March 2, 2012

Rural and Agricultural Finance Seminar: Taking Stock of Five Years of Innovations

Viewing Value Chain and Household Finance From a Demand Perspective

Financial access is a critical tool in the fight to reduce hunger and poverty. However, to understand how financial services can have an impact, it is crucial to focus on cash flow and risk management at the household level.

ACDI/VOCA’s Geoffrey Chalmers and Kadale Consultants Ltd.’s Jason Agar explored value chain and household finance from a demand perspective at USAID’s recent Microlinks “After Hours” seminar. They presented on their recent paper, which examines rural and agricultural finance, to about 80 participants online and in-person at QED, LLC, in Washington, D.C.

Innovations in Rural Agricultural Value Chain Finance

Chalmers, who is a senior technical advisor with ACDI/VOCA, led off the discussion about their study, which looked at the last five years of innovations in rural agricultural value chain finance.

“When we started looking at innovations in the field, we were seeing examples of addressing these sometimes ancient problems in slightly different ways than what had been tried before,” Chalmers said.

He added, “And that I think does make it pretty interesting, because we start to look at these last five, 10 years and see people that are reassessing these problems, taking a step back and saying, ‘Okay, let’s look at this from a slightly different angle. Let’s bring in a couple new people, new perspectives.’”

Chalmers said it is crucial for development agencies to understand risk and how it influences decision making at the enterprise, value chain and household levels. If practitioners examine how access to more and better financial instruments at the household level can positively impact the entire value chain, their efforts will be better positioned to achieve broad-based economic growth for low-income households.

He also mentioned the importance of interdisciplinary approaches in program design. Agriculture and finance experts need to work together to develop integrated approaches, rather than developing separate, disjointed interventions.

Mitigating Household Risk Crucial for Business Relationships

Agar pointed to how important access to financial services is for rural households to meet regular and unexpected consumption needs. The latter includes emergencies and significant social demands like weddings and other celebrations.

“When you started to look at it in a little bit more depth, it really began to appear that it’s things that are happening in the farmers’ lives that will drive where they place their cash,” said Agar about how household needs affect farmers’ business decisions.

He added, “And [farmers] were quite ready to take cash away from non-farm enterprises and their farm enterprises because they had an issue in their lives, in their household, to do with a medical emergency, a funeral, school fees, or they got themselves into some sort of debt.”

Such expenses can cause many problems: Farmers “side sell” their crops despite previous contracts with market buyers; they lose increased income opportunities because of forced early sales; power relations between producers and buyers may become exploitative; and very poor farmers have difficulties graduating to semicommercial status.

Value Chain and Finance Research Paper Available

Chalmers’ and Agar’s research is available in their paper, "Rural and Agricultural Finance: Taking Stock of Five Years of Innovations." In the paper, they report on financial services initiatives since 2006 that form part of the “innovations frontiers” in addressing constraints facing development efforts. For more details on the presentation and to download the paper, visit the Microlinks website.

For more information on ACDI/VOCA’s work in value chain development click here.

Pictured at top left: ACDI/VOCA’s Geoffrey Chalmers gives a presentation on rural and agricultural finance during a Microlinks "After Hours" seminar.