FIELD Brief 17: Internal Operational Challenges Around Rural and Agricultural Finance (RAF)

The provision of financial services in rural and agricultural areas of sub-Saharan Africa poses many challenges. The lack of physical infrastructure and low population densities, the common vulnerabilities of the rural population such as HIV/AIDS, disease, and food insecurity, all hinder profitability and increase the likelihood of loan default. In agricultural finance, these risks are compounded by the challenges of poor quality inputs and seeds, crop sensitivity to drought, flooding, financial illiteracy, lack of a mature value chain, and other problems. And for these reasons, the provision of financial services in rural areas has been difficult.

In this context, microfinance institutions (MFIs) using a value chain approach can help by identifying how smallholder farmer production and returns can be increased, and by facilitating partnerships with financial and capacity building services toward that end. Such an approach can serve the poor, strengthen the value chain, and stimulate the economy for further development.

The decision to enter into rural and agricultural finance (RAF), however, poses challenges impacting MFI operations. They are at once both common and unique: If one goes up the ladder of abstraction, the categories are no different from those of any company making a new product launch. Yet, the challenges posed by the particularities of rural sub-Saharan Africa are also unique and worth highlighting.

With generous funding from The MasterCard Foundation and the Bill & Melinda Gates Foundation, Opportunity International expanded its Malawi rural and agricultural finance pilot project to five countries in sub-Saharan Africa–Ghana, Malawi, Mozambique, Rwanda and Uganda in 2009. This involved the provision of full financial services including a savings component to help build smallholder farmer assets, working with extension service providers to provide good agricultural practices training, the use of innovative technologies, and full facilitation along the agricultural value chain. This brief reviews internal decision-making challenges raised by the project in the hope that they will prove useful to others entering the RAF field.

This “FIELD Brief” is the seventeenth in a series produced by the Financial Integration, Economic Leveraging and Broad-Based Dissemination (FIELD)-Support LWA Program. This brief, written by John Magnay, Douglas Pond, Ian Townsend, and Genzo Yamamoto of Opportunity International, discusses the internal operational challenges posed when implementing rural and agricultural finance.