4. Role of Government and Development Partners in Agricultural Finance
out the commercial banking sector and even microfinance from agricultural finance markets. Support from international development partners to commercial and development banks, helping them install an agricultural finance offer, remains relevant. The six country studies show that in spite of the success of microfinance, by volume most agricultural credit still comes from banks. Banks could be offered technical assistance and training to develop products for agriculture (e.g. agricultural leasing , seasonal credit), or to adjust their methods to better serve smallholders (e.g. community-based approaches such as BAAC in Thailand). Given their position in the economy, it is understandable that many banks wish to limit their services to agro-processing firms, input traders and intermediaries. This is still welcome, as credit is likely to reach farmers through the value chain. Specific support actions, such as those listed below, could be undertaken to mobilise banks in the arena of smallholder financing: • Design value chain finance models (external or internal finance), e.g. finance the buyers who can then channel credit to the farmers with whom they have contracted. International development partners could (initially) part-guarantee such actions, helping the bank gain experience and confidence in the process. • Support banks through TA and training in product development (see below). Cost-effective methods of loan delivery would bring down agricultural interest rates, hence removing the justification for subsidies. • Link banks to rural microfinance (refinancing), possibly through a guarantee instrument. This strategy is being pursued in Ethiopia, although not very successfully (both banks and MFIs are hesitant). • Train bank staff in agricultural lending, including analysis of the crop cycle and cash generating capacity, risk analysis and loan structuring. Banks that successfully finance agriculture generally rely on loan officers specialised in agricultural loan analysis. • Initiatives are ongoing to develop standardised information or credit rating systems for agricultural producers and cooperatives in particular (e.g. Fair Trade Int., FAST, IRIS, ScopeInsight), aimed at providing better information to banks. Although these initiatives are yet to show results, they merit support.
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© AFD / Creating Access to Agricultural Finance / July 2012