Agricultural finance for smallholder farmers : rethinking traditional microfinance risk and cost management approaches / Daniela Röttger.

Online resource; title from PDF title page (EBSCO, viewed January 4, 2018).

Includes bibliographical references.

Even though traditional microfinance has successfully paved the way for offering financial services to low-income populations without traditional collateral, many microfinance institutions (MFIs) are still reluctant to move into rural areas and agricultural finance, due to the perceived high risks and costs. Daniela ROttger's research demonstrates how MFIs can mitigate risks and costs of lending to smallholder farmers by using a combination of proven traditional microfinance mechanisms while adapting specific loan features and lending mechanisms to the particularities of smallholder agriculture. She systematically compares traditional microfinance risk management mechanisms with agricultural microfinance approaches and identifies successful strategies. For this purpose, eight MFIs providing agricultural finance to smallholder farmers in four countries in East and West Africa (Uganda, Kenya, Benin, Cameroon) were interviewed and their loan features and agricultural lending mechanism were analyzed. The study shows that MFIs can successfully serve smallholder farmers in rural areas. However, the extent of adaptations is reason enough not to commit to such an endeavor lightly. A strong commitment combined with sound in-house knowledge of agricultural value chains and the flexibility to adapt loan terms and lending procedures to the particularities of agriculture are needed to successfully develop and sustain agricultural microfinance.

Foreword; Table of Contents; List of Figures; List of Tables; List of Abbreviations; 1 Introduction; 1.1 The relevance of agricultural finance for increasing smallholder farmers' productivity; 1.2 Purpose and outline of the paper; 1.3 Methodology; 2 Terminology and historical background of agricultural finance for smallholder farmers; 2.1 Terminology; 2.1.1 Microfinance, rural finance, and agricultural finance; 2.1.2 Smallholder farmers: definition and financial needs; 2.2 The history of agricultural finance for smallholder farmers: a change of underlying principles.

2.2.1 Old paradigm: subsidized agricultural credit2.2.2 Emergence of a new paradigm; 2.2.3 Linking the new paradigm and agricultural finance for smallholder farmers; 3 Risks and costs of agricultural lending for smallholder farmers; 3.1 (Credit) risks specific to agricultural lending for smallholder farmers; 3.2 Costs specific to agricultural lending for smallholder farmers; 4 Traditional microfinance risk and cost management approaches: do they work for smallholder farmers?; 4.1 Loan product design for risk mitigation in traditional microfinance.

4.2 Loan assessment and monitoring for risk mitigation in traditional microfinance4.3 Reducing transaction costs in traditional microfinance; 5 Interim conclusion; 6 Overview of interviewed MFIs and their agricultural lending strategies; 6.1 Indicators and agricultural loan products of interviewed MFIs; 6.2 Commercial banks; 6.3 Microfinance companies; 6.4 Membership-based financial institutions; 7 Risk mitigation through adapted loan products and lending procedures; 7.1 Loan features of agricultural production loans; 7.1.2 Discussion of interest rates.

7.2 Risk management through adapted lending procedures8 Further strategies to reduce risks and transaction costs in agricultural lending to smallholder farmers; 8.1 Qualified staff with agricultural backgrounds; 8.2 Value chain finance; 8.3 Cooperation with external actors; 8.4 Cost-effective outreach to smallholder farmers; 9 Conclusion; Bibliography; Annex.

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