Exploring Blockchain Applications to Agricultural Finance
This post was first published on Consultative Group to Assist the Poor (CGAP) and was authored by Max Mattern.
Identifying use cases for emerging technologies to reach financially excluded smallholders means looking beyond the hype to develop a clear understanding of the unique features, costs, and benefits of these technologies. And because few innovations have generated as much hype as distributed ledger technologies (DLT)—commonly referred to as blockchain—CGAP set out to understand how this emerging technology could enable broader and more inclusive markets for agricultural finance. This Brief summarizes CGAP’s approach and offers insights into the applicability of DLT to agricultural finance in a developing country context.
Theoretically, DLT is most applicable to systems in which several actors wish to cooperate, but do not necessarily have a high degree of trust in each other. Agricultural finance, which encompasses a diverse set of actors and suffers from information asymmetries that undermine efficiency, offers several potential applications. However, amid the buzz around DLT, there is a common misperception that the technologies can easily overcome problems like a lack of trust among individuals and organizations—the reality is more nuanced.
Instead of adding to the buzz and presenting DLT as a cure-all for what ails agricultural finance, the Brief presents a framework for analyzing potential use cases through the lens of the technologies’ unique features. The paper applies this framework to several potential applications for DLT in agricultural finance, while it also cautions that factors such as cost, complexity, and context may limit its advantages over more conventional approaches.