Making Risk Sharing Models Work with Farmers, Agribusinesses, and Financial Institutions

This paper identifies practical ways that financial institutions, practitioners supporting value chain development, and agribusinesses in the value chain and farmers can come together to reduce the risks and costs of lending to small farmers, while capitalizing on the benefits. The paper examines four models that were pilot-tested by International Development Enterprises (India), Financiera EL Comercio (Paraguay), and Caja Nor Peru (Peru) to:

• Analyze the existing financial relationships found in different value chains and contexts;
• Develop innovative risk-sharing models that can be replicated to expand rural financial services.

The following are the main findings of this research on developing risk-sharing models:

• Analysis and mapping value chains are a critical first step to forming risk-sharing models;
• Development of the profile of each potential partner of the risk-sharing model is important for both financial institutions and market facilitators when selecting partners for risk-sharing models;
• Gaining commitment from all stakeholders and structuring all the operational details and contingencies is vitally important in the beginning;
• Dynamic and organized value chains offer more possibilities for forming risk-sharing models with agribusinesses in the value chain, but they are not a necessity;
• Pilot tests are necessary before replication is attempted;
• Market facilitators can be catalysts for linking farmers to formal financial sources.

The paper concludes by identifying following areas for further research and investment.