Contributor

Guest author

Inclusive approaches to impact investing to solve the needs of smallholder farmer communities

Globally, agriculture is the primary livelihood for an estimated 2.5 billion people living in poverty (Figure 1).  A recent report published by the Initiative for Smallholder Finance estimated that there are 60 million smallholder farmer families in Latin America and Sub-Saharan Africa.  The same report identifies that those smallholder farmer families have a financing need of ~52 billion USD annually for which at present only ~12 billion USD is being provided by value chain, financial intermediaries and social lenders like ours, Global Partnerships

Figure 1: Global population broken down by poverty, location and type of livelihood (billions)

Source: Bain & Company, “Growing Prosperity: Developing Repeatable Models to Scale the Adoption of Agricultural Innovation”, 2014

In fact according to the Council for Smallholder Agricultural Finance (CSAF) 2015 Annual Report, the social lending for smallholder farmers across the globe has only reached ~600 million USD, of which more than 80 per cent has gone to Latin America and Sub-Saharan Africa.  At the same time CSAF has identified the risk for agriculture lending has gone up with portfolio at risk for more than 90 days (PAR90) almost doubling to 6.1 per cent from 2014 to 2015.  This suggests that significant increases in social lending will be more challenging moving forward. 

This is bad news considering the importance and plight of smallholder farmers.  At Global Partnerships our own impact data from a loan portfolio of ~40 social enterprises working with smallholder farmers suggests that on average 52 per cent of the smallholder farmer families we are supporting in Latin America and Sub-Saharan Africa live below their respective national poverty lines, have an average family size of six and make their incomes working on average farm sizes of just 0.8 hectares per family. 

Unfortunately the situation for most of these smallholder farmers is not improving thanks to four countervailing forces:

This suggests new more inclusive approaches are needed to invest in helping to modernise smallholder agriculture in the developing world that both protect the social and environmental fabrics of the local communities and also ensure the most marginalised poor are benefiting the most from our investments.  We at Global Partnerships have focused our investment strategy on two key investment initiatives we believe can make this happen: 

(1)    Smallholder Farmer Services initiative – Through this investment initiative we have built a portfolio of 13 investments in trade cooperatives and outgrower schemes that provide smallholder farmers in developing countries with access to market and higher prices via purchase contracts and price premiums as well as crop-specific technical assistance and basic financial management.  Through these services we believe we are helping those 20-40 per cent of all smallholder farmer families who have the most potential to make a living from focusing on farming high value cash crops to succeed and boost their incomes.  

(2)    Rural Livelihoods Finance with Education initiative – Through this investment initiative we have built a portfolio of 20 investments into rural focused microfinance institutions, community development organizations and credit cooperatives.  Our partners provide some of the other 60-80 per cent of agriculture dependent smallholder farmer families that might not survive living off of farming alone with access to tailored credit and education customised to building much needed alternative income generating activities. 

In addition we are exploring a new investment initiative on tech enabled agriculture inputs.  This would allow us to make investments with partners which are using the mobile phone and other digital technology, in order to reach the hardest to serve populations at the end of the long dirt roads in rural Africa and Latin America with much needed access to credit, information about farming practices and access to prices and new markets.  We believe reaching those hardest to reach communities will have a profoundly transformative impact on the landscape of rural poverty as well as potentially lure back many of the youth who have turned their backs on this vibrant and important sector. 

Through these efforts we have invested ~70 million dollars and reached nearly 700 thousand lives.  But we know this is just a drop in the ~52 billion dollar bucket and there is a long way to go.  We continuously seek to explore and expand our investment portfolio in new ways so that more smallholder farmer families can flourish in farming or other economic activities.  

This blog is part of the July 2016 series from the Practitioner Hub and Seas of Change on Inclusive Agribusiness. Download the PDF for more insight, updates and opinion.