The Pulse

Onward and upward: Using a systems approach to unlock smallholder finance potential

Published on

February 27, 2017

In an effort to move our sector toward a systems approach, we are excited to announce the release of a monthly blog series – Inflection Point Pulse (The Pulse) – jointly authored by the Initiative for Smallholder Finance (ISF) and Rural and Agricultural Finance Learning Lab (the Lab).  The goal of this series is to track key developments in the sector and highlight research findings that can reshape the way we think and act. As a subscriber of our newsletters, you’ll be the first to know when we publish a Pulse blog. If you think your colleagues might be interested in following the series, encourage them to subscribe by using this link.   

Our landmark state of the sector report, Inflection Point, makes a bold call to action, asking for a concerted effort from sector actors  – FSPs, funders, TA providers, and others – to cut the smallholder financing gap in half by 2025.  To do this, stakeholders across the sector will need to systematically increase collaboration and break down silos between actors. Now more than ever, players ranging from agribusinesses to fintechs have the opportunity to work together and build new market opportunities to better serve smallholder farmers.  

Our understanding of how to approach agricultural finance is much more sophisticated than it was even a year ago, is in part thanks to 2016’s Inflection Point and rigorous research dating back to Dalberg’s 2012 Catalyzing Smallholder Agricultural Finance. We observed that actors were approaching the sector with a “channel-based” framework.  They had the skills and knowledge to serve smallholders within their primary distribution channel and its function, but didn’t have the know-how to design products that could work more effectively through cross-channel collaboration.

Recently, a few companies have started to cross channels and functions with great success. For instance, low customer usage of its mobile app drove Smart Money to cross channels and partner with kiosks and agro dealers to increase awareness and penetration in rural consumers. And solar home system provider and financier M-Kopa has worked to cross functions - recognizing that most of their customers are also farmers, they are collateralizing the solar asset in order to finance agricultural products.  Historically, most actors’ focus on perfecting distribution channels has limited the potential for more, and more appropriate, financial services for smallholder farmers.  

Following our findings in Inflection Point, we are working from a whole new model of the sector. Instead of seeing a parallel series of distribution channels, we see a complex and interconnected ecosystem of different stakeholders. The graphic below provides a simple framework for organizing some of the key actors and relationships in this ecosystem.  It does not attempt to capture the critical role of agricultural markets, or details of non-financial services.

Ecosystem graphic Pulse.png


Looking at the sector in a holistic way, focusing both on the actors (boxes above) and the relationships (arrows), we identified three key barriers to growth – limited and mismatched capital availability, low business model sustainability, and a shortfall of “demand” relative to “need”. From there we have targeted three key areas needed to unlock progress in the face of these barriers: smart subsidy, progressive partnerships, and customer centricity.

In light of this new systems approach, the sector needs to rethink the ways in which we navigate farmer financing demand and answer big questions on what tools we use to address it. Are we offering the right financial products to the right types of farmers? What constraints need to be resolved together at a country level to unlock services for smallholder farmers locally? How can we facilitate the relationships between funders and investors and financial markets?   

This blog series, The Pulse, is dedicated to understanding this new landscape. Each entry will shine a spotlight onto a specific aspect of agricultural finance and how it is evolving, including: smallholder farmers, progressive partnerships, technical assistance, technology and data, and others. We’ll look at each in the context of the systems approach, showing how it relates to other aspects and integrating past research into a new view of how the sector is responding. As a subscriber to the Learning Lab and ISF newsletters, you’ll be receiving monthly emails with the latest Pulse blog. Encourage your colleagues to subscribe and stay tuned for the first official Pulse blog, scheduled for publishing in early March.

About the Author(s)

ISF Advisors
Learning Lab Strategic Partner

ISF is an advisory group committed to transforming rural economies by delivering partnerships and investment structures that promote financial inclusion for rural enterprises and smallholder farmers. Combining industry-leading research with hands-on technical expertise, ISF develops practical, profitable, and sustainable financial solutions.

Original Content

The Learning Lab works to identify and share knowledge relevant to our learning agenda and our users, but also to create new knowledge through research and facilitated learning. Original content from the Learning Lab includes news about the Lab, analyses we've conducted, knowledge products we've created, and posts we've written about other relevant initiatives.

Feed the Future Logo
Research Partner

This research was made possible through support from the U.S. Government's Feed the Future initiative.

Would you recommend this content to a peer?