Microfinance Institutions Moving into Financing for Agriculture

The paper discusses the movement of microfinance institutions (MFIs) into financing for agriculture. It observes that:

• Rural MFIs are mostly limited to diversified rural economies and to clients with a number of income sources;
• Financing for agriculture falls outside the scope of the mainstream microfinance industry in most countries.

Further, the paper discusses responses to increase the involvement of MFIs in providing financing for agriculture, to which the Bank and other donors can add support and value:

• Matching disbursement and repayment to agricultural production;
• Allowing flexible collateral requirements;
• Introduction of technological innovations to increase operational efficiency and lower costs;
• Making use of existing delivery outlets to lower costs and allow for a wider range of services;
• Using a diversification strategy to reduce lending risk, both in the portfolio and at the household level.

Finally, the document lists seven principal lessons learned for supporting microfinance institutions that wish to move into agricultural finance:

• Flexible disbursement and repayment schedules key to successful agricultural lending;
• Portfolio diversification and diverse client households can reduce the risk for MFIs expanding into financing agriculture;
• Technology can help lower costs and expand rural finance operations;
• Flexible grant funding for innovations and adaptations can assist MFIs;
• The impact of adapting loans to fit agricultural cycles on the financial institution itself should be assessed;
• Focus on other financial services as well as credit;
• Expansion costs may merit funding support.