Agriculture Investment Note: Microfinance Institutions Moving into Rural Finance for Agriculture

This Agriculture Investment Note details how a few innovative MFIs, including Bolivia’s PRODEM and Caja los Andes, and El Salvador’s Calpiá, have been successful in expanding to provide financial services to poor rural households. Through the adoption of a financial systems approach, which has recognized that financing for agriculture requires not only an emphasis on credit, but also a wide range of financial services, including savings, short and long term finance, insurance, money transfers for remittances and leasing.

Due to the diversity of activities, and sources of income and financing within rural households, successful MFIs have been required to:

• Implement flexible methodologies and products to serve the diverse, often seasonal needs of their clients;
• Apply prudent risk management techniques to ensure strong financial sustainability and stable portfolios;
• Use new technologies to increase operational efficiency and lower transaction costs, while improving access to financial services for their rural clients.

The note describes the benefits of increased MFI activity in rural areas and in financing agriculture. It concludes by setting out the principle lessons that have been learnt in supporting MFIs that move into agricultural finance and recommendations for practitioners involved.