| Sumario: | Livestock plays a central role in Ethiopia’s economy and rural livelihoods. Ethiopia is
home to Africa’s largest livestock population, estimated at over 70 million cattle,
alongside significant numbers of sheep, goats, and poultry. The livestock sector
contributes approximately 30–35% of agricultural GDP, 16–20% of national GDP, and
supports the livelihoods of more than 65% of rural households, particularly
smallholder farmers who rely on mixed crop–livestock systems. Dairy production, in
particular, is a critical source of nutrition, regular cash income, and asset accumulation
for smallholders, yet productivity remains far below potential due to systemic
constraints.
One of the most persistent barriers facing smallholder dairy farmers in Ethiopia is
limited access to finance. For decades, rural livestock producers have been largely
excluded from formal credit systems due to the absence of conventional collateral
such as land titles or fixed assets. As a result, many farmers are unable to invest in
improved breeds, quality feed, veterinary services, water access, and modern
livestock management practices. This financing gap directly contributes to low milk
yields, high livestock mortality, vulnerability to climate shocks, and suppressed
household incomes. Nationally, it is estimated that less than 10% of smallholder
farmers have access to formal financial services, with livestock producers particularly
underserved despite the high economic value of their animals.
Climate variability further compounds these challenges. Recurrent droughts, rising
temperatures, and increasing feed and water scarcity have intensified pressure on
livestock systems, especially in highland and mid-altitude dairy-producing areas.
Climate-related stresses reduce milk productivity, increase disease prevalence, and
raise production costs, making dairy farming a higher-risk activity in the absence of
adaptive advisory services and risk-informed financing.
In response to these structural constraints, the Livestock-Based Lending Project
(LBLP) was launched in June 2025 in Muke Turi Town, Wachale Woreda, Oromia
Region. The project introduces an innovative financing model that enables
smallholder dairy farmers to use their cows as collateral to access credit. Rather than
receiving cash loans, farmers obtain financing in the form of productive assets and
services—such as a new dairy cow, veterinary medication, or feed for existing herds—
thereby directly linking finance to productivity-enhancing investments. By
transforming livestock into a recognized financial asset, the model reduces lending
risk while expanding access to finance for farmers previously excluded from the
formal system.
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