Bringing financial services to smallholder farmers

Microfinance in India
Microfinance in India. Photo: Peter Haden (CC BY 2.0)

Financial inclusion has made considerable progress in recent years. There are now a wide range of financial products which can help small farmers: debt financing, short term working capital to finance purchasing of inputs, long term working capital to finance machinery, equity and factoring. Whereas banks used not to want to go the ‘last mile’, ICT innovations have made it possible and profitable to do so. Vision Fund, for example, has over 1.2 million customers.

There is nonetheless still a large financing gap for smallholders: $50billion is being offered, but over $200 billion is needed. This means that smallholders often have to resort to loan sharks. In India for example 37% of loans are still from the informal sector with interest rates of 20-40%.

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Record crop losses cost the United States $17.3B last year

iStock_000007228944LargeOver $17 billion was spent in 2012 on farm insurance claims for destroyed crops in the U.S., up from an average of $4.1 billion per year from 2001 until 2011. This record-breaking jump in insurance pay-outs was in large part due to extreme weather conditions over the past growing season. Drought, heat and hot wind accounted for 97 percent of destruction in Iowa alone, with the third largest agricultural GDP in the U.S. These figure come from a report published by the National Research Defense Council (NRDC) which argues that destructive conditions such as these are expected to become only more common, and action will have to be taken to restructure the insurance and pay-out system within the U.S. The question is whether these decisions will echo through emerging farm insurance markets abroad.

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