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Overcoming Obstacles to Agricultural

Microfinance: Looking at Broader Issues

Gilberto M. Llanto
Philippine Institute for Development Studies

July 18, 2008


Objectives of the paper
„ An overview of some of the main
obstacles to agricultural microfinance
„ Some key issues to consider in crafting
a strategy to overcome perceived
obstacles.

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Can we do agricultural
microfinance?
„ The rise of microfinance in the last
twenty years has unlocked the puzzle of
how to profitably lend to the poor and
micro-enterprises in densely populated
urban areas in East Asia and Southeast
Asia.

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„ What policy, regulatory or institutional
issues could inform agricultural
microfinance for providing sustainable
finance services to smallholder
agriculture? Do we have enough
understanding of the risks and the
particular situation of agriculture to
enable us to suggest with confidence
agricultural microfinance?
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Clarification
„ Agricultural microfinance is not
agricultural credit as commonly
understood (subsidized,
government/donor driven, targeted to
particular borrowers)
„ Smallholder agriculture continues to rely
on informal sources and self-finance

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„ Agricultural microfinance is not the
straight forward application of
microfinance lending techniques to
smallholder agriculture.

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„ Some credit cooperatives/unions and village
banks, have successful agricultural lending.
However, it is of limited scale.

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„ Agricultural microfinance requires an
understanding of the information,
incentives and contract enforcement in
a different type of setting: geographical
dispersion, covariant risks,
heterogeneity of the population and
others.

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Some key issues
„ Scarcity of collateral
„ Risks, risks and more risks
„ The challenge of liquidity management
„ Absence of risk-reducing institution
„ Missing opportunities in the agriculture
supply chain
„ Regulation and supervision issues
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Concluding remarks
„ The strategies and solutions to
overcome barriers to agricultural
microfinance go beyond simple
provision of credit and more than
agriculture.

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„ Innovate on product design and risk
management strategies,
„ Improve the information base and
„ Use market-based risk management
products, e.g., price risk management
instruments, weather-based index
insurance contracts and similar products

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„ The policy and regulatory environment
must allow experimentations and
innovations but ensure the stability of
the rural financial system.
„ There is promise in further developing
risk-based supervision in view of the
discussion of risks facing agriculture
microfinance.
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Thank You!

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