Commodity Finance: A Commercial Proposition? Micro- and Mesofinance for Agricultural Commodity Production, Processing and Trade

This paper discusses the economic development of the poor in developing countries using value addition through efficient processing and trade in commodities. It states that microfinance and meso-finance for such value addition will have the following benefits:

• Increase in efficiency and profitability of agriculture and agribusiness enterprises;
• Increase in profitability of financial institutions through investments in the commodity sector.

According to the author, some problems exist with commodity finance:

• Lack of loanable funds or a lack of financial institutions willing to lend for agriculture and the commodity chain. If one of the major rural market segments - commodity producers, rural industries and traders - do not have access to finance, then the entire rural economic sector suffers;
• An abundance of loanable funds due to successful savings mobilization. The excess liquidity though generated in rural areas, is not available for commodity finance and other purposes, and is siphoned off to urban areas.

In order to ensure microfinance investments in commodities it is important to consider the following points:

• Turn investment in rural and agriculture finance into a commercial proposition;
• Establish risk management strategies in rural and agricultural finance;
• Introduce post harvest technologies;
• Concentrate on the production and marketing of value added products.