Context

This article has been written in preparation of the Financial Sector Symposium in Berlin that took place in November 2010 and was co-sponsored by KFW and BMZ. The topic of the Symposium was “Finance for Food”, where for the first time in many years, the German bank KFW is exploring the new paradigms and practises in agricultural financing, in the context of the food crises that have affected developing countries. The Symposium was welcomed by all participants, which for once, represented a mix of donors, investors, academics and governmental agencies who are involved in both agriculture and finance, public that usually do not mingle. The author was the key note speaker at the opening session.

Input

Taking a look back into the major social, economical and political events that have shaken developing countries during the last two decades and all the changes that they have induced, the author concludes to a new era for agricultural and rural financing, where for once, the majority of pre-requisites are in place, to transform market opportunities for a profitable and sustainable agriculture production that works for all actors along value chains.
Concrete cases are presented and new behaviours of stakeholders, from small farmers, processors from the private sector to banks and microfinance institutions are highlighted.

This article contributes to raise the awareness of the financial community that many factors have changed significantly in the area of agricultural finance and aims at inviting them to take a second careful look. For microfinance institutions that are in tough competition in urban areas, this could be an eye opener into new business opportunities in diversification of their portfolio. For agricultural value chain actors, it provides information on how their links should be strengthened to become valid guarantee substitutes for banks and Financial Institutions to access to loans for production and processing. For policy makers and donors, it provides information on how the food crisis in particular could be addressed and rural development in general could be smartly supported by complementary measures that work in synergy to build a financial market for modern agricultural financing.

Content

Chapter 1 describes all the 7 mega trends that have and are impacting the society and the economy of developing countries : liberalization of trade in agricultural commodities, demography and the place of youth, migration and remittances, climate change, growth in emerging countries, emergence of an urban middle class and new consumption patterns and technology such as cell phone and internet. Chapter 2 presents actual emerging models in agricultural and rural financing at global level derived from case studies. Lessons from “old” agric finance are learnt, modern rural finance that are using microfinance best practises for rural households is described and so is the new approach commonly named “value chain finance”. Chapter 3 explores potential impacts of such new practises and stresses the new role of (local and national) governments and other decision makers in supporting and building the appropriate infrastructure for information to flow, secure risk mitigation mechanisms and provide to rural households with capacities to make informed decisions.