Microcredit and Agriculture: How to Make it Work

Topic :

This paper discusses the challenges to ad factors affecting the success of institutions providing financial services for agricultural activities. The World Bank definition of rural finance is adopted here – the provision of a range of financial services such as savings, credit, payments and insurance to rural individuals, households, and enterprises, both farm and on-farm, on a sustainable basis. It includes financing for agriculture and agro processing.

Agricultural finance is defined as a subset of rural finance dedicated to financing agricultural related activities such as input supply, production, distribution, wholesale, processing and marketing. And the term microfinance is considered the provision of financial services for poor and low income people and covers the lower ends of both rural and agriculture finance.

Section 1 of this document provides readers with an overview of recent research in the area of rural and agriculture finance, and sets out the commonly held opinions. The following section then provides a discussion of the main challenges in the provision of financial services in rural areas – the paper amalgamates different lists from various sources that may constrain both supply and demand.

Section 3 then points to what is working. It notes, of course, that there is not one clear model or set of guidelines that an institution can follow to ensure absolute success. However, the similarities amongst institutions that have achieved “success” in the provision of rural financial services are discussed, as well as some characteristics that can contribute to well performing portfolios within agricultural finance providers. The final section discusses what is being learnt – including a summary of the lessons from urban microcredit that can be applied to rural areas.

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