Loans and Food Security

The correlation between good economic standing and household food security has been supported by a number of experts in the industry . Data from the CRS and Floresta study further substantiates this claim showing that loans taken out for a variety of purposes can positively support well-being and food security in rural households.

The diagram below illustrates the links between food security and loans taken in VSLA groups. The linkages were determined through data collected, focus group discussions, and the experience of CRS and Floresta staff. Many of the most popular loans offered by CRS and Floresta VSLA groups can be linked to the four key components of food security.

Agricultural loans are often used to purchase seed inputs (both improved and local) and tools as well as to hire labor. It is expected that the net effect of these loans is an increase in the production of crops (including key household staple crops.) An increase in food production can lead to an increase in food availability and also to an increase in access to income if more crops are being sold for profit. An increase in food production can also contribute to year long household food stability.

Business loans are often for small amounts of money but are generally expected to generate more profit for the borrower. An increase in profit can result in an increase in household income. More money at the household level increases the purchasing power in the home and therefore can improve food security through access, more so when over 75% of the business loans are being utilized by women.

In Sierra Leone, the number of household food loans taken out increases in August and September. This time of year is known as the “hungry season” and is when food in the household reaches low levels because rice from the previous harvest has been consumed and the new crops are not yet ready for harvest. Loans for household food in the hungry season can act as a ‘shock-absorber’ in providing access and stability for the short term. However, looking at the average loan size in VSLA groups, loans taken for household food consumption will only impact food security in the short-term. The hungry season is less evident in Tanzania and therefore Floresta is not currently tracking this loan type.

Finally, it is recognized that a healthy body utilizes food better than a sick one.  Taking loans for health purposes can potentially improve the health of the borrower and therefore create an opportunity for eventual better utilization of food.

Please refer to the case studies for anecdotal evidence of how increased production of crops and increased income did in fact improve food security for some of CRS and Floresta’s clients.

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