Using big data to link poor farmers to finance
Friday, May 4, 2018
By Ron Parizat and Heinz-Wilhelm Strubenhoff
Two billion adults in the world are excluded from credit. The situation is especially bad for small farmers in rural areas who are unable to access loans to invest in their farms, trapped in a vicious circle of low productivity, low yields, and poor income. The Initiative for Smallholder Finance estimates that smallholders globally access just $50 billion of the $200 billion of lending that they require to grow their operations and improve their lives.
The global growth of microfinance banks has created new opportunities for financial inclusion, with outstanding lending of $100 billion to around 200 million clients. Yet the majority of lending from microfinance institutions has been to urban populations and not to the rural poor or small farmers.
There are well known reasons that make lending money to farmers so hard. Farmers are spread out across large thinly populated areas making them costly to reach and serve; they have few realizable assets to pledge as collateral against loans; and they generally have no financial history, which is needed for credit scoring. And on top of all that, agriculture is regarded as a risky business, often at the mercy of the weather. Yet farmers with access to finance can invest in fertilizers and seeds to increase their yields and incomes potentially by more than 25 percent.
New technologies have the potential to give farmers access to the financial tools necessary for such growth.
Photo courtesy of Nicholas Bertrand.
Source: Brookings (link opens in a new window)
- Agriculture, Finance