Access to Finance in Agribusiness Partnerships: Insights from 2SCALE
Date
2018
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Journal ISSN
Volume Title
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Abstract
Access to finance (A2F) is essential for the growth and development of agribusinesses, including farms and small companies. It enables farmers and entrepreneurs to expand their operations, escape the cycle of low input and output, and improve the efficiency of agricultural value chains. However, despite the benefits, rural areas in developing countries face challenges in accessing formal financial services, with a low percentage of adults borrowing from financial institutions or having bank accounts. This paper explores the importance of A2F in agricultural value chains and highlights the need for financial inclusion to create a multiplier effect. It emphasizes the role of financial literacy in empowering households and making informed financial decisions. The reluctance of financial institutions to serve farmers is discussed, along with the challenges they face, such as a lack of understanding of the agriculture sector, high transaction costs, and limited collateral options. The paper also addresses smallholder farmers' and agribusiness SMEs' specific financial needs, considering their unique circumstances and investment cycles. It explores the importance of tailored financial products and delivery channels that align with the seasonality and dynamics of the agriculture sector. Furthermore, the paper examines the role of financial literacy in improving the capacity of farmers and enterprises to manage their finances effectively. It highlights the paradox of informal lending, which is often the default option for smallholders but comes with its limitations and costs. The paper concludes with recommendations and lessons learned to enhance A2F interventions, including bridging the financial gap between required investments and available income, reducing the perceived riskiness of rural/agricultural financing, and addressing challenges related to transaction costs, financial literacy, and government policies. It emphasizes the need for collaboration between financial institutions, farmers, and agribusinesses to develop tailored financial products and services that meet the specific needs of the agriculture sector.
Description
Keywords
Financial inclusion, Agribusiness, Smallholder farmers, Financial inclusion
Citation
Maatman, A., N. van Dijk, P. Kirimi, D. Magaja, G. Agai. 2018. Access to Finance in Agribusiness Partnerships: Insights from 2SCALE, Thematic Paper.