From ACCION: Bridging the Financial Services Gap for Rural and Agricultural Customers
Rural finance is on the agenda during European Microfinance Week
Far from the bustling financial centers of the city, people in rural areas have long been underserved by traditional financial institutions. While this is a problem for all rural residents, the lack of access to financial services is particularly difficult for farmers since it bars them from growing their agricultural businesses. We talked to Jonathan Agwe of the International Fund for Agricultural Development (IFAD) to get his opinions on the challenges that rural clients face in accessing financial services, as well as the solutions to help reach them.
Mr. Agwe will be part of a panel discussing rural youth and agriculture during European Microfinance Week. From November 29 through December 1, professionals from dozens of countries will converge in Luxembourg to discuss the most recent innovations, trends, and opportunities in the inclusive finance sector. If you’re interested in attending, you can find more information here.
Q: What role do financial services play for farmers?
A: Although the question is short, it is also very challenging — challenging because farmers need financial services for both farm and non-farm use. If the question were specifically about agricultural finance, then the here answer would be more direct. Let’s answer the more generic financial services for farmers:
On the one hand, one needs to take a holistic look at the demand side by conducting a thorough demand analysis on the financial needs of the farmers (tripling up as economic investors, social entrepreneurs, and consumers) and then categorize such needs into:
- consumption needs
- investment needs
- needs for inputs, including for technical services and hired labour
- needs for running capital, as well as for other transaction costs
- needs for assorted payments sent and/or received.
On the other hand, one needs to look at the supply side by unbundling financial services into:
- financial products (loans, grants, savings/remittances)
- non-financial products (financial literacy, capacity development/business development services, technology-enhanced delivery systems/digital financial services/assorted payment systems)
The next thing to do is to match the financial demands of the farmers with supply of tailored/appropriate/adapted financial services. Sometimes, tailoring or adaptation of existing traditional financial services to meet the needs of smallholder farmers is the real hurdle. So, the role financial services on the supply side play for farmers is to respond to the specific financial needs of the farmers.
Q: Where have you seen a gap in reaching rural populations?
A: Let me be more specific by narrowing the gap you are referring to, to ‘financial services gap’. With this refocusing then, one sees a gap in almost all of the supply-side traditional financial services listed above reaching rural populations. Such gaps exist due to several factors, some of which include but not limited to:
- lack of the analyses listed above, thereby resulting in mismatches between the demand from rural populations and the supply of non-pro farmer/non-tailored/inappropriate financial tools and services);
- not meeting the demand due to unaffordable pricing of financial services — unaffordable pricing caused partially by high transaction costs to reach breakeven catchment volumes of rural populations, as these populations:
- are so hard to reach because of bad or non-exiting infrastructure networks (access roads, telecommunication, electricity),
- are so geographically dispersed, and/or
- are so heterogeneous with diverse and non-standardized demand and risk profiles.