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Etude "A Savoir" (AFD) : Creating Access to Agricultural Finance

Etude "A Savoir" (AFD) : Creating Access to Agricultural Finance
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AFD 21 septembre 2012

Thèmes :

Based on a horizontal study of
Cambodia, Mali, Senegal, Tanzania,
Thailand and Tunisia

Summary

Efficient agriculture, agro-processing industries, and related distribution and logistics
chains are essential elements of human development. In most developing countries,
agriculture and agricultural value chains are inefficient and unproductive. Production
yields fall short of potential, and products are spoiled during storage and transport.
Crops regularly fail for various reasons, even though risk management and mitigation
strategies exist. Rural populations — which make up the majority in most developing
countries — are characterised by income and food insecurity, poverty, malnutrition
and poor health. Consequently, all international development organisations, including
AFD, have targeted rural communities, agriculture and the food chain in their
strategies to reduce poverty and improve indicators of social development.

Farmers and rural populations, in general, in developing countries have always found
it difficult to obtain credit financing. Indeed, the research underpinning this study
reveals that most farmers in developing countries have no access to any kind of
financial service (payments, safekeeping and saving, credit, insurance), which hampers
the efficiency and security of their operations. Many farmers struggle to pay their
seasonal harvest inputs, and investing in agricultural technology and expansion is even
more difficult. Lack of finance is one of the reasons why agricultural productivity in
developing countries and sub-Saharan Africa in particular is very low. In spite of vast
agricultural potential, many African countries import vast quantities of food, and this
is not limited to countries where the climate is less kind to agriculture (e.g. Senegal,
Tunisia).

Recent studies confirm that the lack of agricultural finance is as pressing as ever. In
spite of government programmes undertaken over the years, supply and demand for
financial services continue to be mismatched, both in terms of the types and the
volume of services. Past government policies have not been able to remedy these
shortcomings. Nevertheless, recent innovations in agricultural finance have created
renewed interest in the sector. Such innovations include value chain finance
approaches involving traders and processors, warehouse receipt finance, agricultural
(index) insurance, (rural) microfinance, just to name a few.

Thus, in 2011 Agence Française de Développement (AFD) commissioned a
comparative study on the financing of agriculture in developing countries. This
horizontal study aimed to help AFD :
i. draw broad lessons from the history of public (and private) intervention in
agricultural finance ;
ii. analyse the reasons for gaps between supply and demand for agricultural finance,
and analyse the public (and private) support strategies in various countries ;
iii. develop proposals for support by governments, AFD, and other development
partners that are responsive to the agricultural sector’s needs, and which address
the constraints that keep the financial sector from serving agriculture effectively.

The study drew on the experiences gained by AFD and others in the fields of
agricultural finance, and used specific case material from country studies in
Cambodia, Mali, Senegal, Tanzania, Thailand and Tunisia. In the first four countries,
AFD has extensive experience, while the latter two were added to expand the scope
of AFD’s knowledge. As much as possible, the conclusions from the country studies
were generalised as they may hold relevance for a wide set of countries (including
others than the six above-mentioned).

The study’s recommendations focussed on both institutional aspects (the financial
sector) and technical aspects (financial products, risk-mitigation mechanisms). The
current publication draws on the results of the above-mentioned study, but is more
narrowly focussed on the role AFD and other development partners can play in
creating access to agricultural finance in developing countries. After an introduction
(Chapter 1) and brief review of supply and demand for agricultural finance, the
publication analyses the factors that constrain agricultural finance (Chapter 2). The
study goes on to describe and analyse the recent innovations in agricultural finance
that have been shown to (partially) overcome such constraints (Chapter 3). This leads
to a discussion of the actions governments and development partners (including
AFD) can undertake to create access to agricultural finance (Chapter 4). This
publication closes with conclusions and recommendations (Chapter 5). The six
country reports are separately available from AFD on request.


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