MICROFINANCE PAPER WRAP-UP: Developpement International Desjardins (DID): “A Roadmap for Making Inclusive Finance a Driving Force for Rural Development and Food Security”

This is a summary of a paper published by Developpement international Desjardins (DID), February 2018, 24 pages, available at: https://www.did.qc.ca/media/documents/en/positionnements/agricultural-finance-roadmap.pdf.

This report outlines a set of indicators that correlate with how easily the actors in a country’s agricultural sector – ranging from smallholder farmers to commercial producers – can access affordable and reliable services from financial institutions:

1. Producers’ Stage of Development: Financial service providers have more incentive to engage with agricultural producers if the producers have greater operational capacity and productivity, including the ability to demonstrate their ability to yield return on investment. Other qualities that make producers more attractive to lenders include: (a) expertise in dealing with adverse climate conditions; (b) in the case of larger organizations, competent internal management and governance; and (c) in the case of small-scale producers, higher levels of financial literacy.

2. Capacity of Financial Service Providers: Financial institutions are more likely to serve businesses in the agricultural sector if they have: (a) distribution channels in rural areas; (b) expertise in agricultural product development; (c) relatively large amounts of capital; and (d) strong risk-management policies and efficient internal procedures.

3. Development of Agricultural Value Chains: This factor involves the degree to which agricultural products move from plantation to consumption in ways that meet the needs of both producers and consumers. For example, strong value chains have robust: (a) producer access to farming inputs; (b) packaging, storage and preservation systems; and (c) distribution infrastructure.

4. Business Environment and Government Policies: The context of a country’s agricultural sector includes national economic conditions as well as government policies. Agricultural financial markets are stronger when there is: (a) a legal system that balances business competition with consumer protection; (b) well-developed transportation infrastructure; (c) access to arable land; and (d) a balance of supply and demand for agricultural goods.

By Nicholas Galimberti, Research Associate

Sources and Additional Resources

A Roadmap for Making Inclusive Finance a Driving Force for Rural Development and Food Security
https://www.did.qc.ca/media/documents/en/positionnements/agricultural-finance-roadmap.pdf

DID homepage
https://www.did.qc.ca/en/

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