ImpactAlpha, Nov. 11 – A wave of digital and financial innovation is changing perceptions around the profitability of lending to small farmers in emerging markets.
“With greater breadth, depth and innovation in rural financial services than ever before, there are new opportunities emerging to close the persistent rural finance gap,” write the authors of “Pathways to Prosperity.” That gap for the world’s 2.5 billion smallholder farmers has widened from $150 billion to $170 billion since a 2016 from ISF Advisors (then the Initiative for Smallholder Finance) and RAF Learning Lab.
Digital technologies that improve credit scoring, distribution infrastructure, farmer training programs, and more are changing the landscape of agricultural finance, say the report’s authors. For early experimentation to evolve into proven, scalable solutions, “a new level of investment support to ensure that innovation continues” is required.
At least 80 impact-driven agricultural funds with at least $19 billion dollars are actively seeking deals. The market needs “more effective connections between capital need and right-fit capital supply, as well as advances in the structures used to deploy capital,” say the authors (see “Getting smart about subsidies to bridge the agricultural financing gap”).
Services providers are coming to see rural households as dynamic clients, driving a shift in the risk-adjusted return expectations of the smallholder investment opportunity (see, “Perceptions of profitability drive ‘fundamental shift’ in small-farmer finance market”).