of loans.

Over the coming years, Farmer to Farmer volunteers will travel from the United States to Egypt to build agribusiness lending capabilities of banks and MFI’s. They will teach credit training courses, provide management consulting, help write credit policies for agricultural borrowers, conduct value-chain assessments, and develop handbooks of cash cycles for major Egyptian crops.

My experience with Farmer to Farmer in Egypt made clear to me how robust an agriculture finance market we have in the United States, where banks clamor to do business with America’s productive, modern, optimistic farmers.