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Rural and Agricultural Finance

State of the Sector Report

Since the publication of Inflection Point in 2016, the landscape of rural agricultural finance has once again changed. Our understanding of challenges faced by rural clients has expanded, including the ways in which agricultural finance overlaps with critical global agendas, such as climate change and food security. More diverse financial services are available, from crop insurance to mobile-enabled savings. And the capital market for rural finance has also grown, from a relatively small set of donors to a larger ecosystem of capital providers. With these changes comes an urgent need to develop improved frameworks for understanding the state of the sector.

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To that end, in this report, we update key sizing numbers from the latest global data—for the first time including agricultural small- and medium-sized enterprises (SMEs). We also introduce new models for understanding how rural clients, financial service providers, and the capital markets can effectively work together. Finally, we present targeted impact and investment theses and new ways of thinking about inclusive rural economic growth. In doing so, we hope to contribute to unlocking the benefits of financial inclusion for the 2.5 billion people who depend on smallholder farming for their livelihoods worldwide.

A more nuanced rural finance gap

Despite significant progress in the rural agricultural finance sector, financial service providers are still unable to meet the full USD 240 billion demand of rural households for agricultural and non-agricultural finance. The latest data suggests that providers are currently supplying approximately USD 70 billion. This leaves around USD 170 billion —or 70%—of the global demand for smallholder finance unmet. This gap cuts across all geographic regions and financing types, but is particularly concentrated in long-term agricultural finance, for which 98% of global demand remains unmet. As with the direct-to-smallholder finance market, there is a large gap when it comes to lending to agricultural SMEs. There is no comprehensive global sizing of the demand and supply for lending to agricultural SMEs, but recent analyses have painted a stronger picture of how the market functions and illustrate why—despite agricultural SMEs playing a vital role in economic development—financial service providers limit their lending to these clients.

In recent years, new financing products have begun to penetrate rural markets. These include the rise of lending “innovators” — fintech and mobile network operators that deliver credit directly to rural households through digital channels, holding the associated credit risk on their own balance sheet. While these innovators have great potential to address customer pain points and reach unserved customer segments, they currently represent a small portion of the lending market. At the same time, there’s been an emergence of new models of agricultural insurance, digital payments, and savings accounts. 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.