A Guide to Working with Informal Financial Institutions

Sharing lessons learned in working with informal financial institutions
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This paper aims to assist practitioners seeking to address the gap between supply and demand in agricultural finance, and support efforts to unlock capital for smallholder farmers and rural entrepreneurs. It discusses the various challenges involved in providing rural finance and discusses the financial needs of smallholders. The paper states that although informal financial institutions present challenges, they also play a vital role in helping smallholders access finance. In some cases, informal providers may serve as a stepping stone or bridge for smallholders to eventually graduate to more commercial financing. The best practices noticed while working with informal providers include:
  • Determine the supply and demand for finance within the project location;
  • Assess the needs of existing institutions and provide technical assistance to boost performance;
  • Engage early and at all levels;
  • Educate members, clients, and the community;
  • Empower loan officers with knowledge of farming systems and agricultural markets;
  • Embed financial literacy training for smallholder farmers;
  • Document and track informal loan repayment history;
  • Consider location as an important factor while working with MFIs;
  • Think long-term and commit time and resources accordingly;
  • Design a realistic and responsible exit strategy;
  • Refine and improve delivery channels.

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