Document: Scaling Up Access to Finance for Agricultural SMEs: Policy Review and Recommendations

The objective of the G-20 Work Stream on Agricultural Finance is to identify appropriate approaches to assess or reduce the main risks and costs that inhibit access to financial services in the agriculture sector in developing countries. Strengthening the productivity and capacities of agricultural small and medium enterprises (SMEs) and farmers through enhanced access to finance is at the core of this sub-group’s focus. This work stream will contribute to and generate synergies with other pillars of the G-20 development agenda, particularly the pillars on food security and private investment and job creation. Based on a global stocktaking exercise, this report derives guidelines for policy and regulatory frameworks conducive to agricultural finance and consistent with the G-20 Principles for Innovative Financial Inclusion. These recommendations shall be used to create a roadmap for implementation. This paper is addressed primarily to those policymakers responsible for formulating, managing, and tending the agricultural financial system, but also targets donors and managers of rural financial institutions operating in the agricultural finance space.

This policy review and recommendations document is designed to elaborate on the recommendations of the G-20 SME Finance Sub-Group specifically as they relate to access to finance for agricultural SMEs. It is meant to contribute to the formulation of an agricultural SME finance policy framework, which shall be implemented by facilitating the development of concrete national action plans. In addition to the policy recommendations and background information supporting such policies, this paper will also briefly review promising approaches, including innovative financial instruments such as value chain finance, warehouse receipts, branchless banking, and index-based insurance schemes. It should be noted that this report exclusively covers issues specific to agricultural finance and only refers to other, more general needs for the agriculture sector’s development where there are direct implications for financing.

Particular examples of innovative instruments are found in section 4. These are based on a background stocktaking report, which includes approximately 60 case studies, chosen according to scalability (potential for expansion), replicability (possibility to transfer to other regions and contexts), and sustainability (option to continue without external support). Each of the selected models demonstrates at least one of these criteria. The stocktaking is a non-exhaustive list of experiences and models but nevertheless is very comprehensive. The stocktaking report, with specific insights into the financing frameworks of the models, will be prepared in time for the G-20 Mexico Summit 2012.