Agricultural Finance

Capability Statement, Key Experts & Reference

Feeding the Growing World Population Sustainably

Demand for food will increase by 70% by 2050; at least $80 billion annual investments will be needed to meet this demand. Agricultural finance empowers poor farmers to increase their wealth and food production to be able to feed the potrntial future 9 billion people (World Bank).

Challenges in Agricultural Finance

The increasing need to finance and to develop agriculture arises from the severe rise in global population and the need to feed it sustainably. Despite moderate improvements in the last two decades, crop yields and returns on livestock keeping were still dramatically lower in developing countries compared to OECD countries. Lower returns are the result of a combination of different factors including the lack of agricultural input materials (seeds, fertilizer, pesticides), the lack of access to technology (machinery), environmental factors (soil degradation), post-harvest losses, the lack of adequate storage facilities, the lack of market access, information and value chain partners as well as limited insurance possibilities

All of these facts and risks highlight the urgency for sustainable agricultural practices and investments into adapted technologies to increase the efficiency and resilience of local agriculture in a context of increased macro risks. While finance is by no means the only ingredient required in this equation, the lack of access to financial solutions at adequate conditions (e.g. with regard to pricing and repayment structures) is a key hindrance across developing counties limiting transformative change in the agricultural sector.

To achieve financial inclusion there is an urgent need to promote finance and investments throughout the agricultural value chain, thus improving the situation of local farmers and food-processors. The development of agricultural finance markets is constrained by a variety of factors including:

  1. Inadequate or ineffective policies.
  2. High transaction costs to reach remote rural populations.
  3. Absence of adequate instruments to manage risks (higher systemic risk compared to non-agricultural borrowers).
  4. Fluctuating cash-flow patterns of smallholder farmers due to seasonality.
  5. A lack of bankable collateral of smallholder farmers (e.g. due to non-formalization of land titles).

Over the last 15 years, LFS has developed a strong expertise in the field, with relevant tools to address the above issues. We have built up expertise and developed innovative Agricultural Finance solutions for banks, microfinance institutions and specialised agriculture lenders.

The developed portfolio has already been applied in a number of projects and in different regions taking the special characteristics of businesses which are engaged along the agricultural value chain into account. Based on our experience in serving various stakeholders along the agricultural value chain, we have found typical challenges and obstacles regarding the agricultural sector and responded with the indicated methods (Table 1).

Table 1: Challenges of Rural Finance and Responses

Remoteness & Dispersion, High Transaction costs per Customer
  • Technology to create low-cost delivery channels-mobile technology and use of data (traditionally vs alternative channels) for financial analysis money transfers like loan officer app and wallets
  • Establish alternatives to traditional branch structure for client interaction through agent banking
  • Invest in getting to know clients to create long-term relationship, to compensate for lower transaction sizes and business volumes

Heterogenity of Rural Customers
  • Understand credit needs of all types of rural clients
  • Provide customised financing services for each category of client

Systemic Risk from Climatic Conditions & Price Fluctuations
  • Diversify crops in portfolio
  • Engage multiple actors of the value chain to share risks of price change
  • Use of weather derivatives and other crop insurances
  • Target non-agricultural rural enterprises to strengthen the connected value chain

Collateral Challenges, Irregular Payment Capacities
  • Train agro-specific staff with deep regional knowledge of farming
  • Develop technical cards for primary crop types, providing yield ranges, expected cash flows, etc
  • Visit client prior to repayment to maintain close understanding of the situation, as well as provide brief financial literacy lessons
  • Build value chain relationships to create alternative collateral methods
  • Design products that match the farmers cash flows

Meeting the Challenges - LFS Services in Agricultural Finance

LFS has developed a wide range of tools and services that can be applied to agricultural finance projects. These include institutional strengthening exercises, revision of processes, policies, development of new products, staff training and coaching as well as innovative and cost-efficient means to reach out to farmers sustainably (Figure 1).

Figure 1: LFS products in Agricultural Finance

In-depth analysis of local capacities(staff), demand of potential clients and output potential, analysis of delivery channels, assessment of risks, analysis of other actors in the sector.

1. Product Development


Products tailored to local needs and risks can include:

  • Cash-Flow based individual/group lending
  • Lending in cash and in-kind(through partnerships)
  • Warehouse Receipt Financing for producers and collectors
  • Leasing products for agricultural equipment
  • Agricultural insurance(through partnerships)
  • Lending for livestock

Development product material (analysis forms, policies and procedures)


2. Recruitment and Training of Staff

Recruitment of staff dedicated to MSE or agricultural sector

Extensive training in financial analysis and credit methodology as well as agricultural knowledge

Staff planning schedule & recruitment procedures

Development of training material(initial training as well as ongoing refresher trainings)


3. Control Processes / Risk Mitigation

Establishment of coherent control processes within the department

Risk matrix for internal and external risk assessments

Development of agricultural output cards for cross-checks

Development of control procedures


4. Partnerships / Value Chains

Establishment of relationships with local actors (exchange of information regarding prices) and partnerships for value-chain financing

Training material for Middle Management on the concept of value chain financing

Impact in Agricultural Finance

One solution that LFS implemented in projects is the use of mobile technology in data entry and data transfer processes for immediate decision making which reduced costs, improved accuracy and lowered transaction time. In another case, the application of score cards increased efficiency by optimizing the balance between risks, outreach, prices and transaction costs. Particularly within projects for AccessBank Tanzania and for the Social Fund for Development in Yemen, mobile banking solutions were applied for financing agricultural instruments and digitalizing data collection. With such systems, LFS has enabled its customers to enhance efficiency by reaching out to numerous farmers in remote areas to inclusively improve the access to financial solutions in a cost-effective manner.

Value Chain Lending Product at AccèsBanque Madagascar

In AccèsBanque Madagascar, LFS has designed and implemented an “Agro-lending” product that allows a farmer to use warehousing as a form of collateral. This has reduced the risk for the bank, as many of the small farmers lack traditional collateral, to ensure the secure storage of the produce which is used as collateral.This system further benefits the farmers by facilitating the sale of their crops via AccèssBanque’s current accounts, allowing payments to be made in seconds.

Agricultural Finance Strategy for Maha Awba, Myanmar

LFS was engaged by IFC to support a dedicated MFI in Myanmar to develop an Agricultural Finance strategy and an institutional model for supporting farmers via a lean branch network, the introduction of digital technologies in the lending process and the use of an agent network as catalyst for information gathering and input distribution. The business plan foresees the development of 20 lending hubs, 240 branches and an outreach to 360,000 farmers after full implementation of the project.

Village Counsellor Approach at Credo Bank

In Georgia, Credo has developed innovative approaches in agricultural lending including the Village Counsellors (VC) scheme. Through these VCs, Credo can now keep a strong presence in villages and manages to serve farmers in a flexible and tailor-made manner. VCs support loan officers, provide information to farmers and coordinate marketing activities for Credo.

Credo provides a broad range of agricultural products, including loans, overdrafts, credit lines, and insurances. Credo has been piloting an agricultural scoring system which will speed up the credit decision making. This includes the use of tablet computers by loan officers and direct data transfer to branches.

Johannes Michael Hafner
Advisor | Agrifinance & Sustainable Rural Development

Johannes Hafner is an Advisor in the field of Agricultural Finance and Rural Business Development focusing on the development of sustainable agricultural value chains. He has first-hand experience in applied research and field-based training of agricultural stakeholder groups as well as proven expertise in assessing quantitative and qualitative data, analyzing data sets and applying statistical methods to make large data sets comprehensible for readers without statistical knowledge. Johannes has published multiple peer-reviewed articles using various statistical analysis tools.

He has more than 5 years of work experience in Sub-Saharan Africa, with special focus on the rural energy sector in Tanzania.

He obtained a Bachelor of Science degree in Economics and Business Administration from the University of Hohenheim and holds a Master of Science in Agricultural Economics from the Humboldt-Universität zu Berlin. Currently, he is in the process of finalizing his PhD thesis.

Before joining LFS, he worked for GIZ, KfW and Ambero Consulting GmbH. He speaks German, English, Kiswahili and intermediate French.