Sowing the seeds of innovation for smallholder finance
As the global population grows, farmers must supply a greater variety of food products to an expanding middle class, while confronting the challenges of climate change and working to secure their own livelihoods. Evidence shows that smallholder farmers and small- and medium-sized agribusinesses (agriSMEs) in the developing world—who provide the majority of the world’s food supply—do not have access to adequate financial services that could help them expand their enterprises and support their families. In addition to agricultural credit, farmers need access to savings, insurance, remittances, and payments, in order to manage everyday expenses, pay bills, send their children to school, and save for the future.
Historically, the few formal financial providers that have moved into rural areas have been constrained by the need to reach a minimum critical mass of rural customers to generate enough revenue to justify their
operating costs. Given the prevailing business models, their reach has been limited to those rural areas with enough concentration of farmers ready for credit, which is generally the only service providers offer them. As a result, vast rural areas where most poor rural households live have been left unserved or under-served.
However, we see that companies across many sectors are using digital technology as a tool to develop new business models with great potential to help close the rural and agricultural finance gap affecting smallholder farmers and agri-SMEs. Many of these models are based on private-private partnerships between businesses in different industries, including agribusinesses, banks, payment companies, mobile network operators (MNOs), fintechs, fast-moving consumer goods (FMCG) companies, and e-commerce firms.
All of these businesses have been undergoing a rapid digitization process to increase efficiency in their operations. This makes it easier for them to integrate systems and processes with one another in a way
that can greatly increase the value of services they offer to customers and improve the unit economics of delivering these services in more remote rural areas. These collaborations can increase the efficiency and quality of financial services, risk assessments, and value chain transactions, by pooling the various capacities and knowledge of the different cross-industry partners to view the diverse needs of smallholders and agri-SMEs more holistically. By doing so, these collaborations are creating an ecosystem of valued services delivered through shared platforms, which exploits economies of scale and scope in an unprecedented manner and improves the viability of delivering financial services to smallholder farmers and agri-SMEs in rural areas.
At the same time, advances in farm technology (sensors, satellite imagery, and drones), along with precision farming, are helping to increase efficiency along the value chain. This enables better risk management and increases profitability for smallholders while helping them establish a digital footprint.
This study describes how these nascent collaborative business models are evolving rapidly, as providers learn by doing. However, we can now recognize some of the opportunities and risks these models
present. From this analysis, we propose general insights on how to promote successful cross-industry partnerships and highlight specific steps that privateand public-sector actors can follow to continue
expanding access to rural and agricultural finance in a way that is viable for providers and customers.