Development of an Alternative Microfinance Scheme to Finance Entrepreneurship in Tea Smallholding Sector: A Success Story

Abstract

Though the contribution of tea smallholding sector to national tea production is about 65 percent, nonexistence of assessable financial packages to facilitate businesses prevents tea smallholders from undertaking private investments on the long-term agronomic practices such as replanting and rehabilitation, which determine both the productivity and sustainability of the industry. This article explores the success story of development of microfinance scheme (MFS) to overcome this pertinent issue which teams up those tea smallholders with the “end-user” of their product, i.e. a leading conglomerate involved in tea business in the region. A multiphase approach used to develop the MFS include an in-depth “Investment Appraisal” that utilized 20 years panel data from the Tea Research Institute of Sri Lanka to identify the levels of production and returns from the tea cultivated by the TSEs under three methods of soil rehabilitation practices (i.e. replanting after rehabilitation of the land; direct planting and maintenance without rehabilitation, and cultivation without replanting) followed by a “Gap Analysis”, which used the data from 240 out of 800 TSEs belonging to 8 Grama Niladhari Divisions in four districts, to explore the constraints faced by TSEs to adopt the best agronomic practice selected. Based on the outcome of which the MFS was formulated encompassing the features of a revolving fund to cater to the two major categories of tea smallholders, namely: (a) “in-house man power users”, and (b) “rented-man power users”, under different levels of capital and rates of interests to which the funds were channeled by the end-user. The results show that the MFS increases not only the levels of adoption of good agronomic practices amongst these producers, but also their entrepreneurial skills. Journal of Food and Agriculture 2010 Vol. 03, No. 1 & 2, Page 31-40 DOI: http://dx.doi.org/10.4038/jfa.v3i1-2.5168