Supporting Smallholder Finance

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Our Current Efforts to Address the Information Needs of Lenders and FSPs

 

Smallholder farmers constitute one of the single largest market segments for financial inclusion, yet the financing available to them lags the potential need, estimated in excess of USD 200 billion. One of the key factors impeding the flow of funds to smallholder agricultural opportunities is the lack of information. Not only does this clog the funding pipeline, but it also constrains the development of financial products tailored to the unique needs of smallholder farmers. Therefore, providing the information required by lenders and financial service providers (FSPs) is critical to reducing the financing gap in the segment. As we announced late last year, MIX has offered solutions to tackle this challenge with proposals to extend MIX Market, our data and insights platform that has led the microfinance sector for over a decade. And, through our work with leading organizations, including the Council on Smallholder Agricultural Finance (CSAF) and One Acre Fund, we are building on that progress.

 

In 2016, we worked with CSAF to analyze the lending activity of its nine member organizations, identifying relative strengths and challenges of lending in major commodities, markets and types of borrowers. In 2015, CSAF members extended a combined USD 597 million in short- and long-term credit to producer organizations and SMEs in 66 countries, connecting more than 2.1 million smallholder farmers to domestic and international markets. “MIX analyzed our loan portfolios across country, commodity, financial product, performance and other components,” said CSAF coordinator Brian Milder of Root Capital. “It allowed us to assess our role as impact investors serving the ‘missing middle’ and to inform our strategy moving forward.” Our continued collaboration with CSAF in 2017 will yield new insights on CSAF borrowers and deliver a deeper analysis across a larger number of social investors. 

 

While international funding connects one segment of smallholder farmers to domestic and international markets, MIX is partnering with One Acre Fund to support smallholders working in local value chains. “FSPs around the globe are positioned to address the financing gap in their local markets,” said One Acre Fund’s Mike Warmington, “but face high resource constraints to develop and deploy financial products for smallholder farmers.” Similarly, funders seeking to support the development of these products face challenges in identifying FSPs with robust product offerings. Our initial research with One Acre Fund identified the specific information needs of FSPs developing financial products for smallholder farmers. This year, MIX will continue its partnership with One Acre Fund to build an online product directory for FSPs to submit their smallholder finance product information and increase visibility with relevant funders.

 

We are grateful to be working alongside these leaders in smallholder agricultural finance. As we expand our work in the sector, MIX is seeking additional funding and partners – including local funders, market facilitators, producer organizations and technical assistance providers – to establish a broad factbase for analysis and insights. Currently, a significant portion of funding to large value chains comes from local banks and, thus, we want to expand our work with CSAF on a market-by-market basis to create analysis and insight that will serve a range of funders. Additionally, as we increase visibility into funding flows, we want to create the opportunities to connect funders with local market participants through the creation of a directory that includes information on producer organizations and agricultural businesses. Expanding outreach in key markets through our MIX Market platform will allow us to survey the available smallholder financial products while providing FSPs access to resources to develop or refine those products. These efforts to directly address the information gap in smallholder agricultural finance will increase funding to the sector and provide appropriate products to the largest single market segment in financial inclusion.

 

To learn more about our solutions or to see how your organization can partner with MIX, please visit:

 

themix.org/smallholder-finance-solutions.