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Agricultural finance and the youth: Prospects for financial inclusion in Uganda

F&BKP Office — Fri, 18 Sep 2020 09:17:35 +0000

This paper (PDF) by FAO aims to provide a comprehensive assessment of the current state of financial inclusion of the rural youth in Uganda, with a specifc focus on their engagement in the agricultural sector and the financial services that are available to them to pursue their business ventures in this area. A number of recommendations result from the study and are key enabling elements with the most direct and promising channels to foster the financial inclusion of rural youth in Uganda are: 1) Leverage the potential of Youth Savings Group and solidarity lending, since they can be essential entry point to provide financial services and mitigate lending risk. 2) Expand the range of available options in terms of digital financial offers, such as mobile payments. 3) Develop new lending approaches that do not exclusively rely on traditional colleteral, since young entrepreneurs often lack “conventional” forms of guaranteers that are required. 4) Foster the expansion of agent banking in the country, which will allow format financial institutions (FIs) to extend their outreach to rural youth. 5) Leverage the expertise on youth-focused provision developed at Ministry level by engaging the formal financial sector in a shared reflection on youth-tailored financial provision. 6) Jointly foster basic education and mobile penetration to further increase digital financial inclusion, for examply through public campaigns and subsidy programmes. 7) Eliminate policy barriers to youth access, for example related to managing bank accounts and identity documents. 8) Foster youth-specific financial offer among formal FIs by promoting internal restructuring. 9) Tailor and focus the financial offer of formal FIs to the needs of under-18 clients, since they face the greatest variety of access constraints. 10) Improve data collection practices in the agricultural finance sector to monitor progess of the sector. 11) Improve the perception of agriculture as a profitable and appealing business among young entrepreneurs.

Understanding agriculture fintechs’ business models: Agri-Wallet service delivery model case study

F&BKP Office — Mon, 23 Mar 2020 15:16:37 +0000

This blog by the Mastercard Foundation Rural and Agricultural Finance Learning Lab and the Sustainable Trade Initiative (IDH) evaluated Agri-wallet’s business model and identified opportunities for Agri-wallet to scale sustainably while creating positive returns for its farmer, small and medium enterprises customers, and investors. Agri-wallet is an innovative agriculture fintech in Kenya that provides supply chain finance to insure that all actors in the value chain can access the resources they need to grow and scale. Four key learnings are: 1) By reducing the cost and risk of financing and strengthening the value chain, Agri-wallet’s digital supply chain finance model is expected to generate positive returs for its customers and its investors. 2) Buyers are the key entry and leverage point to scale Agri-wallet’s business and strenghten the value chain, but need to be selected carefully to optimize financial performance. Understanding the drivers behind buyer performance can help guide a more targeted approach to buyer acquisition, onboarding, and customer care to create a buyer mix that maximizes overall profitability. 3) Achieving financial sustainability requires Agri-wallet to continue to scale rapidly using the right capital structure to finance its operations and lending. Thereby, achieving scale also depends on the balance between local vs. foreign currency denominated debt, debt to equity ratios, and Agri-wallet’s ability to fundraise successfully and reach its customer target 4) An optimal pricing strategy will need to balance increased captial costs for Agri-wallet and returns for buyers, input providers and farmers. An optimal pricing strategy will need to take into account the returns of buyers, input providers, and farmer. This is particularly important for vulnerable clients, like smallholder farmers and small agri-SMEs, where sudden or brisk price increases could risk eroding their income gains to a level that renders Agri-wallet uncompetitive.

Access to agricultural finance in Jordan

F&BKP Office — Wed, 26 Feb 2020 09:07:05 +0000

This report (PDF) by Palladium Europe BV is an advisory piece with recommendations towards facilitating access to suitable financial services for smallholder farmers to improve their livelihoods and break the cycle of indebtedness. Small farmers are characterized by overproduction of many of the prevalently grown crops and low farm-gate prices and compete with previously exported crops produced by medium and large-scale farmers. The study yields ten key gaps on small farmers and their access to finance in Jordan: 1) Cycle of indebtedness needs to be neutralized before small farmers should be venturing into scaluping up and out. 2) Most small farmers do not have a bookkeeping system. 3) The business case for farmers is weak. 4) Access to credit is only desirable if it is likely to result in increased income. 5) Mobile payment and account services are not widely used. 6) Colleteral requirements and interest rates are high. 7) There is no registration in place for farmers with the Ministry of Agriculture. 8) The current market system for agricultural procude is inefficient. 9) The Credit Reference Bureau mostly has information from banks and selected MFIs. 10) No lending mechanisms are in place to favour smaller ticket sizes and to deal with higher risk of the agricultural sector. A three-step approach is recommended to develop the agri-finance landscape. First, small farmers’ business cases need to be strengthened, with access to markets being the main bottleneck. Second, patient investments in designing and deploying financial services that make farmers more resilient are required, starting with saving and payment services. Third and last, a risk sharing financing methodology and related mechanism(s) should be developed, involving multiple or all value chain actors benefitting from agricultural production. The application of a holistic approach that focuses on access to markets, access to finance and capacity building is required for sustainable improvement of small farmers’ livelihoods using financial services.

Zooming in on informal savings mechanisms in Zambia

F&BKP Office — Tue, 04 Feb 2020 15:08:27 +0000

This study (PDF) by Savings at the Frontier and Financial Sector Deepening Zambia (FSDZ) was conducted on informal savings mechanisms (ISMS), and their users in three provinces in Zambia. The aim was to provide new insights in users of ISMs, how they percieve their groups and formal financial service providers (FSPs), and what drives their decisions to use one service rather than another. Key findings include: 1) Anyone approaching ISMs should expect a variety of groups. Many ISMs are formed not by NGOs, but by people who have learned the approach and gone on to form groups on their own. 2) ISM members also vary greatly. They include the very poor, as well as the not-poor-at-all. 3) ISM users are intelligent consumers who mix and match products from different providers to meet their needs, and an increasing number of Zambians use both formal and informal financial products. 4) ISMs offer a strong value proposition. ISMs provide commitment savings with an annual payback to the saver, quick access to loans, flexibility in repayment, transparency, social support, a feeling of community, networking opportunities, esteem within the community, and proximity. 5) While users appreciate their ISMs, it is rare for ISMs to meet every need of all their users, and they do not find ISMs perfect. One of the greatest unmet needs of many groups is better security. 6) Perceptions and reputation matter significantly. Many of the ISM users have a high opinion of mobile money agents and banking agents because of their proximity and transparency. Many ISM users also carry around unfavourable attitudes about FSPs, especially concerning FSP transparency and social distance.

Pathways to prosperity: Rural and agricultural finance

F&BKP Office — Thu, 14 Nov 2019 10:53:41 +0000

This report (PDF), by Mastercard Foundation, Rural and Agricultural Finance Learning Lab and ISF Advisors, analyzes the changing landscape of rural agricultural finance. The understanding of challenges faced by rural clients has expanded and there has been a rapid acceleration in technology-driven innovation. Thereby, more diverse financial services are available, and the capital market for rural finance has grown. However, there continues to be a persistent gap in smallholder an agricultural small- and medium-sized enterprise (SME) financing. With these changes comes an urgent need to develop improved frameworks for understanding the state of the sector. To do so, the authors introduce new frameworks to drive the rural finance agenda forward and understand how rural clients, financial service providers, and the capital markets can effectively work together. The Rural Pathway Model urges a dynamic view of rural households livelihoods pathways , which can help funders channel capital more efficiently towards rural service provision. This can guide rural agricultural transformation in an inclusive direction. The Service Delivery Model reflects the dramatic changes in service provision and enables us to analyze differences, challenges, and opportunities for specific financial service provides.The authors believe that there are four agenda-defining needs that the sector must address moving forward: 1) The need to think dynamically and long-term through a rural pathways lens, which should result in more tailored products, bundled offerings, and better communication with clients. 2) The need to get serious about “smart” subsidy, by utilizing the models introduced in this report to get clearer about service delivery, profitability profiles, and outcomes. 3) The need to realize the digital promise, by translating early experimentation into proven, scalable solutions. 4) The need to continue to innovate around how capital comes to market, by building more effective connections between capital need and right-fit capital supply.

Financing agribusiness and value chain development in the Pacific

F&BKP Office — Tue, 08 Oct 2019 14:07:48 +0000

This article (PDF) from CTA suggests that several policy actions are required to improve the performance of the agri-food system in the Pacific Island Countries to a more organised and efficient way of producing, processing, marketing and trade, from farm to plate, and a wider view of the opportunities for diversifying diets and incomes. CTA states that this suggests the need for mobilising significant financial investments, including for the development of infrastructure such as transport networks and ICTs, markets and services. Currently, agriculture receives limited funding from government sources and only a fraction of total lending from banks and other financial institutions. The cost of doing business is very high, especially for agro-based small- and medium-sized enterprises (MSMEs). Addressing this situation comprehensively will require changes in the policy environment for agriculture, MSME development and financial sector, and a clear emphasis on the provision of innovative inclusive financial services by development financial institutions (DFIs) and commercial lenders. It also calls for the application of a value-chain approach to finance, as well as the development of public-private partnerships and innovations in financial technologies to bring currently un-banked farmers and agribusinesses into the traditional financial sector. Farmers’ organisations – currently underdeveloped in the Pacific Island Countries but growing in strength – will have a key role to play in raising the financial literacy of members and agribusinesses and in increasing the uptake of new technology and services to boost agricultural-led sustainable economic transformation.

Using satellite data in financial inclusion

F&BKP Office — Tue, 03 Sep 2019 08:43:16 +0000

This guide (PDF) by CGAP explains foundational concepts of machine learning and how financial services providers can apply those methods to leverage information contained in satellite images for the purpose of credit scoring. It focuses on smallholder farmer finance, but providers may find it useful for other applications as well. Financial services providers that see an opportunity to reach financially excluded people in rural areas can use new technology to remotely gather and analyze data on potential customers. High-quality satellite data are becoming increasingly available. By leveraging advances in machine learning (the ability of computers to analyze data quickly and at scale), providers can gain valuable insights into customers’ economic, environmental, and demographic characteristics. This guide strives to: 1) Introduce remote sensing and its potential for financial inclusion and smallholder finance. 2) Explain in simple terms how these methods work and clarify both the abilities and limits of current techniques. 3) Present use cases where computation techniques applied to satellite imagery can help organizations better serve smallholder farmers. 4) Equip organizations interested in exploring these methods with clear and actionable roadmaps that outline data prerequisites, problem scoping guidelines, and advice on getting started with research and development efforts. The guide focuses on financial services providers (FSP) that serve smallholder famers, non-FSP organisation that have smallholders farmers as customers, and development organizations and public sector. This guide can be used as a tool to help apply technologies, processes, and data analytics and machine-learning methods to improve the delivery of financial services to low-income segments.

Assessing the effectiveness of private finance blending in ensureing that small-scale farmers are not left behind

F&BKP Office — Tue, 20 Aug 2019 12:37:58 +0000

This paper (PDF) by Oxfam International identifies the policies and systems needed to ensure that private finance blending at the least does no harm and in practice plays a positive role for small-scale producers. To boost agricultural development in developing countries, donors are increasingly resorting to blended finance: the practice of combining public development funds with private resources. Blended finance may open opportunities to inject more resources into the food and agriculture sector, but the assumptions that blended finance is inherently beneficial for agricultural development and that it is an efficient way to finance smallholder agriculture, are not supported by the evidence currently available. The paper argues that private finance blending should be used with caution in rural development until donors can demonstrate the merits of blending using evidence-based results, in particular the added value of blending for development impact. This is especially important given the obligations of donors to make progress on the reduction of social, economic and gender inequalities. The increasing focus on private finance should not obscure the vital role of public finance in promoting inclusive agricultural transformation that benefits small-scale farmers. Oxfam International provides a number of recommendations to ensure that blended finance is done in a way that strengthens local agriculture and food sectors and works for rural communities and economies: 1) Prioritize public funding in development aid to agriculture; 2) Ensure that blended finance in agriculture aims for and achieves development impact; 3) Promote country leadership and democratic ownership; 4) Demonstrate additionality; 5) Ensure accountability and translate principles into practice; 6) Improve data and transparency; 7) Prevent de facto tied aid.

The paper is also available in French.

Fintechs and financial inclusion

F&BKP Office — Tue, 04 Jun 2019 08:28:07 +0000

This paper (PDF) by CGAP aims to explain finance innovations in a detailed way and generate insights on whether the services work as stated, create value for underserved customers, and ease age-old pain points in delivering financial services to underserved customers. A key finding of the paper is that fintechs are bringing innovation to every part of the financial services sector, often through new value propositions, including flexible products and better ways to address the financial challenges faced by low-income customers. They are making financial services more affordable and accessible, are improving customere experience and accelerate use and engagement. Five innovation areas display the potential for fintechs to impact financial inclusion: 1) Interactive customer engagement, e.g. by using SMS to reduce the cost and effort of engaging with customers; 2) Smartphone-based payments, thereby reducing account dormancy and expanding use cases for payments; 3) Connection-based finance, to build customer creditworthiness and offer finance for low-income people; 4) Location-based finance, by using satellite data and machine-learning techniques to analyse physical location and offer insurance or credit; 5) De-risked nonproductive finance, by helping low-income people pay sizable or unexpected expenses while using unique features to reduce risk for the financier. A separate set of case studies for each of the innovation areas, “Fintechs and Financial Inclusion: Lessons Learned (PDF)”, describes for each pilot the service that was piloted, the nature of our testing, and emerging lessons. Funders have a role to play in supporting early-stage fintechs. Without support from investors, many early-stage fintechs struggle even though they may have potentially game-changing ideas. Supporting these fintechs could unlock innovation and produce relevant lessons for the entire financial services market. Fintechs face a universal set of internal challenges, including the development of a clear value propositoin, assembling the right human and technological resources, balancing digital and in-person customer interaction and forming strategic partnerships.

Redefining finance for agriculture: Green agricultural credit for smallholders in Peru

F&BKP Office — Mon, 20 May 2019 12:46:30 +0000

This report (PDF) by Global Canopy helps identify gaps and opportunities to support and scale up green agriculture, smallholder agriculture and financial inclusion. It explores the state of lending and investment, the farmers’ views on barriers to sustainable agiruclture and explores the role of financial access within it. The report finds that farmers agree that the financial sector could be a critical enabler of the shift to sustainable agriculture if provided credit that responded to the needs of farmers. This would mean; longer payback periods, lower interest rates and the provision of finance for packages that include a combination of irrigation systems, pest management, and agroforestry. The financial institutions (FIs) were interested in using credit as a tool to incentivise sustainable agriculture, but highlighted that there were barriers which made this difficult. The sector is inherently risky with no clear functional risk transfer alternatives in Peru. A number of recommendations are: 1) Access to sources of capital with reduced costs and longer payback periods is a requirement; 2) Develop guarantee funds and insurance products for farmers; 3) Develop new, green, products in partnership with FIs and enhance their internal capacity to channel resources towards sustainable agriculture; 4) FIs need to be committed to the green finance agenda; 5) Alliances with organisations that have the ability to engage with farmers and build their capcity is key to ensure benefits of the transition to sustainable agriculture reach the farmers and mitigate risks; 6) Provide geographical information about borrowers to support implementation of green agricultural credit; 7) Government participation and gurantee funds that are designed together with the financial institutions is key; 8) FIs all consider gender when developing credit products.

Innovative finance opportunities for inclusive agribusiness: Understanding the emerging opportunities

F&BKP Office — Wed, 17 Apr 2019 09:32:26 +0000

This report (PDF) by iBAN and BoP Innovation Center offers guidance and describes in depth 8 different financing instruments with specific example cases of its application to inclusive agribusiness. Agribusiness have a huge business opportunity and a chance to contribute to the SDGs. Financing opportunities for inclusive agribusiness are growing. The financing instruments are: 1) Public-private partnerships, a long-term contractually based mutual cooperation between public and private sector aimed at the provision of public services. 2) Project finance, which mainly targets large-scale and long-term projects and it protects the undertaking company in case of failure. 3) Blended finance, a mechanism that uses public and philanthropic funds to leverage private capital in order to meet the financing needs of an inclusive business. 4) Result-based financing is used by developing country governments, or states or donor agencies, in cooperation with the private sector, to incentivise the provision of goods or services to create or expand markets, or to stimulate innovation. 5) Thematic bonds, a sustainable investment option that is beginning to attract a new generation of investors. 6) Agricutultural value-chain finance is financing provided to an actors in the chain by a financing source outside of the value chain or by another actor in the value chain. 7) Crowdfunding, brings together multiple private investors to fund a project for a specific cause, usually start-ups with the desired impact as main reason why investors choose one proejct over another. 8) Impact investment funds, curate a selection of carefully vetted businesses, which seek funding towards an impact area or around a regional focus.

A webinar about the report is available, including its slideshow.

Crop receipts: A new financing instrument for Africa

F&BKP Office — Wed, 06 Mar 2019 12:26:52 +0000

This study (PDF) by FAO, GAFSP and IFC aims to enhance knowledge about Crop Receipts (CRs) and provide guidance to stakeholders engaged in agricultural finance in Africa on how CRs might be adapted for and introduced in Africa. A CR is a bond issued by a farmer or farmer organization to deliver a certain amount of farm produce (crop or livestock) or the cash equivalent thereof at a future date. Against this promise, the buyer or financier advances a certain amount of cash or inputs to be settled at maturity of the bond. The bond can be issued to a processor, an offtaker, an input supplier, a bank, or a financial investor that provides pre-harvest finance against it. The value proposition of CRs rests on three key features; 1) Additional Collateral: CRs create an additional type of collateral by allowing farmers to pledge their future agricultural production, thereby addressing a key ‘access to finance’ challenge; 2) Strong Legal Standing: CRs have a stronger legal basis compared to loans or prepaid forward contracts; 3) Liquidity: CRs are endorsable and tradable, which increases liquidity for the initial buyer or financier. For these features to translate into increased pre-harvest finance, CRs need to be accepted by market actors, which in turn requires certain enabling conditions to be in place. Concerning the enabling legal conditions, the legal framework should be flexible enough to allow the creation of CR-inspired products and structures through existing financing and security instruments. Diﬀerent commercial entry points for CRs have been identified. They could be further explored through pilots and be eventually integrated into a larger CR portfolio. The way forward in the short-term should include country-pilots and policy and regulatory support. In the medium-term an African Pre-harvest Finance Facility should be established to support pre-harvest financing structures and products which would include at least one of the key features of CRs.

Protecting growing prosperity: Agricultural insurance in the developing world

F&BKP Office — Thu, 14 Feb 2019 13:56:40 +0000

This report (PDF) by ISF Advisors and Syngenta Foundation for Sustainable Agriculture highlights the current status and future development of agricultural insurance for smallholder farmers around the world. In the past ten years, the field of smallholder finance has grown in both size and complexity. Historically, smallholders have had limited access to risk-management options, but increasingly, formalized agricultural insurance is offering them a chance to avoid devastating financial losses and securely invest in their own productive capacity. ISF estimates that globally less than 20% of smallholder farmers currently have agricultural insurance coverage, a number that is less than 3% in sub-Saharan Africa. This coverage gap results from both low demand for and low supply of, agricultural insurance products in developing nations. ISF’s agricultural insurance landscape assessment paints a picture of an industry that shows great potential but is struggling to achieve the required scale and product-level refinements to graduate from the donor funding that has carried it to this point. There are four primary ‘leverage points’ that can accelerate the development of the insurance crucial market: 1) Governments engaged and equipped to drive the agenda. 2) A new step change in product effectiveness. 3) Product linkages that change the distribution and adoption game. 4) Coordinated global action. The authors believe that agricultural insurance for this market likely requires another five to ten years of product, process, and technology innovation to break down complexity and continue to expand the realm of the possible. However, we believe the foundation is now in place to create a more connected, sophisticated, and visionary global agenda. Formal insurance can truly become a shared-value market where millions of smallholder farmers benefit from a multi-sector collaboration that brings the best of our global financial system to bear on some of the most complex development agendas facing our world.

Digital platforms for smallholder credit access: The mediation of trust for cooperation in maize value chain financing

F&BKP Office — Wed, 16 Jan 2019 16:31:04 +0000

This article (PDF) by the Wageningen Journal of Life Sciences aims to asses to what extent information and communicative mechanisms of digital platforms facilitate trust building for value chain credit cooperation in smallholder maize farming in Ghana. Maize production is of critical importance to smallholder farmers in Ghana. Various factors limit the productivity of smallholder maize farming systems undergirded by the lack of capital for critical investments both at farm and national policy levels. Using a value chain approach, this study explains how a complex configuration of actor interaction within an institutionally and agro-ecologically challenged value chain leads to the enduring absence of maize farming credit support. A cycle of credit rationing resulting from value chain challenges such as agro-ecological uncertainties was found. This condition is sustained by an interplay between mistrust, insufficient information across the value chain and inadequate control strategies in the maize credit system. Digital Platforms (DPs) show potential to help overcome some information and communication gaps that impede traditional value chain credit arrangements. This is promising in terms of aiding awareness and coordinated responsiveness to agro-ecological farm conditions and the development of farming records databases. Thus, DPs could generate new networks and cooperation in the maize value chain in this regard. As a tool for mediating trust in value chain credit cooperation, strategic use of these DP contributions could help initiate an entry point for recalibration of trust perceptions. Significant considerations and improvements are however needed to harness DPs effectively in mediating trust for maize credit provision, not least being farmer digital inclusion in DP implementation, effective intermediation and network governance arrangements and digital contributions towards cost-effective agro-ecological controls in the erratic maize farming context. This approach to trust building should therefore not be viewed as a quick fix but as a process of trial and error, and learning by doing.

Improving the availability and effectiveness of rural and “Micro” finance for small-scale irrigation in Sub-Saharan Africa: a review of lessons learned

F&BKP Office — Mon, 17 Dec 2018 12:25:09 +0000

This paper (PDF) by the International Water Management Institute (IWMI) reviews the evidence available on the provision of financing for African smallholder farmers to purchase irrigation equipment such as pumps, pipes and drip irrigation systems. It sets the scene by first reviewing the literature on experiences with providing microcredit and other microfinance services as a poverty reduction strategy. Based on both case studies and several systematic reviews of the literature, it finds that the outcomes and impacts on poverty, gender equity and broader economic development are mixed at best. Microcredit is not a silver bullet solution to poverty, but it can often help poor households improve their lives. The paper then reviews the demand for and supply of financing for smallholders to purchase irrigation equipment. In surveys, farmers express a strong demand for equipment such as pumps, but often point to the lack of affordable and appropriately designed credit as a critical impediment to gaining access to such equipment. Even where microfinance institutions offer agricultural credit, it is usually short-term seasonal credit to purchase seeds and fertilizer. Credit on these terms is not useful to purchase equipment costing several hundred dollars. Focusing on programs specifically aimed at enabling farmers to purchase irrigation equipment, no credible detailed studies were found documenting the impacts and lessons learned. However, there are currently (as of 2018) numerous promising pilot studies and small projects offering a variety of approaches to enable smallholders to make such purchases. The paper reviews what information is available on these. Several promising models were also identified under pilot testing – including one called “Uber for the farm” or potentially “Uber for irrigation” – and formulated a set of lessons learned to help improve the availability and effectiveness of this and other options. A major recommendation of this paper is that a research project should be designed to carry out studies of these various experiments to identify what works under what conditions, as a basis for scaling out programs to offer financial services aimed at assisting smallholders to gain access to small-scale irrigation equipment.

Financing and public-private partnerships in water, sanitation & agri-food sectors

F&BKP Office — Mon, 12 Nov 2018 14:12:46 +0000

This exploration (PDF) by PPPLab discusses the financing of development projects in food security and water primarily form the perspective of the commercial financier. Private investors are increasingly asked to take up a role for the SDGs and fill the funding gap. In some sectors the private sector is very active, but in the water, sanitation and agri-food sector, the interest of private investors is limited. Why is this? Reaching the SDGs requires substantial inflow of commercial finance. For this, revenue mechanisms should be included in businesses and projects to repay commercial financing. Private commercial money will need to be unlocked, but commercial finance only focuses on bankable propositions. Impact investors are commercial investors with a specific focus on creating impact. However, they still want their money back. Despite the urgency of the SDGs, commercial investors have problems filling pipelines with projects that fit their criteria. Compared to other sectors, the food security and water sector are not seen as attractive to commercial investors, with as important reason their embedding in the public domain. Moreover, the food security and water sector are generally not considered commercially viable, on account of the lack of a convincing and stable business case. Some approaches that can overcome these bottlenecks are: service delivery models that can scale; partnerships between private companies and governments; blended finance mechanisms whereby grants or public money are used to mobilize commercial financing. In-country financing is becoming more important as source of financing including for funding the SDG. In practice, SDG projects compete for scarce private funding. Commercial financiers prefer sectors other than food and water. Financial instruments blending grants and commercial financing are emerging. Stakeholders need to work together, requiring a change of thinking and perhaps of mandates.

Big data could mean big opportunity: Why we should stay excited for data analytics in smallholder finance

F&BKP Office — Thu, 11 Oct 2018 08:00:19 +0000

This brief (PDF), by the Mastercard Foundation and Rural and Agriculture Finance Learning Lab, aims to provide a high level understanding of how data analytics is used for smallholder farmers, introduce a new framework to understand the economics of data analytic investments, and highlight key innovators in the space. The gap in smallholder financing remains wide and financial institutions by and large continue to find smallholders farmers a difficult and cost segment to serve. The authors of the brief believe there are ways to transform the underlying economics to serve farmers profitably and at scale – and that data and technology could be fundamental drivers of this shift. On one hand, the progress made is encouraging: the use of data analytics for credit scoring is maturing, and other use cases are emerging, the value proposition for financial service providers (FSPs) seems compelling, there is better insight into what data is useful and what is not, and the interest and investment in the sector remains healthy. However, the use of data analytics to expand access to credit for smallholders is still in its infancy. Outstanding questions center on proving the nature and strength of the business case for FSPs to invest in data analytics; how FSPs can build the capabilities they need to leverage data analytics effectively and; how FSPs can gain access to useful data at a reasonable cost. The best way to advance this field is for FSPs and data service providers (DSPs) to work together on a commercial scale to prove the business case and develop blueprints of success. DSPs are actively innovating and FSPs are beginning to buy into the potential. Smartly deployed philanthropic funding can reduce cost and risk and help to mobilize private sector players.

Opportunities for digital financial services in the cocoa value chain in Côte d’Ivoire: Insights from new data

F&BKP Office — Thu, 20 Sep 2018 14:53:30 +0000

This research (PDF) by The Mastercard Foundation and IFC focuses specifically on mobile money accounts and discusses, first, how these have already expanded financial inclusion in Côte d’Ivoire and, secondly, how mobile money could help deliver products to cocoa farmers that meet their needs. Managing money can be particularly challenging for farmers since they receive the majority of their income during the harvest and this needs to cover their expenses for the rest of the year. Cacao farmers had relatively high annual incomes, but very few had bank accounts because of the perception that “banks are not for them”. However, various digital financial services (DFS) offered by mobile network operators does not have such constraints and have a high level of adoption (53%). Farmers who save money (35%) are better able to feed their families throughout the year. Encouraging good financial practices, by providing easily accessible remunerated savings, and enabling the associated credit scoring to support formal lending, would be of great benefit to many cocoa farmers. These services are more likely to have high adoption levels if they are delivered by DFS, because of convenience, acceptance, and the current widespread usage of DFS by farmers for more basic transactions. There are several types of DFS that may be used to service cocoa farmers’ latent demand for financial services, for example by expanding the range of services offered by mobile money providers, possibly in parnership with banks or microfinance institutions. There is also an obvious opportunity for formal financial institutions to introduce agent banking services and suitable entry/level accounts to penetrate rural areas.

Exploring blockchain applications to agricultural finance

F&BKP Office — Thu, 06 Sep 2018 12:54:28 +0000

This brief (PDF) by CGAP set out to understand how the emerging technology of distributed ledger technologies (DLT), also known as blockchain, could enable broader and more inclusive markets for agricultural finance. DLT is build around he concept of a ledger and provides a mechanisms for creating a shared record of transactions among several institutions or individuals in the absence of a trusted arbiter. There are a number of barriers to using DLT: the technology is still nascent, there is a lack of trust in and of itself and of the data written to the ledger. Further, poor connectivity , lack of computing power, low penetration of devices that can interact with DLT among smallholders are obstacles. However, several features of the technology emerge particularly relevant. The transparency and shared control are benefits of DLT. Disintermediation can help overcome barriers to agricultural finance and the use of DLT to verify the identity of smallholders is fundamental. Cases where DLT could be used in agricultural finance are: 1) The collateralization of assets could enable smallholders to access financing; 2) Supply chain management by data on smallholder agricultural production; 3) Recording smallholders’ borrowing and repayment histories and; 4) Posting contractual agreements. So agricultural finance offers several potential applications. However, several obstacles need to be overcome before DLT can be deployed at scale to unlock financing along agricultural finance chains. Trusted actors is paramount, even in a system designed to operate without third-party intermediation. Governments would need to put in place appropriate legal and regulatory frameworks that recognize the use of digital ID. Any DLT solution to agricultural finance should be as simple and straightforward as possible and should not pretend to have eliminated the need for some degree of shared trust among participants.

Launching into space: Using satellite imagery in financial services

F&BKP Office — Thu, 23 Aug 2018 09:09:56 +0000

This case study (PDF), by Caribou Digital and the Mastercard Foundation, offers insight into the method behind how FinTechs integrated earth observation technology (satellite imagery) into their financial services. Innovative companies are testing whether earth observation data can be converted into data that financial service providers can use in credit scoring models that assess a farmers creditworthiness. Satellite imagery, in combination with demographics, financial, agronomic, geospatial and psychometric data, provides sufficient detail on clients without established credit history, to make lending decisions. Leveraging satellite imagery meaningfully requires specific tech skills and infrastructure, investment, capital, and data to train machine learning models. FinTechs incur major costs in the process of turning the raw data into critical, analytical insights that can be used for lending purposes. Further, required skills of scientists are key to building the infrastructure to support the processing of thousands of images, but they are not easily found. The FinTechs also needed to raise the investment capital necessary to start their company operations and absorb the initial risks with equity rounds, grand resources, and/or angel investment. Providing the value of earth observation data in lending requires constantly experimenting with data-driven models – data that can only be collected infrequently and can present statistical challenges. Despite challenges, initial testing with satellite imagery has been positive, indicating significant predictive power in terms of generating features relevant to credit models. Customer acquisition is the most challenging aspect in reaching scale and profit. To harness innovation in financial services, digital finance providers should collaborate with FinTechs. The key takeaway is that financial service providers must have a clear vision of why they want to leverage satellite imagery and ensure they have the in-house capacity to leverage it as well as realistic expectations of what the technology can achieve.

The business advantage: Mobilizing private sector-led climate actions in agriculture

F&BKP Office — Tue, 14 Aug 2018 10:12:29 +0000

This report (PDF) by IFAD examines how public funds can mobilize private resources for climate change adaptation, how much impact is generated through public-private partnerships, and how such impact is delivered to the farmer households. Scaling up and channeling private capital is crucial in limiting climate change. However, on the adaptation to climate change by smallholder farmers, little in known about private financing flows. The Adaptation for Smallholder Agriculture Programme (ASAP) grant of IFAD operates as a de-risking or insurance instrument to incentivize the private sector to invest in adaptation investments for smallholder farmers. ASAP grants have been successfully used as a tool to lower the level of investment risk and thereby encourage the private actors at all levels to participate in adaptation actions. In addition to contributing financial resources, beneficiaries are empowered, gradually gain independence from public support and build trust with other stakeholders in communities. Existing engagement mechanisms in ASAP have delivered positive economic returns on investment. Evidence of social returns was also documented, including reduced malnutrition and improved skills of farmers. Furthermore, the investment schemes with the private sector have also generated modest positive environmental returns. Benefits generated are distributed in large part to smallholders farmers. In addition to financial gains, their skills have been augmented and they have been empowered in dealing with buyers. There are four different engagement strategies for private actors: development of new enterprises; enhancement of existing micro, small or medium-sized enterprises (MSMEs); leveraging investment of non-MSMEs; and leveraging resources of microfinance institutions and commercial banks. In conclusion, when incentives targeted at the right needs, public funds can be used to harness the resources from private sector and aid national efforts to address multiple Sustainable Development Goals (SDGs).

Agricultural input subsidies for improving productivity, farm income, consumer welfare and wider growth in low- and lower-middle-income countries

F&BKP Office — Sat, 28 Jul 2018 09:53:59 +0000

This systematic review (PDF) by Campbell Collaboration evaluates the impact of input subsidies on agricultural productivity, beneficiary incomes and welfare, consumer welfare and wider economic growth, in low- or lower-middle-income countries. Overall, the evidence base is limited with a disproportionate focus on subsidy programmes in sub-Saharan Africa and on fertilizers and seeds. Results show that subsidized fertilizers and seeds are associated with increased use of these inputs, higher agricultural yields and increased income, but evidence of effect on poverty is limited. There is no association between subsidy size and agricultural outcomes. Subsidy vouchers do not always reach farmers, and when they do reach they are not always used. There is much evidence that subsidy schemes are prone to inefficiency, bias ad corruption. Introducing or increasing subsidies generally results in positive effects for consumes and wider economic growth. However, the way subsidies are funded, world input prices and beneficiary targeting, all have important influences in determining the effectiveness of input subsidies. Since the evidence base is relatively small, more research is needed. This research is especially needed on a wider number of countries and on a wider set of contexts where subsidies are used. Impact evaluations can explore different levels of subsidies for different beneficiaries. Simulation models studies should make more use of rigorous evidence in determining coefficients used for household behaviour and micro-economic effects of subsidies. Furthermore, including multiple simulations may be of more use to policy maker than simple comparisons. Researchers should more clearly report methodological approaches, statistical information and type and size of input subsidy implemented or modelled.

Access to finance in agribusiness partnerships

F&BKP Office — Thu, 26 Jul 2018 09:53:04 +0000

This paper of the 2SCALE project shares the successes and lessons learned to improve access to finances (A2F). A2F enables smallholder farmers to invest in crop protection and farm inputs to improve yield and quality and help them integrate into commercial markets. The first lesson learned is to integrate functional and technical capacity development. This helps SMEs and producer organizations to reflect on their own business model and situation. The use of an external assessment methodology can provide structure and attention to detail. The second lesson is to understand specific value chain dynamics and specific needs of each farmer segment. It is critical for banks to understand specifics of crop or livestock and the implications of A2F. Furthermore, it is important to understand different dynamics and needs of different farmers. Lesson three are the benefits of value chain finance: it is not limited to tripartile agreements (farmers, aggregator, financier), but includes other downstream partners. Moreover, input suppliers are more likely to offer credit value when they are part of the partnership and involved in capacity strengthening activities. Furthermore, value chain financing minimizes costs for farmers. The fourth is the importance of facilitating linkages. Farmers need help navigating through terms and conditions of the lender, and the lender is more likely to lend when farmers and upstream processors have close relationships. Lesson five is to use ICT to support A2F innovations. It can reduce transaction costs and close information gaps. The sixth lesson is the importance of pilot testing new financial products and services, to ensure that products or services meet the needs of the beneficiary group and is feasible to implement for the financial institution. The seventh lesson is building financial literacy, by tailored training to the needs of the target group. Financial institutions should be involved form the start in designing and implementing the training.

Agricultural investment funds for development

F&BKP Office — Mon, 18 Jun 2018 09:42:21 +0000

This report (PDF) by FAO explores agricultural investment funds as a vehicle for financing agricultural businesses and projects. Investment is essential for the growth of the agricultural sector. The major sources of capital need to come from private investors, since public investment cannot meet the needs. Public investment can however be effective in stimulating and leveraging private investment in the sector. Private sector investment funds are expected to increasingly benefit from investments in the agricultural sector because demand for food and other agricultural products is expected to continue to increase. Agricultural investment funds, which help mitigate investment risks, increasingly contribute to the agricultural investment growth, as manifested by the proliferation of funds set up to target the agricultural sector. The funds analysed show similarities in some of their structures and management processes. Most investments occur in agribusiness further downstream along the value chain, where investment, expertise and market linkages of investors can have an optimum effect. Analysis shows that agricultural investment funds can play a strong role in fostering agricultural development in developing countries, contributing to growth, productivity increases, poverty reduction and, hence, sustainable development. Most private and public funds were able to invest their resources well. Investment funds offered the possibility to create a common portfolio of investments in agriculture to achieve both financial returns and development impact. Public-private partnerships can be a valuable tool to increase access to finance for the agricultural sector due to its specific characteristics and risk. public capital can play an important role to attract private investors who otherwise might not be willing to risk investment in agriculture. Governments and international donors in agricultural investment funds should carefully consider how to best stimulate investments.

Digital access: The future of financial inclusion in Africa

F&BKP Office — Fri, 08 Jun 2018 10:07:33 +0000

This report (PDF) by the International Finance Corporation and Mastercard Foundation highlights the phenomenal success of digital financial services (DFS) in sub-Saharan Africa. Chapter 10 focuses specifically on digital financial services in relation to agricultural value chains. In the cocoa sector in Ivory Coast, cash payments pose a number of problems for farmers; harvest payments often arrive late and there is a risk of theft. An alternative is paying farmers through DFS, which can be used to enable a full suite of financial services to rural farmer communities. While there is a fairly wide usage of mobile phones and farmers are willing, there are still a number of challenges, for example the poor digital infrastructure in rural areas. Extending the use of DFS for rural and agricultural purposes could bring many benefits to the entire value chain and daily lives of farmers. DFS platforms could be used to link farmers with input suppliers and agricultural buyers. Another article also focuses on farmers in Ivory Coast. Managing income can be particularly challenging for farmers, since they typically receive most of their income during one or two harvest per year, but need to cover expenses throughout. Therefore, it is important for financial service providers to understand seasonal patterns that govern incomes of smallholder farmers. Substantial minority of farmers save, however this has a profound impact on farmers’ ability to budget for the entire year; a poorer farmer who saves has greater chance of feeding the family than a farmer who is better of but does not save. This indicates that encouraging good financial practices, for example by providing easily accessible remunerated savings, would be of great benefit to many farmers. It is more likely to have high adoption levels if they are delivered by DFS, because of convenience, acceptance, and widespread usage of DFS by farmers for more basic transactions.

Future of food: Maximizing finance for development in agricultural value chains

F&BKP Office — Tue, 22 May 2018 13:58:56 +0000

This paper (PDF) by the World Bank provides important details on maximizing finance for development in agricultural value chains. It highlights financing gaps, identifies a range of potential funding sources, and suggests possible actions to help crowd-in more private investment, while optimizing the use of public resources. Current levels of investment in agricultural value chains are insufficient to achieve key development goals including ending poverty and hunger, boosting shared prosperity through more and better jobs, and better stewarding the world’s natural resources by 2030. Crowding-in private investment to help achieve these goals and optimizing the use of scarce public resources will be needed, as will the continued promotion of good governance and environmental and social sustainability. Increasing private sector investment and associated financing will require identifying and understanding market failures currently leading to the sub-optimal private provision of goods and services needed to achieve key development goals. Where the private sector is already investing in agricultural value chains, promoting responsible investment can help increase development impacts. Crowding-in more private investment requires increasing the space for private sector activity, improving the policy and regulatory environment, and considering options for using public financing to improve private incentives and to reduce transaction costs and risks, including blended finance solutions. While these actions can help induce more private investment, there is still a critical need for public resources to finance essential public goods and services such as human capital, agricultural research, and complementary public infrastructure.

Getting smarter on subsidy: The role of grant funding in smallholder finance

F&BKP Office — Mon, 07 May 2018 13:26:15 +0000

This briefing (PDF) by the Rural and Agriculture Finance Learning Lab aims to bring clarity to the area of grant funding by donors to accelerate the growth of an inclusive smallholder finance market. In smallholder finance, subsidy play a crucial role in accelerating the development of an inclusive market. Grant-based funding is key for market development to offset high real and perceived risks. Currently, there are roughly 25 significant grant funders that contribute grant-based subsidy to develop the global smallholder finance market. These significant grant funders’ strategies all have a series of underlying agendas that drive the granting activity for smallholder market development. Since grant resources are both important and scarce, the authors come up with a set of recommendations. Firstly, donors can increase coordination, cross-learning, and shared initiatives. With each funder pursuing an individual agenda, there needs to be more active conversation about what is being learned, what is still needed, and where collaborative investments can achieve more than the sum of individual actions. Secondly, grants can be structured to reduce transaction costs and re-focus efforts toward long-term, strategic market building activities. Actively working to reduce the burdens on grant recipients will ultimately allow donors to make more progress toward achieving their underlying agendas. Thirdly, donors can further support market development by actively linking short-term catalytic subsidy to long-term subsidy and investment. Grants are important to catalyze market development, but will not be sufficient to meet the longterm subsidy needs of the market.

Critical capital for African agrifood small and medium enterprises

F&BKP Office — Wed, 25 Apr 2018 09:24:02 +0000

This study (PDF) by ICCO cooperation, Rabobank Foundation, AgriProFocus and the Food and Business Knowledge Platform focuses on agrifood small and medium enterprises (SMEs) that form the ‘missing middle’: too large for micro-finance and too small for mainstream banks and private equity firms. The study evaluates the access of risk capital by agrifood SMEs. SMEs are key for establishing sustainable food systems, since they occupy critical positions along the value chains: as input suppliers, off-takers, processors, distributors or otherwise. They constitute a pull factor, aggregating smallholder farmers into the value chain and upgrading the quality and efficiency of farming, leading to a more sustainable food system. At the same time SMEs face difficulties to access capital. A major conclusion is that there are very few investment funds that meet the financing needs of agrifood SMEs; the need for funding is usually under 250.000 USD, whereas most funds start investing from 1M USD. Such smaller investments are tedious and costly for investment funds, even for those set up with the explicit goal to stimulate the development of the agrifood sector. The main recommendation for policy makers is to promote the development of a deliberate graduation strategy by investment funds, that allows them to offer an assortment of services to agrifoods SMEs that match their development stage. Governments and international development agencies can contribute to such a strategy by reorganising their own investment vehicles; giving them a wider mandate and access to relevant – low cost – financial resources to invest in the missing middle.

Financing agriculture for a more profitable rural economy

F&BKP Office — Mon, 16 Apr 2018 09:18:55 +0000

This policy brief (PDF) by CTA discusses the Brussels Development Briefings on finance for agri-value chains. Throughout Africa, concerted efforts have been made to achieve structural economic transformation in agriculture, moving from basic, low-skilled production to diversified, higher value, more sophisticated and competitive production. Yet commercial lending to agriculture is still limited; farmers must still obtain loans from informal sources, with their associated challenges and risks. Value-chain finance (VCF) is the flow of funds to and among various links within the value chain. VCF creates a triangular relation between the buyer, seller and financial institution in the value chain by encapsulating financial service across the three dimensions. However, the benefits VCF present is hindered by, e.g. unfavourable legislation on land and property rights. Potential gains made by the agricultural sector through VCF, to achieve agricultural transformation, can only be realised if there is a sufficient enabling policy environment. Hereby governments and policy-markers need to work together with farmers’ organisations and financial service provides to develop effective, comprehensive solutions. Several policy actions to realise this are needed. An example is the development of agricultural and finance policies that are complementary and address finance from a whole-value-chain perspective. Another is that legislation and regulations should be revised, such as land ownership rights, to reduce duplication and the coast of compliance for parties.

Sell low and buy high: Arbitrage and local price effects in Kenyan markets

F&BKP Office — Tue, 20 Mar 2018 09:32:25 +0000

This paper (PDF) by University of California, Berkeley explores the role of financial market imperfections in contributing to farmers’ apparent inability to exploit arbitrage opportunity. Large and regular seasonal price fluctuations in local grain markets appear to offer African farmers substantial inter-temporal arbitrage opportunities. These opportunities remain largely unexploited: small-scale farmers are commonly observed to “sell low and buy high” rather than the reverse. A field experiment in Kenya shows that credit market imperfections limit farmers’ abilities to move grain inter-temporally. Providing timely access to credit allows farmers to buy at lower prices and sell at higher prices, increasing farm revenues and generating a return on investment of 28%. Significant effect of the credit intervention on seasonal price fluctuations in local grain markets are revealed. Furthermore, general equilibrium (GE) effects shape individual level profitability estimates. The results indicate a setting in which microcredit can improve firm profitability, and suggest that GE effects can substantially shape microcredit’s effectiveness. Failure to consider these GE effects could lead to underestimates of the social welfare benefits of microcredit interventions. When implemented in rural or fragmented markets, microcredit interventions may lead local prices to respond substantially enough to alter the profitability of these interventions for direct beneficiaries and to impact the welfare of non-beneficiaries. The absence of financial intermediation can be doubly painful for poor households in rural areas. Lack of access to formal credit causes households to turn to much more expensive ways of moving consumption around in time, and aggregated across households this behavior generates a large scale price phenomenon that further lowers farm income and increases what most households must pay for food. This suggests that expanding access to affordable credit could reduce this price variability and thus have benefits for recipient and non-recipient households alike.

Unlocking smallholder credit: Does credit-linked agricultural insurance work?

F&BKP Office — Tue, 20 Feb 2018 09:55:19 +0000

This paper (PDF) by the World Bank Group reviews possibilities for, and experience with, credit-linked crop insurance, including different types of insurance and credit arrangements. The paper describes the main methods of linkage that are being tested or proposed, identifies the critical features of each method, and discusses the advantages and limitations for the three parties – farmers, financial service providers (FSPs), and insurers. A number of key lessons have been identified. One of the key lessons is that the main reasons that encourage FSPs to offer crop insurance are to reduce default risks, reduce the use of more costly and less efficient risk management techniques, reduce interest rates, raise profits, attract more clients, reach poorer smallholders, compete better with competitors, and generate fee income. However, if the insurance is administered by the FSP as part of its loan process, these benefits have to be balanced against the cost and management challenges faced in training and monitoring loan officers and others who explain the product to smallholders, and the incentives needed for staff members who take on these additional tasks. The authors finish with one general recommendation: the real need for more evaluations and impact assessments of credit-linked insurance, especially when public funds are to be invested in providing relevant public services and subsidies.

Mobile technologies and digitized data to promote access to finance for women in agriculture

Ati van der Honing — Thu, 01 Feb 2018 11:53:12 +0000

This report (PDF) by the World Bank Group provides the state of play of current and promising efforts that use mobile technologies and digitized data to close the gap in access to finance for women in agriculture. The evidence that women both drive agricultural production and rely on it for their livelihoods means that greater financial and informational service provision to women, especially through digital channels, could increase the efficiency and effectiveness of their labor. This report includes three components: a review of the financial characteristics and needs of women in agriculture; a stock taking of initiatives that use mobile technologies and digitized data for agricultural finance and women’s financial inclusion; and an analysis of gaps in existing initiatives that would increase access to Digital financial Services (DFS) by women farmers, laborers and women-owned agricultural enterprises. Four recommendations are given for the World Bank: 1) Leverage the strong role savings groups play in rural women’s lives through digitization efforts that help groups increase efficiency and transparency and encourage women to build their own digital financial profiles. 2) Select successful companies offering mobile savings, insurance and credit products, but who have not targeted women as a key customer segment, and provide assistance in their marketing and promotion to women. 3) Invest in the design of new gender-responsive bundled and customized service offerings that meet the financial priorities and lifecycle needs of women farmers. 4) Drive the collection and use of digitized data to expand bank offerings and financing to women in agriculture.

Developing investment-ready business cases with 4P

Ati van der Honing — Mon, 29 Jan 2018 11:23:12 +0000

SNV and TheRockGroup published a series of three vision papers based on learnings from the Partnering for Value Project. This project aims to develop best-practices on brokering successful Public-Private-Producer Partnerships (4Ps). The authors believe that such investments will benefit both the enterprises and the smallholder producers. One of the aims of a 4P is to build a profitable business case that can be used to attract external investments. The first paper (PDF) looks at the needs for capacity building support to let 4P partners become finance ready. In the paper concrete insights and recommendations to donors and development organisations are provided, to strengthen the capacities of each partner in the arrangement, so they can build an investment-ready business case. The second paper (PDF) focuses on the gap between the demand and supply for financing from agricultural SMEs. The paper analyzes the finance gap for agricultural SMEs and possible solutions to close it. The aim is to provide both private investors and international donors with recommendations towards their strategy regarding agricultural finance. The last paper (PDF) provides insights and recommendations for continued support after an investment deal has been signed, to ensure that a return on investment materializes in practice. The paper explains what type of capacity building is most effective to let 4Ps become a success, how support can be provided and a practical return on investment can be realized.

The role of digital payments in sustainable agriculture and food security

Ati van der Honing — Wed, 22 Nov 2017 14:40:17 +0000

This report (PDF) by Better Than Cash Alliance and Asia-Pacific Economic Cooperation (APEC), examines how shifting to digital payments can provide powerful solutions to help countries improve agricultural productivity and ensure food security, bringing higher incomes and greater financial inclusion. The findings show that expanding digital payments and building responsible digital payments ecosystems are fundamental to creating a sustainable agricultural sector and addressing poverty and hunger. Additionally, digital payments can help to address the wide gender gap in agricultural opportunities and outcomes. Investing in agricultural productivity and capacity by enabling more digital payments is likely to have outsized returns. The disadvantages of cash are magnified for people in rural and remote communities. However, digital payments have been slow to catch on with smallholder farmers. In order to replace cash, digital payments must offer a greater value proposition and operate within a far broader digital payments ecosystem. The report identifies priority actions for different stakeholders. Governments should encourage adoption of digital payments by incorporating training on their benefits and use into existing channels for agricultural education. Agribusinesses should analyze the business case for digitizing aspects of the value chain, including bulk payments to farmers and supplier credit. Payment providers, governments, and aid organizations should work together to identify existing food aid, social transfers, and subsidies that benefit smallholder farmers and could be made more efficient through digitization.

Small Grants, Big Impacts

Ati van der Honing — Wed, 15 Nov 2017 09:45:32 +0000

This policy brief (PDF) by Both ENDS shows how small grants work, why they are effective, and how governments, international institutions and donors could use them to ensure that funding comes to the right place. Development and climate financing of large international donors and financial institutions rarely flows down to the poorest and to those who are hit hardest by the consequences of climate change. Thousands of grassroots groups and organisations are working worldwide to protect and improve the environment, human rights and the living conditions of local communities. Small grants funds, which are set up locally, can form the link between large donors and these grassroots organisations. These funds, which are national or regional, and receive also funding from large donors, pass it on in smaller amounts to local organisations and groups. Small grants funds know the local situation thoroughly, as they maintain close contact with the people and groups that need support. These funds not only provide financing, but also share information and knowledge, help build networks and conduct joint lobby activities. Recipient organisations always decide for themselves what they spend the money on. While an increasing number of private donors acknowledge the role played by small grants funds, major international funds are still largely unaware of them. Bilateral and multilateral donors, too, could reach local actors more effectively if they were to make greater use of these kinds of funds.

Picture-based crop insurance: Is it feasible? Is it sustainable?

Ati van der Honing — Tue, 31 Oct 2017 08:58:33 +0000

This blog by the CGIAR Research Program on Policies, Institutions and Markets examines the feasibility and sustainability picture-based crop insurance (PBI). By taking regular pictures of their crops on smartphones, farmers can reliably document damage after a natural calamity and provide evidence that the crop was managed appropriately until that point. This can minimize the cost of loss verification. Two project notes describe the results from an evaluation of PBI in India, one focusing on the economic viability and sustainability (PDF) and the other on the feasibility of measuring damage using smartphone pictures (PDF). These project notes show that farmers are able and willing to take enough pictures of sufficient quality for loss assessment. They are also willing to pay more for PBI than for weather index-based insurance. Additionally, damage is visible from smartphone pictures and can be quantified by agronomic experts. Picture-based loss assessments are strongly correlated with yields and improve upon weather index-based measures. Based on these findings, PBI offers a promising alternative to existing insurance products for poor farmers. However, before scaling up, some challenges need to be addressed. Further automated image processing and loss assessment can attract more interest from private insurance companies and government. Also insurance products that work for other crops besides wheat should be developed. Furthermore, it might be necessary to aggregate images taken by the smartphone holders into a common pool that insurance companies could also use to evaluate damage on the poorer villagers’ plots, who can’t afford smartphones.

How financial inclusion would benefit smallholder farming in Senegal

Ati van der Honing — Wed, 25 Oct 2017 14:15:42 +0000

This working paper (PDF) by the Institute for Economic and Social Studies (IEES) analyzes the extent to which farmers are credit-constrained and the underlying generating mechanisms in the specific agro-ecological region of the Senegal River Valley. Additionally it looks at how financial inclusion through the elimination or the reduction of credit constraints would benefit smallholders. Credit constraints are among key challenges to unlocking the great economic and social potentials of small farm agriculture in sub-Saharan Africa. It is recognized that credit constraints come in different forms to the extent that they translate into market entry barriers at the pre-application stage or contribute to deteriorate the credit profile at the post-application stage. The results suggest that credit constraints, mostly originated from high transaction costs and high risk, are harming farmers’ performance, and access to credit leads to increased yields and labor productivity. As far as improving access to credit is concerned, the results suggest to first distinguish between the initial, pre-application stage of removing the barriers to credit market entry (mostly in the form of transaction cost constraints and risk constraints), and the post-application stage that consists of tackling mostly quantity constraints associated with inadequate collaterals or insufficient returns. It is expected that easing these constraints would promote financial inclusion, and help tap into the great potential of farming activities through increased performance and improved livelihoods for a large share of the population, especially in rural areas.

Four strategies for overcoming barriers to agricultural financing

Ati van der Honing — Thu, 05 Oct 2017 14:31:41 +0000

This highlight by the Microfinance Gateway discusses the engagement of formal financial service providers (FSPs) in the agriculture sector. Less than 2% of the demand for global financing by smallholder farmers is met by financial institutions. This is due to a number of risks that are specific to agriculture, which are difficult to mitigate and insure against. In addition, the lack of coordination within value chains, and the bulky, seasonal and long-term financing requirements for food products pose serious challenges. Adding to these challenges is the general lack of capacity within financial institutions to properly assess returns on investment in agricultural activities. However, the growing global demand for food is providing more opportunities for investments. In recent years, an increasing number of financial institutions have pioneered innovative experiences related to the delivery of a wide range of agricultural financial products and other investment vehicles, which tend to be more inclusive of poorer rural families that depend on agriculture. Drawing from the common traits of such experiences, four key strategies for addressing bottlenecks and overcoming barriers emerge: 1) Improve financial institutions’ understanding of the agricultural markets and their capacity to assess business opportunities. 2) Diversify and adapt products and services for different actors of the value chain. 3) Establish strategic partnerships with non-financial service providers, for transferring non-financial costs to specialized entities. 4) Identify alternatives to guarantees based on physical collateral.

Enabling environment and smallholder finance: A complex relationship

Ati van der Honing — Wed, 27 Sep 2017 14:31:17 +0000

This analysis by Initiative for Smallholder Finance and Rural & Agricultural Finance (RAF) Learning Lab discusses the relationship between the enabling environment and smallholder finance. This relation is complex, and to date, there is limited research on the link between the success of specific smallholder products and services and factors in the enabling environment. This analysis highlights some early learnings from the Mastercard Foundation’s rural and agricultural finance portfolio, which consists of ten programs spanning 26 countries in sub-Saharan Africa. The smallholder finance environment is determined by at least four key elements, including the regulatory, financial, knowledge, and digital infrastructure of a given country or context. Policies by government and regulators can encourage or discourage lending to smallholders. If governments regulate the use of collateral and streamline land registration procedures, the risk of agricultural lending decreases and financial institutions (FIs) are encouraged to enter the market. Also the market understanding has an impact. Generally, financial service providers (FSPs) lack a mature understanding of smallholder farmers, constraining potential borrowers from designing effective services and products. Furthermore, both the availability and price of capital affect the success of new business models. Digital infrastructure, including agent networks, is needed for cost-saving mobile-based solutions to take off. Last, building connections between value chain actors and smallholders is challenging and costly but critical to boosting product development and uptake.

Access to finance from different finance provider types: Farmer knowledge of the requirements

Ati van der Honing — Tue, 12 Sep 2017 14:19:32 +0000

This article (PDF) in the journal PLOS ONE compares farmer knowledge of the requirements to obtain finance with the actual requirements set by different finance provider types. This can provide valuable insights to policy makers about ways to improve farmers’ access to finance. Data for the study were collected in Indonesia, from 43 finance providers and 434 horticultural farmers. In Indonesia banks and MFI provide credit, whereas farmers’ associations and traders provide in-kind finance, and agricultural input kiosks provide flexible payment for inputs. It is found that the most important requirements to acquire finance vary among the finance provider types. Banks perceive character in terms of the history of loan repayments, the capacity of farmers to pay back the loan, and farmer ability to manage their farms as important requirements. MFI focus on character and spouse knowledge of the finance application. Furthermore, farmers’ associations require farmers to have membership, whereas traders perceive farmer ability and presence of a sales contract as the most important requirements. Agricultural input kiosks perceive the character of the farmer to be the most important requirement. Results also show that farmers generally have little knowledge of the requirements of each type of finance provider. Farmer knowledge is positively associated with finance experience, especially for finance from farmers’ associations. Awareness campaigns, with farmers involved who have experienced with different sources of finance, could improve farmer access to finance by increasing farmer knowledge of the diversity of requirements among the finance provider types.

Can flexible agricultural microfinance loans limit the repayment risk of low diversified farmers?

Ati van der Honing — Wed, 16 Aug 2017 08:29:37 +0000

This article in the journal Agricultural Economics investigates the credit risk of microfinance loans with flexible repayment schedules for crop farmers. Flexible repayment schedules allow a redistribution of principal payments during periods with low agricultural returns to periods when agricultural returns are high through predefined grace periods. For the study a data set from a commercial microfinance institution in Madagascar is used. A propensity score matching is applied to investigate how different numbers of grace periods reflecting different levels of production diversification affect the credit risk of crop farmers. In this attempt, three delinquency categories reflecting various levels of credit risk are assessed. Moreover, the specifics of the regions where loans were disbursed are considered. The results reveal that loans with predefined grace periods show significantly higher delinquencies. This effect is significant over all three delinquency categories for loans disbursed to low diversified crop farmers. For the more diversified farmers, this effect is only significant for the lowest delinquency category. Hence, predefined grace periods might bridge periods with low agricultural returns but come at the cost of higher credit risk for the lender. The magnitude of these effects is, however, small.

Institutional versus non-institutional credit to agricultural households in India: Evidence on impact from a national farmers’ survey

Ati van der Honing — Mon, 07 Aug 2017 13:02:42 +0000

This article in the journal Economic Systems investigates the role of institutional credit on farm income and farm household consumption expenditures in India. A goal of agricultural policy in India has been to reduce farmers’ dependence on informal credit. To that end, recent initiatives are focused explicitly on rural areas and have a positive impact on the flow of agricultural credit. Despite the significance of the above initiatives in enhancing the flow of institutional credit to agriculture, the links between institutional credit and net farm income and consumption expenditures in India are not very well documented. Therefore, this study was performed using large, national farm household level data and IV 2SLS estimation methods. Findings show that, in India, formal credit does indeed play a critical role in increasing both net farm income and per capita monthly household expenditures of Indian farm families. Finally, it is found that, in the presence of formal credit, social safety net programs like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) may have unintended consequences. In particular, MGNREGA reduces both net farm income and per capita monthly household consumption expenditures. On the other hand, in the presence of formal credit, the Public Distribution System may increase both net farm income and per capita monthly household consumption expenditures.

Index-based agricultural insurance products: challenges, opportunities and prospects for uptake in sub-Sahara Africa

Ati van der Honing — Mon, 31 Jul 2017 12:19:39 +0000

This article (PDF) in the Journal of Agriculture and Rural Development in the Tropics and Subtropics reviews factors and challenges that may explain the low uptake of index-based insurance products in Sub-Saharan Africa (SSA). The objectives of this paper are to assess and document 1) the insurance products available to farmers, 2) factors influencing farmers to purchase insurance products, 3) challenges limiting farmers accessing to insurance products and 4) opportunities that can positively enhance uptake in SSA. This review reveals that area yield index insurance, index-based crop insurance and index-based livestock insurance have been piloted or implemented in the region. These products have demonstrated their potentiality to replace traditional agricultural insurances, because they might be provided at lower costs to be even affordable to farmers with lower and mid on-farm income. The uptake of these products was found to be positively correlated with on-farm income, savings, literacy, and family size; and negatively correlated with premium rate, age of farmer, land tenure and farm size. Challenges that impede uptake of index-based products include weakness of regulatory environment and financial facilities, basis risk, quality and availability of weather data, capacity building of stakeholders (farmer, insurer, and regulator), and lack of innovation for local adaptation and scalability. The current gap between high promise and low uptake calls for farmer-driven product design, strong public-private partnerships and improved quality and availability of weather data.

Webinar materials: Using Psychometrics for smallholder credit scoring

F&BKP Office — Wed, 26 Jul 2017 13:45:17 +0000

In this webinar the Entrepreneurial Finance Lab (EFL) shares insights on using psychometric to create data for smallholder credit scores. The EFL tries to combat financial exclusion through using a interactive assessments that not only use generally available data, but also captures certain characteristics of smallholders that are predictive of credit risks. In this way, farmers that were ‘unbankable’ are able to attain a loan. The addition psychometric data contains data on attitude, control, entrepreneurial potential, and social behavior and are combined with other available data. In addition, the Lab also uses an SMS assessment mimicking a conversation with farmers, which is then also analysed. The programme combines all data, leading sometimes to an increased acceptance rate of financiers with 20%. In the webinar Juhudi Kilimo presents a concrete case study where his company uses EFL’s approach for their smallholder financing model.

The impact of remittances in Lesotho, Malawi and Zimbabwe

Ati van der Honing — Tue, 27 Jun 2017 10:15:46 +0000

This report (PDF) published by FinMark Trust provides an analysis on the impact of cross-border remittances on the lives of households in Malawi, Lesotho and Zimbabwe, and the role that access to financial services plays in shaping that impact. Remittances play a complex role in poverty alleviation. They contribute to improving food security. When the origin household practices farming, remittances may do more to support food security by paying for seasonal agricultural inputs, and helping recipients to grow their own food. This dynamic is one of the reasons that migrants from Malawi, which is less urbanized and more agricultural, remit less frequently than migrants from Lesotho and Zimbabwe. For many remittance recipients, access to goods such as fertilizers and education are predicated on having access to sufficient cash. The cash supplied by remittances enables access to these product and service markets, which have effects on agricultural productivity and the development of human capital. In all three economies, remittances play a vital role in supporting at-risk households, and in Lesotho and Zimbabwe, remittances are also of macroeconomic significance. By keeping children fed and educated, remittances help to improve the long-term growth prospects of impoverished nations. Facilitating the development of more affordable and efficient remittance markets thus continues to be an important pro-poor policy initiative. However, due to the heterogeneity of markets, there is a need for tailored approaches.

Responsible agriculture finance for smallholder farmers in Tanzania and Uganda

Ati van der Honing — Mon, 26 Jun 2017 10:16:32 +0000

This report (PDF), commissioned by the MasterCard Foundation, analyses input credit for smallholder farmers in Tanzania and Uganda. Agricultural inputs (either cash or in-kind) are provided on credit and the farmer reimburses the provider after harvest. Input credit products for farmers in Tanzania and Uganda are often ‘bundled’ with other compulsory services and fees. As a result, smallholder farmers may not fully understand the pricing structure and compulsory nature of bundled credit products, and may be taking on more risk than they can handle. It appears there may be a number of smallholder farmers who are indeed struggling to comprehend input credit bundles and the associated relatively high but variable risks of input credit. The objective of the study was to improve The MasterCard Foundation’s (MCF) understanding of how agricultural finance can be delivered in a responsible way. It was found that MCF could encourage governments to; (1) establish price ceilings and price floors on agricultural products, (2) relax current restrictions on micro-finance institutions, (3) create a certification program for crop inputs, and (4) set up a formalized customer complaints department about concerns with financial service providers. MCF could also work directly with financial institutions to modify and improve upon existing input credit products; and encourage them to provide a more comprehensive set of credit products that targets all entities within the agricultural value chains.

Helping women control their financial lives through digital financial services

Ati van der Honing — Mon, 26 Jun 2017 10:12:34 +0000

This expert opinion, published by the Center for Financial Inclusion, discusses how digital financial services (DFS) can help women to control their financial lives. One important benefit of DFS to women is privacy. Since digital transfers are invisible to others, protecting the recipient from the possible demands of friends or family, they give a woman greater independence around how she saves or spends her money. A study in Niger found that using mobile transfers to deliver cash payments increased women’s autonomy and decision-making. The households of these women were more likely to cultivate marginal cash crops primarily grown by women, which allowed women to earn more money. In other cases, it is the record-building that attracts women to DFS. The fact that financial service providers can view digital transactions means that women can build credit histories, which ultimately enable them to access loans and other financial products such as insurance. Additionally, DFS help women through crisis, because women can connect with their social networks of family and friends, quickly communicate their need and receive financial support via mobile money from remote contacts. This was the case in Kenya. According to the author, DFS not only give women greater control over their finances, but also over their time, since they do not have travel to a branch and wait in line.

Digitizing value chain finance for smallholder farmers

Ati van der Honing — Wed, 24 May 2017 10:05:11 +0000

This focus note (PDF) by the Consultative Group to Assist the Poor (CGAP) explores opportunities and emerging models in digital value chain finance. Particularly it looks at new technologies that can break down barriers to delivering financial services to a greater number of smallholder farmers. The authors identify three use cases for digitizing financial services in agricultural value chains: 1) Improving the efficiency of financial transactions. From bulk payments between buyers of agricultural commodities and their suppliers to digitized loan disbursements and repayments, digital payments offer some advantages over cash, while also posing new challenges of their own; 2) Overcoming barriers to providing financial services. Branchless banking and new data on customers allow for digitizing savings, credit, and insurance products—making them more affordable and accessible to a greater number of smallholders; 3) Improving market opportunities. Digital trading platforms, digital warehouse receipts, and digital invoice discounting help smallholders to maximize the price they get for their crops. Several barriers to digitization remain, including poor mobile network and agent infrastructure in rural areas, and uncertainty surrounding the cost of services and the quality of data collected on smallholder customers. But, according to the authors, the potential is also clear: digital value chain finance holds the promise to tightly integrate millions of smallholders into value chains.

More about this publication and the benefits of digital finance for smallholder farmers can be found in this blog by CGAP.

Agricultural leasing market scoping study for sub-Saharan Africa

Ati van der Honing — Mon, 08 May 2017 08:45:58 +0000

This report (PDF) by Financial Sector Deepening Africa (FSDA) and Nathan Associates applies a market systems approach to agricultural equipment leasing in sub-Saharan Africa in order to capture a holistic view of how the leasing market currently works. The study has analysed core market functions (supply and demand), as well as supporting market functions and the policy environment. A country selection framework has examined the breadth of the financial sector, relative importance of agriculture in the overall economy, total employment provided by the agriculture sector, presence of major agricultural equipment suppliers and the presence of leasing companies. It has led to a closer analysis of the following countries: Ethiopia, Ghana, Kenya, Mozambique, Nigeria, Tanzania, Uganda and Zambia. Additional references have been made to South Sudan and Liberia, offering general insights on agricultural leasing in a selection of fragile and conflict-affected states, as well as to Rwanda. Constraints throughout the market system for leasing currently create an environment where effective demand to lease equipment is limited and the incentives for financial service providers to offer agricultural leasing products are low. Most farmers are unaware of how leasing works and what its potential benefits are compared to traditional bank loans. Financial service providers do not see sufficient market opportunity to justify investing in the skills and capacity required to effectively offer leasing to the agricultural sector. At the same time, there are significant benefits attached to supporting leasing in sub-Saharan Africa. The availability of financial leasing for agricultural equipment can greatly increase mechanisation, especially for smallholder farmers, and therefore has potential to drive meaningful development impact.

Webinar on agriculture, banking, and the digital economy merge to improve South African agriculture

Ati van der Honing — Tue, 25 Apr 2017 08:45:18 +0000

This webinar by Agriculture Finance Support Facility’s (AgriFin) looks at the role of digital infrastructures in driving efficiency and sustainability in the agricultural value chain. Vuyani Jarana, Chief Officer of Vodacom Business, dives into issues that surround emerging innovations, capacity strengthening, and the enabling environment of mobile service banking. Specifically, he speaks about information gaps in existing agriculture value chains, which prevent farmers from gaining access to markets. Also, a lack of transaction records constrains their ability to produce the evidence needed for credit scoring. These combined with several other factors inhibit African agricultural development. The presentation argues for modernization of the agriculture sector through digitization of farming activities and the crop production cycle. Storing the data on accessible platforms and sharing it may lead to increases in farmer knowledge and skills. More digital records could be beneficial to financial institutions who use it to create unique agriculture client profiles. User experience results of agriculturalists and industries who have adopted Vodacom’s Connected Farmer Platform, which uses e-Voucher management to track key points in the agriculture value chain are discussed. A key message of the presentation is that technological improvements in agriculture financing represent not only an attractive business opportunity for lenders but also one of the most promising avenues to significantly increase financial inclusion. The entire webinar can be rewatched on this YouTube channel. The slides of the webinar can be downloaded here.

Prioritising climate-smart agricultural interventions: The financial aspects

Ati van der Honing — Mon, 10 Apr 2017 14:46:54 +0000

This special of Agricultural Systems focuses on prioritising climate-smart agricultural (CSA) interventions at different scales. Currently, there are few tools that can comprehensively evaluate the range of potential technologies and practices and their possible impacts on food production, environmental sustainability, and mitigation in any context. Therefore, what remains is the prioritization of interventions for investment and broad dissemination. There is a growing body of work by several CGIAR centres and their partners on tools and methods that can be used to prioritise CSA interventions and investments at a range of spatial and temporal scales. This special issue brings together nine papers describing a wide range of approaches and tools, of which some focus on the financial considerations for prioritization. One of the papers (PDF) by Sain et al. uses probabilistic cost benefit analysis to assess eight CSA practices. Indicators related to profitability and valuation of environmental and social externalities are used to assess options. The case study assessment suggests that most of the potential CSA practices are profitable, although some may have a long payback period, which may be a barrier for smallholder farmers. Another article by Khatri-Chhetri et al. (PDF) applies a participatory scoring and bidding approach to understand farmers’ preferences and willingness-to-pay for preferred CSA technologies. The paper presents that farmers’ preferences for CSA technologies are marked by some commonalities as well as differences according to their rainfall pattern, income, age, gender, and cost of implementation. This results also showed that farmers may not be always willing to invest their own money on many CSA technologies even if there are foreseen benefits. The methods could be used by government and other stakeholders to design and implement a climate change adaptation programme in agriculture.

Small-scale soya farming can outperform large-scale agricultural investments

F&BKP Office — Thu, 30 Mar 2017 09:30:38 +0000

This briefing (PDF) by the International Institute for Environment and Development (IIED) highlights how small- and mediumscale farm models can outperform large-scale operations in terms of monetary return, food security, employment generation, local prosperity and avoiding land conflicts. Agriculture is an important engine for economic growth in Africa, but effective agricultural strategies to support rural development and poverty alleviation are scarce. State investment in the small-scale farming sector is minimal and the entrepreneurial family farm sector remains underrepresented. Meanwhile, large-scale land investments are advocated as means to bring capital to rural areas and stimulate development. However, the investigation of soya production in Central Mozambique presented here suggests small-scale farming can produce similar profits to large-scale operations and better social outcomes. The authors did not find justification for any general condemnation of large-scale land investments as ‘land grabbers’, yet large-scale operations do appear to fail local development aims: they need much better oversight and transparency. Concentrating only on large-scale investments can mean forgoing opportunities for rural development and poverty reduction. With the right support, poorer households can develop market-oriented farming that contributes to local value chains at many levels. Supplying technology, finance and locally adapted extension services are all challenging, yet soya production in Central Mozambique presents a good example of how agricultural advice and support – here provided by various donors and NGOs – can successfully foster the small- and medium-scale commercial farming sector.

Large-scale agricultural investments and smallholder welfare: A comparison of wage labor and outgrower channels in Tanzania

F&BKP Office — Thu, 02 Mar 2017 09:55:49 +0000

This article in the World Development Journal evaluates household welfare effects of large-scale agricultural investments in Tanzania, one of the main recipients of such investments in Africa. Specifically, the article compares households participating in sugar and rice investments through outgrower schemes or as agro-industry workers with non-participants in terms of household income and income poverty. Building on primary household data, it is one of the first studies to empirically analyze ex-post impacts of large-scale agricultural investments in Africa. The analysis draws on cross-section survey data of 516 households collected in Kilombero District, a priority cluster for the Southern Agricultural Growth Corridor of Tanzania (SAGCOT). The results show overall positive household welfare differences between participants of the investments and the respective counterfactual. However, there are large differences between arrangements and subsectors. Estimated effects for outgrowers are largest, yet for land-rich outgrowers more so than for land-poor. Effects for agro-industry workers in the sugar investment are significantly larger than for those in the rice investment, though in both investments land-poor workers seem to benefit. Hence, the study results suggest potential benefits of outgrower schemes and potentials of agro-industry wage employment for the land-poor to escape extreme poverty. Yet, it also stresses particularly the need to address the constraints of land-poor outgrowers. Qualitative interviews, for example, pointed to growing risks for land-poor outgrowers in the context of rising elite capture by larger outgrowers.

Addressing the gender differentiated investment risks to climate-smart agriculture

Nynke — Wed, 22 Feb 2017 16:02:47 +0000

This article (PDF) published by AIMS Agriculture and Food argues that closing the gender gap in land and other productive resources can provide a “triple dividend” of gender equality, food security and climate management. It can thus offer a cost-effective approach to the pursuit of the Sustainable Development Goals. However, climate change compounds the structural barriers to gender equality that women farmers face, rapidly shrinking the window of opportunity to realize this triple dividend. The growing literature on the gender gap aims to better quantify its implications for agricultural productivity but does not provide a framework to prioritize policy responses. To complement these econometric efforts, this paper proposes a three-step methodology to assist policy-makers in developing countries in disentangling the opportunities and trade-offs of different policies and interventions to close the gender gap that impedes climate-smart agriculture (CSA) for women. The paper first develops a table that clusters barriers to CSA into nine independent risk categories. Second, it overlays a gender analysis upon this gender-neutral barrier and risk table to identify gender-differentiated risks and barriers to CSA. Third, it maps identified gender-neutral and differentiated investment risks against possible remedial public policy instruments. The authors argue that targeted interventions will be required to address these gender differentiated investment risks and ensure that CSA market transformation efforts benefit men and women farmers equally.

Promoting gender equality in foreign agricultural investments: Lessons from voluntary sustainability standards

Nynke — Wed, 22 Feb 2017 15:49:42 +0000

This report (PDF) published by IISD analyzes the gender-related content of five major global agricultural sustainability standards and five principles for responsible investment in agriculture. It contributes to the emerging literature on the gendered impacts of the contemporary wave of foreign agricultural investments. The outcomes of agricultural investments for men and women often differ in rural areas of the Global South where gender inequalities are persistent. Barriers to women’s access to productive resources— production inputs, credit and training—reduce female agricultural producers’ yields by 20–30 per cent from their full potential. Further, culturally based gender discrimination often leaves women with a heavier burden for care work, diminishes their access to education, restricts their access to land and limits options for decent paid work. The evidence presented in this paper indicates that these inequalities are often exacerbated by foreign agricultural investments, unless investors and host country governments work to ensure that investment contracts address the needs of women farmers and agricultural workers. The authors urge a focus on implementation and practice; adopting a gender-equality approach; engaging women as partners in developing and implementing principles; and accounting for localized gender norms. The document concludes with specific recommendations for investors, host governments, local communities and civil society organizations.

Inclusive finance and inclusive rural transformation

Ati van der Honing — Wed, 15 Feb 2017 14:06:04 +0000

This paper (PDF) in the IFAD Research Series provides an overview of concepts, issues and research on the relationship between financial inclusion and inclusive rural transformation. Liberalization of financial markets may not have had the desired spillover effects into rural credit. This indicates there may be justification for public intervention. Evidence shows that agricultural credit provides positive returns. However, according to the authors microcredit may not unto itself be a solution. Therefore, effective microcredit programmes might need to be coupled with outreach and technical assistance in order to achieve desired goals and objectives. Policies that curb interest rates or otherwise lower the cost of credit may encourage credit demand due to moderately inelastic to elastic demands. Other important issue that need to be considered for policies are collateral and risk, because risk-rationed farmers might either not borrow at all, or borrow less than optimal amounts of credit. Several solutions are presented to the farm credit problem, including subsidies and tax incentives, government-sponsored enterprises, risk-contingent credit and flex loans. Intervention policies should recognize that there is no one-size-fits-all credit policy, and policies should be targeted towards specific problems. For example, if subsidies are required, they must be smart in the sense of minimizing distortions in the marketplace or when markets fail, governments should consider government-sponsored enterprises to meet farmers’ credit demands.

Investments in irrigation for global food security

Ati van der Honing — Mon, 13 Feb 2017 10:19:34 +0000

This project paper (PDF) by IFPRI describes what it will take to achieve a level of irrigation investment that supports sustainable agriculture for improved food security and nutrition. Climate change and all the resulting uncertainties are sparking new interest in raising investments in irrigation to enable more stable food production. In order for these investments to pay off, they need to be targeted and ideally should be accompanied by the following: 1) Support for smallholder irrigation systems whenever feasible; 2) Improvements in water-use efficiency; 3) Economic incentives to conserve water resources; 4) Linkages with other sectors; 5) Linkages between irrigation and nutrition. Irrigation can and should be an integral part of sustainable agricultural production. For this to happen, investment in irrigation infrastructure, policies, and institutions must be strengthened in those regions most threatened by food insecurity and climate change, and where irrigation development is most environmentally sustainable. The authors conclude that irrigation has an important role to play in enhancing future food security and the time for targeted investments is now.

Benefits to smallholders? Evaluating the world food programme’s purchase for progress pilot

Ati van der Honing — Wed, 11 Jan 2017 10:35:06 +0000

This article, published in the Global Food Security journal, examines the impacts of the United Nations World Food Programme’s (WFP’s) Purchase for Progress (P4P) program on smallholder farmers in Tanzania. P4P is a multi-year, multi-country pilot that sought to improve smallholder farmer wellbeing through a combination of food purchases from farmer organizations and supply-side interventions. The authors examine the impacts of P4P on smallholder farmers in Tanzania, using panel data on members of participating and comparison farmer organizations. P4P targeted participants based on pre-existing warehouses locations. To account for possible selection on observables, the authors use propensity score matching, limiting the sample to participating farmers and their matches, and then compute conditional difference-in-differences. While participating small farmers increase their commercial farming activity relative to comparison farmers, they did not find evidence of increased income, increased food consumption scores or increased crop value. The article discusses possible factors contributing to these findings, including WFP’s diverse objectives and the targeting of farmer organizations rather than smallholders.

Impact of cash transfer programs on food security and nutrition in sub-Saharan Africa: A cross-country analysis

Ati van der Honing — Wed, 04 Jan 2017 10:16:05 +0000

This paper by the Global Food Security journal explores the extent to which government-run cash transfer programs in four sub-Saharan countries affect food security and nutritional outcomes. These programs include Ghana’s Livelihood Empowerment Against Poverty, Kenya’s Cash Transfer for Orphans and Vulnerable Children, Lesotho’s Child Grants Program and Zambia’s Child Grant model of the Social Cash Transfer program. The cross-country analysis highlights the importance of robust program design and implementation to achieve the intended results. The authors find that a relatively generous and regular and predictable transfer increases the quantity and quality of food and reduces the prevalence of food insecurity. On the other hand, a smaller, lumpy and irregular transfer does not lead to impacts on food expenditures. The paper complements binary treatment analysis with continuous treatment analysis to understand not only the impact of being in the program but also the variability in impacts by the extent of treatment.

Financial inclusion fit to size: Customizing digital credit for smallholder farmers in Tanzania

Ati van der Honing — Mon, 19 Dec 2016 15:23:31 +0000

This briefing (PDF) by The Initiative For Smallholder Finance explores the causes of low uptake in digital credit for smallholders in Tanzania. Dalberg’s Design Impact Group (DIG) explores these causes to better understand how concrete product solutions to jump-start adoption of digital credit products can be developed. Digital credit products represent an important financial inclusion opportunity for smallholder farmers in Tanzania, where close to 80% of the workforce is engaged in farming. Uptake of these products by smallholder farmers, however, remains limited. To address this challenge, DIG used a human-centered design (HCD) approach across three regions of Tanzania to produce behavioral insights around smallholder farmers’ interaction with, and demand for, digital credit products. Based on insights collected during their research, DIG designed and prototyped a new digital credit product for smallholder farmers and evaluated their response to it. This idealized digital credit product builds on existing products available in the Tanzanian market, but has five new components, each with multiple differentiated features, that meet the unique credit needs and behaviors of smallholders. One of these components is flexible credit, because loan sizes, repayment periods, and repayment terms of current digital credit products do not meet the credit needs of smallholder farmers. Most existing products were designed for urban consumers, whose finance needs differ significantly from smallholders’ needs in several respects.

Lessons learned: Digital financial services for smallholder households

Ati van der Honing — Sun, 18 Dec 2016 10:52:01 +0000

This note by IFAD is focusing on how digital financial services (DFSs) are meeting the financial needs of smallholder households. The authors offer examples of smallholder-specific DFSs as well as mainstream ones, highlighting the implications in each case for smallholder farmers and their households. Agricultural value added services (VASs) are included in this synthesis because they can serve as an entry point to financial inclusion and have the potential to improve the financial capability and farming productivity of smallholder farmers. A major quandary in developing DFSs for smallholder farmers is that the successful uptake of services depends largely on multiple, interconnected elements – technical infrastructure, regulations, distribution networks – that enable digital financial products to be widely used. With an enabling environment in place, a digital ecosystem for smallholders can be created in which a variety of participants in the agriculture sector connect with smallholder farmers through digital tools. However, significant challenges remain to a more extensive, scalable supply of digital financial offerings for smallholder farmers. It is possible that some of these will be addressed organically by continued growth and innovation in the technology. For instance, network coverage will likely increase over time in rural areas. But without an intentional and coordinated approach, innovations might not reach or benefit smallholder farmers directly, especially subsistence farmers.

Private sector investment in a changing climate: Resilient rice value chain development in Uganda

F&BKP Office — Wed, 30 Nov 2016 10:59:56 +0000

The PSI-Climate initiative explored how domestic private sector investment decisions can enable climate risk management by different actors along the rice value chain in Uganda. Led by the International Institute for Sustainable Development (IISD), the project was implemented in partnership with the Economic Policy Research Center and the Ministry of Finance, Planning and Economic Development during the period 2014–2016. Case study research was conducted in collaboration with a domestic seed company, Equator Seeds Ltd in Northern Uganda, and the Centenary Bank Ltd., a commercial bank in Eastern Uganda. This first briefing note (PDF) presents the results of case study research on financial services and climate risk management along agricultural value chains, focusing on the Centenary Bank’s services to rice value chain actors in Eastern Uganda. It discusses the need for climate risk management (CRM) along agricultural value chains, the role of financial services in enabling CRM by value chain actors, and practical options for financial service providers to realize their potential in this area. It also provides recommended areas of action for researchers and practitioners to move forward on financial services for CRM. This second brief focuses on investments by domestic seed companies in quality seeds, including climate-resilient varieties, in developing countries and the climate risk management benefits for other actors along the value chain. It is designed for researchers and practitioners working on agricultural value chains, food security and climate resilience in developing countries. This third brief proposes a framework of core functions for climate risk management (CRM) along agricultural value chains, and highlights the role of service providers in supporting CRM efforts. This video highlights the role of private sector investments in climate resilient rice value chains in Uganda. It focuses on the experiences of Equator Seeds Limited and Centenary Bank in the Eastern and Northern regions of Uganda.

FinTech for micro, small and medium sized enterprises

Ati van der Honing — Tue, 01 Nov 2016 16:09:57 +0000

This report (PDF) by ING addresses the benefits of financial technology (FinTech) for micro, small and medium enterprises (MSMEs) in developing countries. The role of FinTech is important in the discussion on how to financially include poor people in developing economies and can also be of interest to the agro-food sector. This report shifts the focus on to MSMEs because these are important job creators at the bottom of the pyramid. The report contains 10 main insights that offer important opportunities for the agro-food sector. According to the authors, FinTech is the game changer for the traditional bricks and mortar bank that cannot close the finance gap. Especially in remote rural areas physical branches are costly to operate and cannot provide the finance that MSMEs need. Furthermore, FinTech has the potential to impact the whole financial value chain and thus improve financial access for MSMEs. To fully fulfill this potential smartphones must not be seen as solely a luxury good, but as essential for financial inclusion. This would mean that financial inclusion policies can no longer go without policies to digitally include MSMEs and the people they hire.

Farm input subsidy programmes (FISPs): A benefit for, or the betrayal of, SADC’s small-scale farmers?

Ati van der Honing — Tue, 11 Oct 2016 09:37:54 +0000

This paper (PDF) by the African Centre for Biodiversity (ACBIO) reviews the farm input subsidy programmes (FISPs) within countries belonging to the Southern Africa Development Community (SADC), to ascertain whether input subsidies have benefited small-scale farmers, have increased food security at the household and national levels, and have improved the incomes of small-scale farmers. It does this by exploring the re-adoption of input subsidies in countries belonging to SADC, describing theprogramme designs, providing an analysis of the respective in-country effects, and providing an overarching review of input subsidy programmes within SADC countries. According to the authors the Green Revolution has been a dismal failure in Africa: the sheer size of the region, its diversity of agroecological zones and deep history of traditional farming practices, the depth of rural poverty and development challenges, and the lack of domestic markets mitigate attempts to provide a unitary solution
to a complex challenge. They conclude with that it appears that subsidies are relegating farmers to welfare recipients as it make them passive receivers of technical advice, beneficiaries of public sector subsidized inputs and price takers in local markets. The authors state that urgent transformative action is required, now, to bring about the sustainable food systems of the future.

National survey and segmentation of smallholder households in Tanzania

Ati van der Honing — Fri, 09 Sep 2016 13:22:36 +0000

This working paper (PDF) by CGAP examines how smallholder families manage their income and expenses and the issues they face that often lead to financial instability. CGAP conducted a nationally representative survey of smallholder households in Tanzania between August and September 2015. The report shares the findings, observations, and insights from the study. The study sought to develop a comprehensive map of the many activities, interests, aspirations, barriers, and pressures facing smallholder families. The results show that smallholder farmers in Tanzania have a deeply committed, reciprocal relationship with their land and farm. Farmers prioritize, invest in, and cultivate their farming activities year in and year out. In return, agriculture provides their household with sustenance, income, even investments and growth opportunities. Agriculture is part of the identity of smallholder households, a point of pride, and a legacy for future generations. Many see a future in farming, and they look for opportunities to be more successful in their agricultural endeavors. Smallholder familyhouseholds’ circumstances and the surrounding ecosystem in Tanzania may mean they struggle day in and day out, live below the poverty line, and are vulnerable to the harsh realities of farming. Their mindset, however, suggests commitment, diligence, and a desire for a prosperous future.

Agriculture finance support facility: Lessons learned

Ati van der Honing — Fri, 09 Sep 2016 12:32:11 +0000

This report (PDF) by the Agriculture Finance Support Facility’s (AgriFin) shares lessons on agricultural finance in the hope of guiding future initiatives and programs aimed at expanding the provision of agriculture finance services in developing countries. The report has two main chapters: the first deals with lessons learned from the design and implementation of AgriFin’s Technical Assistance program, while the second covers the lessons emerging from the design and implementation of the program. AgriFin aims to provide technical assistance and knowledge support primarily to financial institutions to help them develop their business models for financing smallholder farmers. The Facility established a Technical Assistance program and a Knowledge and Networks initiative. Both programs has shown good results and therefore provides interesting lessons learned. The overall AgriFin’s experience has shown that increased lending to agriculture can be achieved by bridging the knowledge gap that often hinders banks from embracing a market segment often viewed as too risky or fragmented to be profitable. The target audience includes development organizations with programs involved in agriculture finance, technical assistance and knowledge management initiatives aimed at improving financial institutions’ capacity in agriculture lending.

Making climate finance work in agriculture

Ati van der Honing — Tue, 09 Aug 2016 15:24:29 +0000

This paper (PDF) by World Bank explores the intersection between climate and agriculture finance by promoting dialogue about these topics and suggesting innovative approaches. The paper was produced as a background document for the 2016 FAO State of Food and Agriculture report. It is based on in-depth analysis of the agriculture and climate finance literature, as well as interviews with key experts representing various stakeholder groups in the agriculture, climate, and finance sectors. The interviews were conducted in order to identify those opportunities and innovations that should be explored to make climate finance work for agriculture. The paper proposes three different avenues to use climate finance to achieve this goal: 1) Designing and adapting innovative mechanisms to leverage additional sources of capital, from both public and private sources, that can be directed towards climate smartinvestments in the agriculture sector. 2) Identifying entry points for directing climate finance into agriculture and for linking FIs to smallholders and agricultural SMEs, including through capacity building and technical assistance. 3) Providing technical assistance to increase investments in agriculture. Finally, this paper presents several suggestions to contribute to the achievement of the ideas presented in this paper, including the need for increased knowledge on innovative financial instruments and mechanisms, bridging information gaps, identifying opportunities, promoting dialogue and cooperation, and designing an action plan to move this agenda forward

Can insurance help manage climate risk and food insecurity? Evidence from the pastoral regions of East Africa

Ati van der Honing — Tue, 02 Aug 2016 14:25:11 +0000

This article by Michael R. Carter, Sarah A. Janzen and Quentin Stoeffler suggests that insurance can help manage climate risk and food insecurity. If well-designed, insurance contracts can be implemented and priced at a reasonable level, despite the uncertainties that attend climate change. Evidence from the Index-Based Livestock Insurance (IBLI) index insurance project in the pastoral regions in East Africa suggest that practical difficulties can be overcome and that insurance can have the impacts that underlay the positive theoretical evaluation. At the same time, continuing analysis of the IBLI experience suggests that much remains to be done if quality index insurancecontracts are to be scaled up and sustained. The authors conclude that insurance is not an easy off-the-shelf solution to the problem of climate risk and food insecurity. Creativity in the technical and institutional design of contracts is still required, as efforts to forge the more effective public-private partnerships needed to price insurance at levels that will allow insurance to fulfill its potential as part of an integrated approach to social protection and food security in an era of climate change.

Livestock Finance Fair: Summary report

F&BKP Office — Thu, 28 Jul 2016 14:51:48 +0000

This report (PDF) from the AgriProFocus Innovation Community on Access to Finance presents the lessons from a regional finance fair in Mbarara, Western Uganda. The objectives of the fair were to provide a platform for building business links and brokering deals between farmer entrepreneurs in the livestock sector and financial service providers. In addition, it aimed to jointly find solutions to other challenges in the livestock value chain. The meeting was foward looking and emphasized the need for designing financial products that are tailor made to suit the dairy sector and encourage linkage banking; the promotion of financial services in remote areas and regulation on interest rates. Farmers were briefed on the best practices of financial management for the livestock value chain and the role of the Uganda Agriculture Insurance Scheme. A presentation on the role of Uganda’s Agriculture Credit Facility (ACF) in financing agriculture was delivered. The event and report were produced in partnership with Mbarara District Farmers Association (MBADIFA), SNV, GIZ AGRUFIN, The Hunger Project, Agritera, Trias, TIDE Project–SNV, and AMFIU.

Also see the one page summary of the report.

How agricultural insurance can improve food security – and why regulation matters

F&BKP Office — Thu, 28 Jul 2016 13:16:56 +0000

This policy note (PDF) by the Access to Insurance Initiative (A2ii) makes the case for agricultural insurance in the context of food security, explains the role of regulation to make effective risk protection work and highlights some of the challenges in regulating innovative index-based insurance approaches. Adverse weather events cause heavy losses to farmers every year and contribute to rural poverty. While traditional insurance is too expensive for most smallholder farmers, index-based agricultural insurance has the potential to offer a promising solution with lower premiums and faster payouts. However, key barriers still need to be addressed and most products are still in pilot stage. An area that has not received much attention yet is the essential role that regulation and supervision plays in supporting and enabling wider access to index-based agricultural insurance products. The paper provides an overview of the benefits of agricultural insurance, explains why regulation matters and highlights some of the challenges faced by supervisors when seeking to regulate index-based agricultural insurance.

Agriculture and adaptation to climate change: The role of insurance in risk management – the case of Colombia

F&BKP Office — Tue, 05 Jul 2016 09:22:07 +0000

This paper (PDF) by the Inter-American Development Bank, analyzes in detail the market constraints on the development of the agricultural insurance market in Colombia and provides recommendations so that it can fulfill its potential as a risk management tool in the country. The first section of the paper describes the agricultural sector in Colombia and the expected impact of climate change in the country. The second section then describes the agricultural insurance market in Colombia, providing a brief history of previous and current insurance schemes and a detailed analysis of the market imperfections and constraints in the country as well as of current government support schemes. Afterward new developments in the agricultural insurance market taking place in the country and their potential effects are discussed, followed by a reflection on how climate change will affect the insurance industry. The last section concludes and provides policy recommendations. Insurance can potentially play an important role in climate change adaptation for rural households in developing countries as part of the overall climate change adaptation strategy. However, agricultural insurance markets have many market failures that inhibit their full development. In Colombia these market failures, namely information asymmetries and high transaction costs, are amplified by the country’s difficult topography, poor infrastructure, and history of rural violence. Even though the government provides premium subsidies to increase coverage, it is still very low and important crops and small producers are not covered. An important policy recommendation of the authors is that it is necessary to update the agroclimatic risk maps for different crops and regions, and to generate such maps at a lower scale so that insurance companies have up-to-date effective information for pricing policies and assessing risk. Furthermore, regarding the new challenges climate change poses not only for the agricultural sector but also the insurance sector, it is necessary to create bridges between the scientific community and their climate change models and the actuarial offices in insurance companies so that climate change models can be used to assess and price risks.

Financing farm renovation: How to build resilience using a blend of capital

Babs — Thu, 02 Jun 2016 09:40:32 +0000

This report by Root Capital explains how a blend of capital can help build resilience against a dwindling supply and rising demand in commodities such as coffee, cacao, and tea. La Roya, also known as coffee leaf rust, is a crippling crop disease that continues to spread across Latin America. In 2016, it is expected that global consumers will drink more coffee than ever before. With growing populations and rising incomes, demand for coffee — as well as cocoa, tea, and other agricultural commodities — will continue to increase in the coming years. Over the past three years leaf rust has affected the lives of millions of farmers and farmworkers. The challenges resulting from this has started a downward cycle of low productivity, reduced income, and underinvestment that often leads to migration, deforestation, and other desperate measures. To address these many challenges, Root Capital leveraged public-private partnerships and developed the Coffee Farmer Resilience Initiative (CFRI). This report shares learnings from Root Capital’s model with CFRI, what they’ve done over the past two years for the Initiative, and what they continue to learn. The report states that investment in agriculture—perhaps more than any other sector—has the potential to bring about unprecedented change today and into the future, from food security and nutrition to environmental sustainability and economic growth.

The executive summary is also available in Spanish.

Unlocking local currency lending: Foreign exchange risk in agricultural finance

Babs — Thu, 26 May 2016 14:11:01 +0000

This briefing note by the The Initiative for Smallholder Finance, details how philanthropic investment can play an influential role in mitigating foreign exchange risk. The note emerged from conversations with stakeholders at various levels of the agricultural value chain who expressed concerns about managing the foreign exchange (FX) exposure in their businesses – traders who pre-finance farmers and financiers who lend to smallholders and agri-businesses, among others. While a reasonable body of literature covers management of FX risk in microfinance, relatively little research has been conducted targeting FX risk management in smallholder agricultural lending. This briefing seeks to lay the foundation for further research, collaboration, and experimentation that can lead to the development and testing of solutions for managing the FX risk inherent in agricultural value chains. This briefing outlines the particular challenges of FX management in agriculture and profiles the landscape of existing solutions – drawing broadly from microfinance and industry solutions when relevant. The note concludes with recommendations for how lenders, donors, and other partners can develop interventions that will help mitigate these FX risks in the short to medium term.

Inflection Point: Unlocking growth in the era of farmer finance

Babs — Thu, 26 May 2016 12:54:36 +0000

This report by the Rural and Agricultural Finance Learning Lab and the Initiative for Smallholder Finance captures the way the smallholder finance space currently operates by describing the key actors and the nature of their interactions, and by conceptualizing these in a new “industry model.” The report identifies market frictions across the major components of the “industry model” that continue to inhibit smallholder farmers’ access to financial services and opportunities for removing them, and rallies sector actors around the need for more collective action than ever before. A key finding is that the gap today between smallholder finance supply and need is significant and projected growth of 7% per year for formal finance providers will not significantly cut into it over the next five years. The authors highlight that in order to fulfill the promise of the era of farmer finance, now is the time to push the sector toward an ambitious new trajectory.

Agricultural value chain finance – A guide for bankers

F&BKP Office — Wed, 20 Apr 2016 11:40:49 +0000

This guide (PDF), developed by AgriFin (World Bank Group), in partnership with Bankaool (Mexico), HBL Bank (Pakistan) and HDFC Bank (India), provides a practical, evidence-based guidance to financial institutions engaging in agricultural value chain finance (AVCF). It includes a comprehensive picture of agricultural value chains to enable financial institutions to adapt financial products to the specific demands of value chain actors; and examples of field-tested AVCF products and procedures that have shown value or promise for financial institutions. The AVCF Guide can be used by financial institutions’ staff, including senior management to understand the strategic benefits of value chain finance, heads of lending departments and their teams to implement value chain finance, other bank staff for training and self-study. The AVCF Guide is also useful for development professionals supporting agricultural finance projects. The Guide is available in two formats – an online version which provides a high level overview of each step of the VCF process – and the full Guide which provides more detailed technical information and background materials on the mechanics of financing agricultural value chains. There is also a webinar presentation available introducing the guide here.

The rise of the data scientist: How big data and data science are changing smallholder finance

Babs — Tue, 12 Apr 2016 10:05:39 +0000

This briefing note by the Initiative for Smallholder Finance explores how innovative lenders are using new data sources and analytics to assess the creditworthiness of borrowers. It seeks to supplement the growing body of literature on alternative applications of data in assessing credit risk with a discussion of the opportunity to extend these models to the agriculture sector. The current state of alternative credit assessment models apart from and with respect to the agriculture sector is highlighted, as well as the challenges that prevent an easy transfer of urban tested models to agricultural borrowers. The authors highlight efforts to develop new data sources for the agriculture sector, as well as trends that may support alternative data driven credit assessment in these environments. The note concludes with recommendations for how lenders, donors, and other partners can push forward the development of such alternative credit assessment models.

Opportunities for value chain finance in Africa’s intra-regional food trade

Babs — Mon, 14 Mar 2016 10:46:29 +0000

This brief paper (PDF) explores the opportunities for African banks in financing intra-African food trade, in particular using value chain financing mechanisms (also called structured financing techniques). Value chain financing is used widely in the continent’s agricultural trade, but mostly for exports to and imports from other parts of the world, not for intra-African trade. And most such value chain financing transactions are managed by international banks, with African banks having at best a supporting role. Apart from a relative lack of familiarity of value chain financing techniques among African bankers, their negative perceptions about the risk of agricultural financing also constrains the market, as does their lack of awareness of the large commercial opportunities in financing short-distance value chains (from farmers to cities in the country or neighbouring countries). The brief concludes that there is a lot of scope for improving intra-African food trade. For example, governments and regional institutions, with the support of the donor community, can do more to encourage food sector operators and African banks to develop viable value chains for intra-regional food trade and its financing, including by creating dedicated re-financing and guarantee facilities.

Smallholder diaries: building the evidence base with farming families in Mozambique, Tanzania, and Pakistan

Babs — Mon, 07 Mar 2016 13:28:01 +0000

For CGAP‘s Financial Diaries with Smallholder Households, researchers interviewed 270 total families in Mozambique, Pakistan, and Tanzania every two weeks for an entire calendar year, tracking their income, expenses, and agricultural production. The result was approximately 500,000 data points, combined with rich personal stories, about the challenges these families face – related to agriculture, finance, and other areas of life such as health and education. The Smallholder Diaries (PDF) provide a deep view of how smallholders are affected by the agricultural cycle and manage their money in response to its ebbs and flows, as well as point to ways that financial service providers might better meet smallholders’ needs. While the Smallholder Diaries methodology and sample size are not statistically representative of all smallholder families in a given country, the findings from the Smallholder Diaries have global implications for the smallholder household sector. Early insights from the Financial Diaries of Smallholder Households from April 2015 can be found here. A CGAP’s blog series focusses on the art and science of Financial Diaries can be found here.

Webinar on “The role of governments in scaling up agriculture (index) insurance”

F&BKP Office — Mon, 29 Feb 2016 10:31:36 +0000

This webinar by the Impact Insurance Facility looked at how governments can catalyse the development of agriculture insurance markets through a variety of interventions such as the provision, administration and management of subsidies, support for developing infrastructure for effective implementation of insurance programmes, investment in collection and sharing of data and customer education. It also looked at the government’s role in developing enabling regulations and using insurance as a part of their social protection and agriculture development agendas. Organized together with the WBG’s Global Index Insurance Facility, the USAID & Basis/I4-supported Global Action Network for agriculture insurance, it featured resource persons from USAID, the World Bank and the Government of Kenya. The entire webinar can be rewatched on this YouTube channel. The slides of the webinar can be accessed through Slideshare. Some of the questions in the Q&A session of the webinar were left unanswered. The panellists have taken a look into these and you can access their responses here.

Evidence on the impact of rural and agricultural finance on clients in Sub-Saharan Africa: a literature review

Babs — Mon, 11 Jan 2016 10:10:53 +0000

This report by the Evans School Policy Analysis and Research Group (EPAR) and commissioned The Rural and Agricultural Finance Learning Lab, reviews and summarizes the existing evidence on the impact of access to financial services/products on measures of production, income and wealth, consumption and food security, and resilience for smallholder farmers and other rural customers and their households in Sub-Saharan Africa. This study covers four main types of financial products/services: 1) credit; 2) savings; 3) insurance; and 4) mobile money and digital products. The literature review provides a great overview of what the rigorous impact studies to date have found, and a full bibliography to dig further. Some of the key takeaways are that rural and agricultural finance solutions can deliver real impact for smallholder/rural households, but the impact is far from guaranteed, especially since successfully utilizing a financial solution to transform one’s livelihood hinges on a complex range of factors. Perhaps most importantly, it’s clear that there’s a lot to learn still about impact of different financial solutions – including the product experience and the context in which they are delivered – on smallholder households. These themes are also discussed further in the Impact Case study by Dalberg which builds from the foundation of the EPAR literature review.

Designing digital financial services for smallholder families

Babs — Tue, 08 Dec 2015 14:14:16 +0000

A new report published by CGAP presents insights in how digital financial services (DFS) can work for smallholders. Digital tools offer great opportunities for the world’s 450 million smallholder families, but cannot replace personal support, according to the new human-centered design research. Recognizing the need for DFS that better respond to smallholder demand, CGAP partnered in early 2015 with a financial service provider (FSP) in each of Zimbabwe, Senegal, Rwanda, and Cambodia to design a new generation of smallholder-specific digital financial products and services. Under the guidance and expertise of two human-centered design (HCD) firms, CGAP and its FSP partners worked to explore, create, evolve, and test possible digital solutions for smallholder families. This publication (PDF) begins with a brief overview of the HCD methodology, before outlining a set of recommendations for FSPs to consider when developing new DFS offerings for smallholders. These recommendations, supported by field insights, are organized around four key design principles: 1) Design around Smallholder Needs and Aspirations; 2) Design to Drive Adoption; 3) Design for Continuous Engagement; and 4) Design for Customer Growth. Following the recommendations, this publication closes by identifying next steps in the design process, opportunities for further research, and potential challenges to bringing innovative DFS to market.

Agricultural Lending: A how-to guide

Babs — Thu, 12 Nov 2015 14:24:34 +0000

This toolkit (PDF) by IFC introduces and explains step by step the key elements of success for financial institutions (FIs) to expand financial services to farmers. The content was developed around IFC’s global experience in assisting FIs with the development and implementation of agricultural finance products. The benefits of this work are synthesized in this guide, along with knowledge and expertise of best practices among both IFC clients and others. The guide includes advice on each step involved and tips on how to address the complex challenges that might arise during product development process. The guide has seven chief components: 1.) Introduction to Agricultural Finance; 2.) The Product Development Process; 3.) Product Development Phase 1 – Preparation; 4) Product Development Phase 2 – Market Research; 5) Product Development Phase 3 – Pilot Design; 6) Product Development Phase 4 – Pilot Testing and Monitoring; and 7) Product Development Phase 5 – Product Launch and Rollout. This guide highlights case studies and success stories from around the globe to illustrate how other institutions already work within the
agricultural sector.

Innovations and emerging trends in agricultural insurance

Babs — Wed, 21 Oct 2015 14:58:19 +0000

Index based insurance is a promising innovation that might yet help scale up agricultural insurance to needed levels, as well as help underwrite many public relief programs. It also promises to be a useful bridge for increasing the engagement of private insurers in managing these risks, either directly or through various kinds of public-private or nonprofit-private partnerships. Yet despite many promising pilots, IBI has not yet taken off at scale. There are a number of challenges holding back IBI, including problems of weak farmer demand, difficulties in developing appropriate indices and distribution networks, coping with climate change, insufficient public investments in necessary public goods, and first mover problems. This paper (PDF) has reviewed some recent innovations that seek to overcome these challenges, and some are indeed showing promise in ongoing pilot projects.

New trends in financing agricultural value chains – promising practices and emerging recommendations for policy development

Babs — Wed, 21 Oct 2015 14:09:33 +0000

This publication (PDF) by Dr. Rauno Zander from the GPFI SME Finance SubGroup aims to provide development policymakers with some practical recent insights on new trends in agricultural value chain financing. It highlights good practices, success factors and lessons to be learnt from recent experiences, covering the past five years. The paper looks at innovation challenges in agricultural value chain financing and details three possible types of innovation, namely for products, processes and systems. Several cases are highlighted, such as the case of ICT solutions to facilitate logistics and financing for coffee in Uganda. The final chapter outlines some areas for increased engagement of donors and other private and public sector programme partners. The chapter tries to capture the way forward for the most important development partners, based on the emerging experience of the German Development Cooperation, i.e. central banks and regulatory authorities, agribusiness stakeholders and other agricultural sectors, financial institutions and other financial sector players, investors and funders, and, also important, the primary producers and their associations.

Financial innovation and poverty reduction: Evidence from rural northern Nigeria

Babs — Thu, 06 Aug 2015 13:22:32 +0000

This paper (PDF) by the Making Finance Work for Africa Partnership (MFW4A) examines the effect of financial innovation on poverty reduction in rural northern Nigeria. Households from this part of the world are farmers hence, exposed to the vagaries of Climate Change. Assessing whether or not the poorest income quintile (the poorest of the poor) benefit from existing financial inclusive strategies, would inform policy makers and direct the attention of microfinance entrepreneurs to better innovate products that would increase financial inclusiveness and reduce poverty in developing countries. The findings of the paper include the following: First, females constitute the majority of farmers in the poorest income quintile while men are mostly in the 4th and richest quintile. Secondly, smaller size households are more likely to be in the poorest income quintile than large households as family size matters for farm labour due to traditional farm practice. Thirdly, traditional crop insurance benefits mostly rich farmers and poor farmers do not utilize microfinance institutions meant to accelerate formal access to credit. Lending to rural farm households organized into savings clubs, however, benefits the poorest income quintile farmers. Fourthly, government programmes put forward to help rural farm households cope with agricultural shocks have, unfortunately, benefited mostly those in the richest income quintile. Lastly, to eradicate poverty for all in a post 2015 sustainable development framework, looking into how rural farm households are organized in developing countries and designing financial inclusive products that would be consistent with their values and community life, would be needful.

The impact of investment in agricultural research and development and agricultural productivity

Babs — Thu, 06 Aug 2015 13:03:05 +0000

This study by IFPRI was conducted to determine the impact on world prices, agricultural commodities production, and food security and nutrition of raising the annual growth in agricultural total factor productivity (TFP) from the current estimate of 1.6 percent to 2 percent by 2030 through investment in agricultural research and development (R&D). The study also compared three R&D investment strategies: (1) gradual TFP increase, (2) accelerated TFP increase, and (3) developing-countries-only TFP increase. Results show that compared with the baseline scenario of business as usual, R&D investment strategies to increase TFP to 2 percent can lower world prices of cereals and meat by as much as 17 and 15 percent, respectively, as well as increase area planted in crops by 2.4 percent and crop yields by 8.5 percent by 2030. World cereal and meat production can also be increased by 12.5 and 3.9 percent, respectively, and consumption by 4.5 and 3.9 percent, respectively. The number of malnourished children can be reduced by 7 million (5.4 percent), and the population at risk of hunger can be reduced by 160 million (23.2 percent).

Investment contracts for agriculture: maximizing gains and minimizing risks

Babs — Mon, 20 Jul 2015 13:45:58 +0000

This joint IISD, World Bank and UNCTAD discussion paper marries two substantial bodies of research to show how investment contracts can be set up to promote sustainable development. It presents the top five positive outcomes and the five downsides from private sector investments in large- scale agricultural projects. It is important that such investments are sustainable not only in the long term, but also beneficial in the short term with minimal risks or negative effects. This paper looks at one approach to achieving this namely, carefully devised contracts with investors, and in doing so offers a number of concrete solutions. The paper presents the top five positive outcomes and the five downsides from private sector investments in large scale agricultural projects. This is derived from empirical evidence gathered by the United Nations Conference on Trade and Development (UNCTAD) and the World Bank after visiting large-scale agricultural projects (UNCTAD and World Bank 2014). The paper also proposes legal options to maximizing the main positive outcomes and minimizing the main downsides through better drafting of contracts between investors and governments for the lease of farmland. This derived from work conducted by the International Institute for Sustainable Development (IISD), which studied almost 80 contracts and produced a guide to negotiating contracts for farmland and water, including a model contract. Investment contracts are one tool among a range of other legal and policy instruments available.

Mobile payments: How digital finance is transforming agriculture

Babs — Mon, 22 Jun 2015 10:56:08 +0000

This report (PDF) by The Technical Centre for Agricultural and Rural Cooperation (CTA) offers new and interesting insights on the role that digital finance can play in providing a more cost-effective and secure method for financial transactions in the agricultural sector, particularly for rural smallholder farms. In doing so, it offers a three-step approach for digital financed-based business development that emphasizes deep engagement with smallholder farmers, innovative partnership strategies, and a focus on mutual value creation. Complementing these recommendations, the initiatives profiled in this report offer compelling cases of how three different organisations approached the agri-digital finance opportunity and the solutions they crafted to successfully reach smallholder farmers. The study was carried out using three case studies; SmartMoney from Uganda, NWK Agri-Services from Zambia, and Rice Mobile Finance (RiMFin) from Ghana. The report introduces the concept of digital finance by providing an overview of the new technologies and business models that began only seven years ago. The report’s findings provide an insight that portrays the nascent usage of digital payments by users ranging from large agricultural commodity buyers to the small-scale farmers at the bottom of the pyramid.

Managing risk with insurance and savings: Experimental evidence for male and female farm managers in West Africa

Babs — Mon, 01 Jun 2015 12:43:34 +0000

While there is a fast-growing policy interest in offering financial products to help rural households manage risk, the literature is still scant as to which products are the most effective. In order to inform gender targeting of rural finance policy, this paper by IFPRI investigates which financial products best improve farmers’ productivity, resilience, and welfare, and whether benefits affect men and women equally. Using a randomized field experiment in Senegal and Burkina Faso, the authors compare male and female farmers who are offered index-based agricultural insurance with those who are offered a variety of savings instruments. They found that female farm managers were less likely to purchase agricultural insurance and more likely to invest in savings for emergencies, even when controlled for access to informal insurance and differences in crop choice. The hypothesize is that this difference results from the fact that although men and women are equally exposed to yield risk, women face additional sources of life cycle risk—particularly health risks associated with fertility and childcare—that men do not. In essence, the basis risk associated with agricultural insurance products is higher for women. Insurance was more effective than savings at increasing input spending and use. Those who purchased more insurance realized higher average yields and were better able to manage food insecurity and shocks. This suggests that gender differences in demand for financial products can have an impact on productivity, resilience, and welfare.

Finance for Smallholders: opportunities for risk management by linking financial institutions and producer organisations

Babs — Mon, 01 Jun 2015 07:57:50 +0000

This research (PDF) initiated by the Rural Finance working group of NpM, coordinated by ICCO Terrafina Microfinance and carried out in cooperation with AgriProFocus and the Wageningen UR, aimed to investigated the bottlenecks that exist to finance smallholder farmers. The research provides insight into how food production systems work and how they can be strengthened with improved financial services. The success factors of 14 projects in four African countries – Ethiopia, Mali, Uganda and Rwanda – have been analysed. In addition to specific financing mechanisms, the cooperation between financial institutions, producer organizations and investors has been examined and specific risk mitigation strategies have been investigated. The research report shows that linking financial institutions and producer organizations together offers new finance opportunities because risks are reduced.

Financing Sustainable Development: Implementing the SDGs through Effective Investment Strategies and Partnerships.

Babs — Mon, 18 May 2015 08:52:51 +0000

This working paper (PDF) by the Sustainable Development Solutions Network (UNSDSN) provides a roadmap for the Financing for Sustainable Development discussions in the lead-up to the Addis Conference. The paper focuses on a broad array of issues and examines some of the key questions involved in designing new institutions to handle the long-term, complex investments needed for key sustainable development priorities. Chapter 5.3 covers Sustainable agriculture, food systems, and improved nutrition. This chapter reviews major investment strategies and financing mechanisms in key investment areas. Some key points summarized: the vast majority of investments in agriculture comes from private sources. A strengthened global partnership is needed around three public-private investment challenges: (i) the needs of smallholder farmers and artisanal fishermen – available financing mechanisms are inadequately resourced; (ii) nutrition – a complex, multi-sectoral investment challenge in need of an improved institutional financing architecture; and (iii) agricultural research around a strengthened Consultative Group on International Agricultural Research. The chapter also highlights gaps in resource mobilization and financing mechanisms and non-financing priorities for agriculture/food systems and nutrition. Furthermore, there is a special focus on the biodiversity and ecosystem SDGs in this chapter.

Revolutionising agricultural finance: a post Fin4Ag conference special report

Babs — Thu, 07 May 2015 12:40:48 +0000

The Fin4Ag conference was held in Nairobi, Kenya, July 2014, specifically focusing on agri-financing. This conference report (PDF) by The Technical Centre for Agricultural and Rural Cooperation (CTA) provides a valuable overview of the event, which covered new thinking around the three broad themes of innovative tools, a new legal and regulatory framework, and cross-cutting issues in agri-value chain finance. Specific issues covered include warehouse receipt financing, the progress of African commodity exchanges and alternative sources of finance. For more reading, see this special report from the fin4ag conference from July 2014 “Revisiting agricultural finance“.

Rural finance and agricultural technology adoption in Ethiopia

Babs — Thu, 07 May 2015 11:24:03 +0000

Financial cooperatives and microfinance institutions (MFIs) are the two major sources of rural finance in Ethiopia. Whereas MFIs are relatively new, financial cooperatives have existed for centuries in various forms. The coexistence of two different institutions serving the same group of people, and delivering the same financial services, raises several policy questions. Those questions have become particularly relevant, as the government has embarked on developing a new strategy for improving rural financial services delivery. This study (PDF) by IFPRI serves as an input to that policy discussion. Using a unique household survey dataset and the propensity-score-matching technique, the impacts of the two financial service providers on agricultural technology adoption is examined. The results suggest that access to institutional finance has significant positive impacts on both the adoption and extent of technology use. However, when impacts are disaggregated by type of financial institution and farm size, considerable heterogeneities are observed. In particular, financial cooperatives have a greater impact on technology adoption than do MFIs, and the impacts appear to vary depending on farm size and types of inputs. The underlying implications of these results are discussed in light of the country’s rural finance policies and programs.

Improving agricultural microfinance through risk mitigation

Ine — Thu, 09 Apr 2015 15:37:55 +0000

Agricultural lending is considered risky, though with proper risk management the agricultural sector is worth investing in as it shows considerable potential for growth. The risk management factsheet (PDF) elaborated by Cordaid presents four categories of risk mitigating measures that microfinance institutions (MFIs) can adopt to enhance safe opportunities for agricultural lending, in terms of: preparation, product risk alleviation, operations and collaborations. These measures have been identified in the ACP/EU Microfinance Program, by the MicroSave/Cordaid agricultural lending project which supported seven African MFIs in developing or refining appropriate agricultural lending products, including risk management and elements of agricultural value chain development.

Scaling up index insurance for smallholder farmers: Recent evidence and insights

Babs — Tue, 07 Apr 2015 13:33:42 +0000

This report (PDF) by CGIAR CCAFS explores evidence and insights from five case studies that have made significant recent progress in addressing the challenge of insuring poor smallholder farmers and pastoralists in the developing world. The case studies include cases in: Ethiopia, India, Kenya, Mongolia, Rwanda, Senegal and Tanzania. A few common features appear to have contributed to recent progress within these case studies: 1) explicitly targeting obstacles to improving farmer income; 2) integration of insurance with other development interventions; 3) giving farmers a voice in the design of products; 4) investing in local capacity; and 5) investing in science-based index development. This report demonstrates that despite challenges, there are index insurance programmes that have made recent advances in scaling up services for relatively poor smallholder farmers and pastoralists in the developing world, with demonstrable benefits.

Financing strategies for integrated landscape investments

Babs — Thu, 02 Apr 2015 08:58:56 +0000

Integrated Landscape Initiatives (ILIs) have unique financing needs: they need investment and financial support timeframes. Integrated landscape management (ILM) provides a context to spatially target and harmonize investments so that they can efficiently yield public goods and private financial returns while mitigating investment risks. In Africa, financing systems for ILM must support local, national, and regional development priorities and provide not only national food security, but also local food security, rural livelihoods, and healthy ecosystems. During the Landscapes for People, Food and Nature in Africa Conference, experts, practitioners and policy makers from across Africa and around the world came together over three days to synthesize lessons learned and developed an action plan, research priorities and policy recommendations. Funding remains a main challenge and more effort is needed to evaluate the business case for the participation of the business sector serving local, national, and international markets.

Firm to Farm Finance Toolkit (F2FF)

Babs — Tue, 03 Mar 2015 16:10:02 +0000

The Firm to Farm Finance Toolkit (F2FF) (PDF) was commissioned by USAID and in a pilot project in Bangladesh. This toolkit suggests an approach and process for achieving sustainable and mutually beneficial market linkages between poor rural farmers and financial institutions. This F2FF toolkit aims to codify and use the learning of the successful pilot experience to inform the research and development of innovative and promising access to finance solutions for low-income households and communities. The toolkit provides step-by-step guidance on how to apply the framework and tailor it for use in selecting and commercializing feasible, viable and desirable financial products and service models to sustainably reach low-income households and communities with efficient, scalable strategies for inclusive finance.

Insight into social lending and direct-to-farmer finance for smallholder farmers

Ine — Tue, 03 Mar 2015 16:01:32 +0000

The Initiative for Smallholder Finance is a multi-donor effort designed to demonstrate how specific products and services can expand the reach of financing for smallholder farmers. They have published several briefings which provide insight into targeted market research, product development and testing and investment facilitation in the smallholder finance market. Their investor and funder guide (PDF) to the agricultural social lending sector offers opportunities to support social lenders in closing the smallholder agricultural finance gap. A briefing document on direct-to-farmer finance explored over 150 finance providers who offer finance directly to smallholder farmers globally. According to this document, providers’ specific approaches to direct-to-farmer finance cluster around four business model archetypes: Build & Integrate, Build & Partner, Leverage & Network, and Extend & Mobilize. Understanding the four archetypes can help funders, investors and finance providers better align models across smallholder farmer segments and identify opportunities to address scaling challenges. The Direct to Farmer Finance: Innovation Spaces Playbook (PDF) offers concrete ways in which direct-to-farmer finance providers can innovate in order to better serve smallholders.

Islamic microfinance: Unlocking new potential to fight rural poverty

Ine — Tue, 03 Mar 2015 15:57:06 +0000

This paper (PDF) by the International Fund for Agricultural Development (IFAD) highlights the role of Islamic microfinance as an instrument in tackling rural poverty in Muslim countries. It describes key features of Islamic microfinance and describes Islamic microfinance contract modalities in Sudan, the Syrian Arab Republic, and Bosnia and Herzegovina that are being tested in IFAD-supported operations in the Near East and Europe. The paper argues that specific terms and conditions (Sharia-compliant finance) make Islamic microfinance products favorable and accessible to the most vulnerable populations, these include risk-sharing, profit-sharing, fixed repayment rate, transparency, social welfare and justice. According to IFAD, these conditions make Islamic finance products a viable alternative to conventional lending.

Source: IFAD; November 2014