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July 26th, 2018

Access to finance in agribusiness partnerships

Published by 2SCALE,

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.

Curated from 2scale.org