Financing agriculture for a more profitable rural economy
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.