Webinar insights: Innovative financial solutions within agrifood value chains

Innovative financial services within agrifood value chains are rising in low- and middle-income countries. This holds great promise for employment, yet the reality is that many smallholder farmers are unable to access and benefit from these services. What are the main barriers and where are the opportunities? 

Innovative financial services can transform agrifood value chains and boost employment and income in different ways. They can give smallholder farmers and small- and medium-sized enterprises (SMEs) the information they need to make better decisions about their food production processes, as well as give access to credit and easier payment solutions. The range of financial solutions available for different parts of the agrifood value chain is diverse, from mobile applications that provide weather insurance, to digital payment systems, to digital credit platforms.

These mostly digital financial services show great promise in shaping more productive and inclusive agrifood value chains to better meet the needs of a wide range of stakeholders. Many smallholders and SMEs need accessible credit to expand or improve their food production processes and operations to meet the rising demand for food, yet they face enormous obstacles in accessing these technologies and services.

To explore this topic further, KISM - the Knowledge Platform for Inclusive and Sustainable Food Markets - hosted a virtual webinar on 25 October 2023 to share current insights from ongoing research from the CGIAR ‘Rethinking Food Markets’ Initiative. Researchers from the International Food Policy Research Institute (IFPRI) - Alan de Brauw, Kate Ambler and Jeffrey Bloem - shared key findings from their pilot projects on different types of innovative financial solutions in Indonesia, Myanmar, Vietnam, Bangladesh, Uganda and Nigeria.

Many of these projects are in the early stages with more insights still to come. But what have we learned so far? 

• Low uptake of digital financial services by smallholder farmers and SMEs across all countries tested. A diverse range of digital financial solutions are being tested in different countries and contexts, from mobile phone applications that link farmers to technical information, markets and finance, to digital platforms that allow farmers to access cash and input loans. These digital services show promise for connecting smallholder farmers to other services that they may not have had access to before, yet their uptake is still low. Common barriers include the unfamiliarity of these new digital services to farmers, and the lack of training and infrastructure to support the successful adoption of these technologies. 
• New flexible financial models are needed to meet the needs of smallholder farmers and SMEs. If farmers have access to credit at specific times in the food production cycle, this can increase the quality of their products and boost their income. Yet in many of the countries tested, traditional banks and formal financial institutions were often unable to meet the financial needs of smallholder farmers and SMEs. It can be difficult for banks to ensure that farmers have collateral when applying for loans, as well as performing due diligence checks. New digital financial services can offer much needed flexibility and address these challenges, such as issuing online credit applications through mobile money services. However, more research is needed on the impact of various types of financial services along agrifood value chains. 
• Poor access to digital services is a challenge. In some rural farming or producing communities, the digital divide means that smallholder farmers will miss out on the benefits that such technologies bring. More research is needed on ensuring digital inclusivity, such as by providing in-person training to supplement digital services or using accessible digital platforms like mobile phone apps.
• More research is needed on the impact of different innovative financial services on employment and growth of the “hidden middle”. The “hidden middle” refers to the midstream segment of the agrifood value chain. It is often hidden from food policy debates, yet is a dynamic and fast-growing space. Driven by the rapid rise of SMEs in wholesale, logistics, and processing, the “hidden middle” can play a key role in transforming agrifood systems and providing better employment options in low-income countries. But there is still a need to better understand the needs of the “hidden middle” and how to leverage the right digital financial services to get the most impact.

Vi Nguyen is a Senior Coordinator for Innovations and Learning with ISEAL. 

To learn more about digital financial services for smallholders and agrifood SMEs, explore the research on this topic from the CGIAR ‘Rethinking Food Markets’ Initiative.