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