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Local Bank Financing for Smallholder Farmers: A $9 Billion Drop in the Ocean
Examining the scale, scope, and need for smallholder financing
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This brief presents an overview of the market size and scope of local bank lending to smallholder farmers. The findings and analysis in the brief are based on the data, insights, and perspectives shared by more than 25 organizations.The brief states that the total amount of debt financing supplied by local banks to smallholder farmers in the developing world is approximately USD 9 billion. This is a small figure and meets less than 3% of the estimated total smallholder financing demand. As a result of this shortage in formal financing sources, farmers are forced to rely on expensive credit from informal sources. Key findings include:
- Demand side barriers play a role in preventing growth in the smallholder finance market;
- Banks need specific agricultural expertise to assess smallholder loans and design appropriate financial products;
- In order for local bank financing of smallholder farmers, donor support must move beyond guarantee funds and demand side technical assistance toward balanced support for investment capital and supply side technical assistance.
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