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Innovative Agricultural Sme Finance models

What innovations can help bankers in developing countries who wish to finance agricultural small and medium enterprises (SMEs)? This report tries to answer this question by isolating promising cases of emergent and innovative financing, risk mitigation, and distribution models. The paper identifies key elements observed across case studies. In the report, case studies are documented, models are observed, and patterns are determined. The report primarily addresses private sector financial institutions in developing countries and therefore focuses on models from the private sector perspective.

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Financial institutions face opportunities as well as challenges in providing financial services to the agricultural sector. The sector clearly lacks financing, with the one percent commercial lending share to agriculture in Africa often cited as an example. Farmers are a very heterogeneous group with varied plot sizes, production capacity, mechanization, resources, and expertise. However, they all share a limited ability to access appropriate financial services for their farming activities and overall household expenses. In this context, opportunities to expand financial services to farmers are highlighted by innovative financing, risk mitigation, and distribution models, observed in 100 case studies examined for this purpose.

Innovation is defined by: new models that are not widely used yet; adaptation of existing models in a developing country context; and, down scaling models for smallholders. Overall, these innovative models mobilize additional resources for agriculture through the private sector institutions that finance agricultural SMEs and farmers. The model cases also show the need to forge partnerships between various private sector actors along agricultural supply chains, as well as between private and public sector institutions.