NTF4Ag: Emerging Lessons and New Frontiers brings together key results, insights, and lessons from the case studies, pilots, and cross-cutting research conducted by MEDA and its partners from 2017-2020 – with the overall goal of learning and documenting experiences of non-traditional finance for catalyzing smallholder agricultural innovation adoption. The report is framed around INNOVATE’s four learning themes along with key takeaways and supporting evidence from the ten research projects in the MEDA INNOVATE portfolio. The report concludes with potential opportunities for further learning, research, and action by different actors in the smallholder finance landscape and ecosystem.
We invite you to explore the summarized version of the report below. You can learn more about the findings and lessons from the research portfolio in the full length interactive PDF report.
Non-traditional finance (NTF) can be an effective vehicle to incentivize smallholder farmers to adopt large-scale innovations. Generally, NTF includes products, services and/or delivery channels that go beyond standard lending and saving to actively engage with smallholder farmers, private investors, and entrepreneurs, offering a broader range of bundled services (financial and non-financial).
Agricultural innovation includes (but are not limited to) changes and transformations in production and cultivation, post-production/cultivation handling and processing, use of improved inputs and technologies, adoption of ICT, new business practices and models, supply chain transactions and efficiency, inclusion and equitable opportunities, shifts in societal, gender or community norms, and revenue generation for market actors.
The INNOVATE research portfolio (page 8) includes 10 projects conducted by partners in 3 target regions. MEDA supported the selected partners to implement pilots or case studies, depending on the scope of the research question and overall hypothesis identified in their application. Of the 10 research projects, there were 4 in East and Southern Africa; 3 in South America; and 3 in South Asia. The projects were conducted by diverse organizations including finance companies, consulting firms, international NGOs, and research organizations.
The MEDA INNOVATE learning agenda was formed continuously throughout the project while focused on the overall research goal and key research questions related to the adopting agricultural innovations through non-traditional finance.
To understand and learn about different products, services, non-traditional finance models, and the role that NTF plays in women and men smallholder farmers adopting agricultural innovations in Eastern and Southern Africa, South Asia, and South America.
Customer centricity, at its core, puts the customer at the center of all business decisions, processes and actions. The goal of customer centricity is assuring the success of one’s customer and creating positive customer experiences. For INNOVATE, customer centricity as a key theme enabled MEDA and its partners to adjust activities and overall orientation to remember to ask ourselves: “Who is the customer? What do they need? What do they value? What can they afford? What influences decision-making and behavior? What are the key drivers of adopting new products or services?”
The second learning theme relates to Smallholder Products and Services and the question, “What do smallholder farmers value and what are they willing to pay for?” For those working at the intersection of agriculture and finance, we know that smallholder farmers are extremely cash-flow sensitive and that most loan products are not designed to align with smallholder client needs and circumstances. The few banks and financial service providers that have successfully developed appropriate and affordable products or services for farmers, have done so through a mix of product, distribution, and collateral customizations – all of which begin with a fundamental understanding of smallholder clients want and need.
Businesses and NGOs alike face the challenge of finding the right product-market fit: the degree to which a product satisfies a strong market demand. This is even more difficult to do for smallholder farmer customers. Irregular cash flow, crop seasonality and price sensitivity must be considered to align and design the right product or service to meet smallholders’ needs. The following takeaways are relevant to actors from the INNOVATE project and the smallholder finance landscape in general.
The third learning theme builds on the previous one on smallholder products and services, but incorporates how decisions are made at the household level. Family units are dynamic, complex, and diverse – there are various factors (such as social norms, power dynamics, and market realities) which impact how smallholder households make decisions, especially along competing household and farm business needs. MEDA INNOVATE is particularly focused on decision-making regarding the adoption of and investment in agricultural innovations.
This final learning theme on policy and regulatory transformation focuses on the opportunities for governments to pursue inclusive and innovative policies for agricultural finance, with an emphasis on smallholder farmer populations. Even if there’s an existing ecosystem of actors supplying products and services to smallholder farmers, the enabling environment (including policies and regulation) must be supportive to advance finance and innovation targeted for rural households.
Below are helpful definitions provided by Dalberg and the Rural and Agricultural Finance Learning Lab:
MEDA builds on these two domains with the understanding that smallholder agricultural households function in a series of interconnected ‘systems’ (see diagram) radiating from the household unit – to agricultural market systems, community and social domains, and infrastructure and policy (or, the enabling environment).
This NTF4Ag report demonstrates that there is potential for non-traditional finance in the smallholder finance landscape. NTF is not meant to replace traditional financial and banking services, but serve as a complement and tool to fill current gaps.
Below are some of the actions that can be prioritized and undertaken now, and opportunities for further research among the diverse actors working on smallholder agricultural development and financial inclusion, as these two agendas go hand in hand.
For implementing development organizations and the private sector:
For policymakers and regulators:
For donors and funders:
This report was compiled and designed to inspire readers not only to learn from the 10 research cases and MEDA’s cross-cutting research and analysis of these projects, but also to enable readers to re-think how programs and policies are implemented and how products and services are designed and delivered. With a decade left to achieve the 2030 Agenda for Sustainable Development, assuring the viability and resilience of small farmers worldwide is crucial to meeting the SDGs. With the right combination of leveraging innovative tools, technology, capital, policies and collaborative partnerships – national and global efforts are on track for supporting smallholder farmers to achieve dignified, stable and secure livelihoods within agriculture and beyond, for the well-being of themselves, their families and rural communities worldwide.