MICROFINANCE PAPER ROUND-UP: Managing Risks for Smallholders in Africa, Financing Shortfall for Women-owned Enterprises in Indonesia, Perspectives of Banks in Emerging Countries on Financial Inclusion

“Finance for Smallholders: Opportunities for Risk Management by Linking Financial Institutions and Producer Organisations;” by J de la Rive Box et al; published by the Food & Business Knowledge Platform, Agri Pro Focus and the Platform for Inclusive Finance NPM; May 2016; 22 pages; available at: http://www.inclusivefinanceplatform.nl/documents/npm%20summary%20report%20finance%20for%20smallholders.pdf

The authors of this paper argue that increased collaboration between agricultural producer organizations and financial institutions can improve smallholder risk management. They analyzed finance instruments used within 14 projects in Ethiopia, Mali, Rwanda and Uganda including crop-specific solidarity lending. Among the financial instruments used, three modalities were found, pre-harvest finance to smallholders, a two-tiered system which also includes post-harvest finance to buyers of produce and finally agricultural value chain finance which augments the two-tiered system with arrangements for value chain actors. The authors’ analysis of these modalities led to six recommendations: (i) risk management should be viewed as a shared responsibility of the producer organization and the financial institution; (ii) crop insurance, agricultural price hedging and commodity exchanges should be accessed; (iii) “farmers’ organizations are vital for exploiting the full potential of risk management in smallholder agriculture”; (iv) “microfinance and small and medium-sized enterprise (SME) finance are linked”; (v) a more intensive role for financiers can lower loan defaults; and (vi) “it is crucial to plan and budget for a facilitator’s role”.

“Women-owned SMEs in Indonesia: A Golden Opportunity for Local Financial Institutions;” by R Japhta et al; published by the International Finance Corporation (IFC); March 2016; 79 pages; available at: http://www.ifc.org/wps/wcm/connect/677906e9-398d-45c1-8f87 84e503292f50/SME+Indonesia+Final_Eng.pdf?MOD=AJPERES

This report addresses the financial needs of women-owned small and medium-sized enterprises in Indonesia. According to the authors, these enterprises face a financing shortfall of USD 6 billion that is needed for them to build their businesses and boost their contributions to the country’s economic growth. Reasons for the shortfall include that banks hesitate to lend money to women because they often lack collateral and women often find banking procedures so onerous that they opt out of applying for credit. The authors conclude that “Banks that see the opportunity and can adopt a novel approach to provide financial and non-financial services to the underserved women-owned SME banking market can enjoy a potentially profitable low-risk business opportunity that helps women-owned enterprises realize their potential.”

By Kevin van den Brink, Research Associate

Sources and Additional Resources

[1] NpM, Publications, “Finance for Smallhorders: Opportunities for risk management by linking financial institutions and producers organisations”

[2] IFC, Publications, “Women-owned SMEs in Indonesia: A Golden Opportunity for Local Financial Institutions”

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