Many smallholder farmers in developing countries have limited access to financial services. This constrains their ability to make productivity - enhancing investments, to use new technology and services, and to reduce risks. Provision of financial services to agriculture, especially credit, is largely constrained by: the high transaction costs of serving clients located in remote, less densely populated areas with limited infrastructure; covariant risks in agriculture (including weather, price, pests, and diseases); smallholders’ lack of collateral (such as land and other fixed assets); and inadequate information on smallholders’ credit history. Given these constraints, many financial institutions are hardly present in remote agricultural areas and provide limited types of products, often requiring collateral.
As part of its strategy to improve smallholders’ productivity, access to markets, and resilience to risk, the Agriculture Global Practice of the World Bank, with financial support from the Bill and Melinda Gates Foundation, established the Agriculture Finance Support Facility (AgriFin). 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 (K&N) initiative. The Technical Assistance program provided capacitybuilding grants to 10 financial institutions in Africa and Asia to invest in product development, risk management systems, lending procedures, delivery channels, and staff training. The result was a dramatic expansion of agriculture sector lending by those enterprises.
The K&N initiative facilitated sharing of knowledge and learning among agriculture finance practitioners through peer-to-peer events, development of tools, and operation of an online knowledge platform. This initiative demonstrated conclusively that sharing best practices has the potential to generate a substantial expansion in agriculture lending globally.
The purpose of this report is to share these lessons in the hope of guiding future initiatives and programs aimed at expanding the provision of agriculture finance services in developing countries. The target audience includes development organizations with programs involved in similar agriculture finance technical assistance and knowledge management initiatives aimed at improving financial institutions’ capacity in agriculture lending.