Financing Agriculture: What Financial Inclusion Can and Should Do in the Future?

Ramesh S Arunachalam

Rural Finance Practitioner

While a lot of lip service is paid to agriculture financing, in reality, there are very options available on the ground. To redress the current malaise in agriculture financing especially in countries like India, financial inclusion would need to focus on:

1.     Repositioning Agriculture and Rural Life – This calls for priority focus on Agriculture in terms of access to finance including investment credit, risk mitigation products and finance for infrastructure including watershed, extension services, quality inputs, standardisation and the like.

2.     Promoting Innovation, Competitiveness and Growth of Agribusiness – Competition enhancing finance for chain actors (especially middle level) and especially from other kinds of intermediaries; finance for re-structuring of supply chains and the like

3.     Strengthening Agricultural Health and Food Safety Systems – Very critical to do this in terms of inputs, processes and infrastructure and ensure that various standards are adhered to. Finance for infrastructure is very critical here and should not be ignored

4.     Introducing Appropriate Technology and Innovation for the Modernization of Agriculture and Rural Life – Again, innovative financial products can play a major role here in bringing technologies from Lab to Land in a successful manner and facilitating their wide scale adoption

5.     Strengthening Agriculture and Rural Communities – Especially, in terms of their staying and bargaining power is going to be very critical – Finance for reducing vulnerability and risks of small producers would be most useful and this alone will enable them to participate fully as stakeholders and demand and get their due

As several stakeholders have argued, agriculture is indeed at crossroads and a major challenge is to reverse the present trend of slow-medium growth in most developing country contexts including India and push it in the high growth path/trajectory.

The key seems to be to provide an integrated set of services including access to financial services including credit, access to market, value adding technology, training, access to machinery, storage facilities, access to extension, processing facilities and quality control.

Partnership between public and private sector companies/ organizations is needed in order to provide these integrated services.

More important is to improve bargaining power of smallholder producers while also reducing transaction costs for intervening stakeholders through promotion of producers’ groups, associations and cooperatives. Small producers will be able to effectively participate in the changing markets and establish links with new market actors (agribusiness companies, processors, exporters, chains etc.) only if they have access to basic infrastructure, quality inputs and various services, are organized and most importantly, empowered in terms of having more staying power and bargaining power, which of course requires quality, innovative and vulnerability reducing financial services at sufficient scale.

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