Redefining Finance for Agriculture: Green Agricultural Credit for Smallholders in Peru

Finance has the potential to play a key role in the transition to more sustainable farming methods, specifically through supplying green agricultural credit – loan products that support farmers to make this transition. This research was conducted to identify the gaps and opportunities to support and scale up green agriculture in Peru. This summary builds on a case study, "Redefining Finance for Agriculture: Green Agricultural Credit for Smallholders in Peru," highlighting the challenges for achieving sustainable agriculture in Peru, as well as providing a vision for how they can be overcome.

The study found that smallholder farmers have a good understanding of and interest in financial services, but face inadequate access to appropriate and flexible financing options. Current lending to the agricultural sector is limited and products are characterized by short payback periods, high interest rates, and lack of grace periods. In turn, financial institutions (FIs) lack incentives to enter the market for agricultural credit. Lending to smallholders is risky due to lack of access to assets by producers, weather, and other factors. Multi-stakeholder approaches, and the support of government, are therefore needed to align the goals of smallholders and FIs and achieve sustainable agriculture.