INNOVATIONS IN RURAL AND AGRICULTURE FINANCE


FOR FOOD, AGRICULTURE, AND THE ENVIRONMENT


FOCUS 18 • INTRODUCTION • JULY 2010


Most rural households lack access to reliable and affordable finance for agriculture and other livelihood activities. Many small farmers live in remote areas where retail banking is limited and production risks are high. The recent financial crisis has made the provision of credit even tighter and the need to explore innovative approaches to rural and agricultural finance even more urgent.


Rural and agricultural finance innovations have significant potential to improve the livelihoods and food security of the poor. Although microfinance has been widely studied, a large knowledge gap still exists on the nuts and bolts of expanding access to rural and agricultural finance. IFPRI’s 2020 Vision Initiative approached the rural finance team of the Agriculture and Rural Development Department of the World Bank to conceptualize and assemble this collection of briefs to narrow the knowledge gap by examining innovations in providing financial services to rural households. They, in turn, asked leading experts around the world to share their perspectives and experiences, focusing on issues related to implementation and operations. Together with a companion set of briefs—Innovations in Insuring the Poor (2020 Focus 17) edited by Ruth Vargas Hill and Maximo Torero—this series contributes to the knowledge pool on innovative tools for effectively managing the risks faced by the rural poor.


This set of briefs clearly points out the importance of business realities faced by small farmers, including low education levels, the dominance of subsistence farming, and the lack of access to modern financial instruments. These conditions mean that new and innovative institutions are required to reach small farmers. Emerging communication technologies provide new opportunities for rural banking by reducing business costs and alleviating information asymmetries. New financing instruments, such as weather index-based insurance and microinsurance, also have great potential for managing the risks faced by small farmers. In addition, bundling financial services with nonfinancial services like marketing and extension services offers new opportunities for small farmers to increase their productivity and incomes. Finally, an enabling policy environment and legal framework, enforcement of rules and regulations, and a supportive rural infrastructure all contribute immensely to making sustainable access to finance a reality.


We are grateful to Renate Kloeppinger-Todd and Manohar Sharma for their work in bringing together these important briefs, to the brief authors for their analyses and insights, to the reviewers for their constructive comments, to Heidi Fritschel and Ashley St. Thomas for editorial assistance, to Shirong Gao for design, and to Djhoanna Cruz for coordination assistance. We hope that the findings and recommendations presented here will contribute to policy changes that enhance poor people’s access to financial services in ways that increase their livelihoods and improve their lives.


Shenggen Fan Director General IFPRI


Juergen Voegele


Director, Agriculture and Rural Development World Bank


Rajul Pandya-Lorch


Head, 2020 Vision Initiative IFPRI


The International Food Policy Research Institute (IFPRI) is one of several international research centers supported by the Consultative Group on International Agricultural Research (CGIAR). “2020 Vision for Food, Agriculture, and the Environment” is an initiative of IFPRI to develop a shared vision and consensus for action on how to meet future world food needs while reducing poverty and protecting the environment. IFPRI gratefully acknowledges the generous unrestricted funding from Australia, Canada, China, Denmark, Finland, France, Germany, India, Ireland, Italy, Japan, the Netherlands, Norway, the Philippines, South Africa, Sweden, Switzerland, the United Kingdom, the United States, and the World Bank.


The views expressed in these 2020 Focus briefs are those of the authors and are not necessarily endorsed by or representative of IFPRI or its supporting organizations.


In collaboration with colleagues in the Sustainable Development Network and across the World Bank, the Agriculture and Rural Development Department (ARD) of the World Bank works to reduce poverty through sustainable rural development. To this end, ARD provides analytical and advisory services to the Bank’s regions on a wide range of agricultural and rural development topics. These services include the preparation and implementation support of the World Bank’s Agriculture Action Plan, monitoring of the World Bank’s portfolio of agriculture and rural projects, and promoting knowledge sharing among agriculture and rural development practitioners, inside and outside the World Bank, in order to continually improve the World Bank’s activities in rural areas.


The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work.


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