Amid Lebanon's financial crisis, PROSPECTS partnered with Al Majmoua to offer a blended finance approach for farmers and agri-food producers, demonstrating that, even in crisis, opportunities for business growth can emerge.

At the time PROSPECTS was launched, in 2019, Lebanon had undergone a deep financial and economic crisis. Soon after the programme commenced, the situation in the country worsened, with the onset of the COVID-19 pandemic, the Beirut explosion, large and unmanaged forest fires, and widespread social unrest. The financial sector was largely insolvent and in desperate need of reform, as evidenced by triple-digit inflation and the loss of 98 per cent of the currency’s value. In the early years of programming, PROSPECTS Lebanon did not work on system strengthening or engage with formal financial systems, largely because these had collapsed. In 2022, a window of opportunity opened as the market started showing some signs of stability, partly as a result of “dollarizing” the economy. Despite this, MSMEs still struggled to stay afloat and, without a stable financial service provider to serve them, they were increasingly cash-strapped. The programme took a sectoral approach and partnered with an MFI, Al Majmoua, to develop a blended finance approach for farmers and agri-food processors. This approach challenged the predominant subsidy model in the country and took the opportunity to reinvest in the microfinance sector, which had also become largely insolvent in the wake of the multiple crises. 

Al Majmoua is a pioneer in the Lebanese microfinance sector. From its founding in 1997, it focused on developing affordable financial services for micro-entrepreneurs. Even amid the multiple crises, it maintained operations and issued loan products, one of the very few institutions that was able to do so. PROSPECTS partnered with Al Majmoua, given its history and knowledge of the microfinance sector.

Following a rapid market assessment, the programme team and Al Majmoua developed a financial inclusion product for the agriculture sector. Recognizing the diversity of potential clients in the sector, three types of farmers and agriculture-related businesses were defined to better target products and technical assistance:

• Microscale farmers and agri-food processors: primarily self-employed, relying on family members as daily workers during peak seasons; usually own or rent between two and four donums (a third of an acre) of land; and generally farm to supplement another main source of income. Loans for these farmers usually amount to less than US$1,500, owing to their limited repayment capacity and because the loans are primarily to help sustain their business. Syrian refugees largely fell into this category.
• Small-scale farmers: bigger farms and likely to plant two seasons per year; generally hold more assets and are better established in the market; employ few fixed-term workers and take on larger numbers of workers (between five and twenty) during peak seasons. These farmers are usually served with bigger loans (US$2000–7000) and can afford to repay larger monthly instalments. Usually, the loans are used for investment in land or acquiring new technology or machinery.
• Medium-scale farmers: well-established farmers with considerable land (50–500 donums), the majority of which is owned rather than rented; usually employ larger numbers of fixed-term workers; can easily afford to repay either monthly or seasonally. Loans are primarily used for expanding farms, creating jobs, or introducing new green practices. Loans are not the only type of finance used by this group.

The microfinance sector’s high interest rates were partially subsidized by the programme, as a measure to help farmers and processors, particularly micro and small-scale operators, enter the formal financial system. The product incorporated both financial and non-financial BDS, making use of the ILO Improve your Agri-Business (IYAB) training to help farmers and agri-food processors maintain or expand operations. 

Loans were disbursed to microbusinesses and farms largely in the form of small, regular amounts, to allow for incremental growth. The MFI also preferred this method, as it limited its losses in the event of non-repayment. Market fluctuations at the time of the intervention (2023–24) were a challenge to its already tight profit margins and rising operational expenses.

Medium-scale farmers’ financial requirements to scale up their already large operations exceeded the capacity of the MFI, particularly as the financial sector introduced liquidity constraints at the time. Small-scale farmers and businesses were therefore the primary group targeted for the product, based on their existing capital and opportunities to scale up through investment. Micro-scale farmers required a blended finance approach.

Loan clients invested more in their businesses, and more strategically, than grant recipients. This was due, in part, to their recognition of the need to repay the loans and thus qualify for future financing. Of those reached through the MFI product, 85 per cent reported profitability in their business.

In engaging with the microfinance sector and supporting business growth during a time of crisis, the PROSPECTS team in Lebanon saw how, even in a crisis situation, opportunities can still exist for some businesses. For instance, as the crisis took hold in the south of Lebanon, farmers and agriculture businesses in stable areas saw an upsurge in demand from domestic markets. While providing food for the population was a primary objective at the height of the crisis, small businesses along supply chains sourced from stable areas did experience a boost in business, demonstrating that the impact of the crisis is not even.