Agriculture provides employment and livelihoods to many people in developing and emerging economies, especially those living in rural areas. On average, agriculture contributes about a third of GDP in emerging economies and agriculturally based industry adds more to that. Yet access to agricultural finance is often a hurdle, with demand far exceeding supply. Lack of access to finance stops many farmers from adopting new technology and improving their efficiency.
As the global population grows in coming decades, demand for food is expected to increase by 60 percent by 2050. The agricultural system is already under pressure to satisfy current demand, and to increase food production there is a need for a shift from informal subsistence agriculture to sustainable commercial agriculture. To achieve this, private sector businesses and the financial sector need to invest in sustainable technologies, scalable business models and climate-smart agriculture enabling farmers to produce more food while decreasing the impact on the environment.
Financing the agricultural sector presents many challenges for financial institutions. Reaching remote rural areas can be expensive. Weather risks, crop concentration, and price volatility increase the credit risk for lenders, reducing their appetite to finance the sector. In addition, risk-assessment technologies often lack precision for evaluating investment opportunities. IFC is working to reduce risks and risk perceptions in agri-finance leveraging technological innovations.
What we do
IFC’s work in agri-finance provides investment and advisory services aimed to help increase the availability of agricultural finance in emerging and developing markets by promoting appropriate risk-mitigation products and skills development.
IFC’s investment services provide balance sheet support and de-risking solutions. Through our flagship program GTSP seeks to address the continuing gap in emerging market trade finance that reached a critical level at the time of the global financial crisis but has persisted since that time. GTLP‘s main objective is to promote emerging market private sector trade by mobilizing funded and unfunded financing and channeling credit for trade transactions to targeted sectors and regions.
Our advisory services are based on a three-pronged approach to reduce risk and increase supply of finance to agriculture in Africa.
- Leverage value chain ecosystems
- Promote climate smart agriculture finance solutions
- Expand collateral commodity finance
IFC works with different types of institutions—banks, microfinance institutions, mobile network operators and fintechs—as follows:
- We work with banks to help strengthen agricultural supply chain finance, climate finance for agribusinesses, risk-assessment models, and digital scoring for agriculture.
- We help microfinance institutions with developing digital scoring models, E-wallet, and mobile payments; with building the skills of credit agents in rural areas, and with building strategic alliances with agribusinesses.
- We assist fintechs with developing digital scoring models, implementing risk-management frameworks, improving portfolio management in rural areas, and building strategic alliances in agricultural supply chains.
- We support MNOs in digitizing payments along value chains
IFC helps to provide customized short- and medium-term working capital and risk sharing solutions. We often compliment these investments with advisory services.
Our key agricultural finance programs include the Global Trade Liquidity Program (GTLP), the Food and Agri and Global Warehouse Finance Program (GWFP), the Critical Commodities Finance Program, and the Food System Development Program.