Digital Smallholder Agriculture Finance: Whose Needs are Being Addressed?

Categories : Blog


Author: Yaw Brantuo

The point is well made that understanding smallholder financing needs is key to addressing a huge gap; for, while local banks in the developing world supplied approximately USD9 billion to smallholders, global demand is more than USD300 billion (and indeed up to USD450 billion if we include China)[1].

Definition of Terms

The International Fund for Agricultural Development (IFAD)[2], a specialised agency of the United Nations, operationalises the concept of agricultural finance to refer to financial services oriented towards on-farm activities and agricultural businesses in general, encompassing such financing to large and small entities located in both rural and urban areas and targeting varied economic levels, including both rich and poor individuals, households and entities.

It has been estimated that globally, smallholder farmers make up about two billion people from approximately 500 million households[3] cultivating plots of land of up to seven hectares but typically between 0.5 to two hectares, with the World Bank’s CGAP defining smallholders as framers with land no larger than one hectare. The output of smallholder farmers in Sub-Saharan Africa (SSA) which has been valued at USD300 billion is projected to reach USD1 trillion by the year 2030[4]. Smallholders, however, lack the resources to invest in such growth potential having been mostly excluded from the formal financial sector such that in Africa, for example, the entire agricultural sector have typically attracted only 1% of bank credit[5] even though they have accounted for about a fifth of gross domestic product in SSA.

The evolution of financial services to the smallholder agricultural sector has mimicked the broader trends in rural finance[6] from its beginning with supply driven, government-central planned and managed in the post-World War Two era to recent trends in the 2000s where financial institutions have enormous opportunities to leverage technology (or digitisation) to develop new service delivery models with holistic service bundles[7].

Smallholder farmers, however, are a heterogenous group and therefore to promote technology-enabled or digitalised smallholder agricultural financing effectively, it is imperative to address the observation that clarity on the specific nature, characteristics and financial needs of in financial service providers enhances their ability to access the relative importance of different channels for different (market) segments, and thereby be more effective in leveraging technology or digitalised services[8].

Thus, it is worth gaining a better insight into the nature of smallholder segments and encourage industry contribution towards the design and provision of appropriate financial services leveraging areas of digitalisation opportunity to greater efficiency and effective service delivery.

Segmentation of Smallholder Farmers and Their Financing Needs

Historically, the over-simplification of the nature and extent of the financing needs of smallholder farmers has led to the over-emphasis on credit as a panacea to all the ills of the sector[9]. But the veracity of this school of thought is challenged by the diversity of smallholders. Various approaches have been used to understand and identify the broad characteristics of smallholders and their financing needs and how digital enablers can be used to improve efficiency and effectiveness of relevant products, channels, and services to meet them.

A good smallholder segmentation approach in low to middle income countries should necessarily be flexible enough to rely of a categorisation based on common attributes that lends themselves to clear financing mechanisms. World Bank’s CGAP[10] presents such a framework which is not conclusive but practical and illuminating for the purpose of this discussion.

CGAP identifies three categories of smallholders and their respective financing needs as follows: (a) non-commercial smallholders (about 300 million or 60% of smallholders) cultivating only staple crops hardly using any improved technologies and with only limited access to financial services or informal finance if at all, (b) commercial smallholders in loose value chains (165 million or 33% smallholders) cultivating primarily staples but with some cash crops using limited improved technologies and limited access to mainly financial services, and (c) commercial smallholders in tight value chains (35 million or 7% of smallholders) cultivating mainly cash crops with only few staples with the benefit of improved technologies from off-takers and with access to informal and also some formal financial services including from value chain partners. The segmentation is based on parameters such as the type of products, how they engage their input and output markets and how these markets are organised.

In the end, the purpose of such segmentation efforts is to provide a greater appreciation of the specific needs for financial services especially for agricultural activities within each segment.

A high-level assessment of smallholder segmented financing needs shows their aspiration for savings (wealth accumulation), credit (access to resources for consumption but mainly productive activities), payments (transfers from receipt of farm revenues/income/remittances and to meet day to day transactions) and risk management tools or insurance products.

Digitised versions of these products would include for savings (provision of mobile-based channels for individuals and groups), credit (using data analytics of mobile phone use and spend to determine credit worthiness), transfers (using mobile money to make and receive payments) and risk mitigation (using interactive voice recall (IVR) information services for self-paced education on agronomic information in good agricultural practices on when to plant, weather conditions, application of agrochemicals, etc with potential to improve their productivity and quality, etc).

Non-commercial smallholder farmers are the least economically empowered and therefore least deserving of credit facilities due to weak ability to repay. They however require risk management products, remittance and payment services. Commercial farmers on the other hand, whether in loose or strong value chains, are suitable for savings products to smoothen their better income flows, eligible for credit, transactional payments and remittance services as well as risk management products, e.g., insurance. Digitised version of these products and services enhances the effectiveness of needs assessments, lower transaction costs for financial service providers and improve the customer experience.

Why Is All This Important?

An example of the use of such a segmented approach to service provision in Nigeria[11] undertaken by World Bank’s CGAP in 2017 explored the financial needs and behaviours of smallholder households as a basis for guiding financial solution providers, mobile network operators, donors and governments to design and improve, and scale solutions that address the needs of smallholder farmers and their families. The evaluation of these interventions is not available yet but initial anecdotal evidence from success stories give room for optimism. Properly targeted financial services propelled through digitised channels catalyses efforts to bridge the gap smallholder financing.


[1]       Understanding Smallholders’ Financial Needs is Key First Step | Blog | CGAP

[2]       IFAD Decision Tools for Rural Finance (2010)

[3]       IFC Handbook: Digital Financial Services For Agriculture (

[4]       Africa Agriculture Status Report 2017, AGRA, vi (

[5]       International Finance Corporation (2014): Access to Finance for Smallholder Farmers: Learning from the Experiences of Microfinance Institutions in Latin America

[6]       In its IFAD Decision Tools for Rural Finance (2010), IFAD defines rural finance as financial services which target households and businesses in rural areas, covering both agricultural and non-agricultural activities, and targeting both poor and non-poor women and men addressing the full range of financial needs of farmers, their rural households, and rural enterprises.


[8]       International Finance Corporation (2014): Access to Finance for Smallholder Farmers: Learning from the Experiences of Microfinance Institutions in Latin America

[9]       O. Oseni, A. D. Babalola, B. A. Adesoye (2019): Agricultural Credit Policy as a Panacea for Sustainable Food Production in Nigeria: Evidence from Ogun State, SPOUDAI Journal, Vol.69 (2019), Issue 1-2, pp. 18-29

[10]      CGAP (2013): Segmentation of Smallholder Households: Meeting the Range of Financial Needs in Agricultural Families. (

[11]      World Bank CGAP (2017): Understanding the Demand for Financial, Agricultural, and Digital Solutions from Smallholder Households: Insights from the Household Survey in Nigeria


By Yaw Brantuo

DFI Alumni and Community Member