Date released
09 October 2023

One of the major barriers that smallholder farmers face in embracing new technologies and more efficient processes is limited access to finance. Two ACIAR-supported projects are underway to assess how financial services can be improved to invest in whole-of-value-chain improvements, new technologies and value adding.

The first of these projects is an agricultural value-chain project, building knowledge about how to design and implement innovative and inclusive financing models in Indonesia, Vietnam and Myanmar. The project began in 2018 and will conclude in 2024.

It began with an assessment of the current landscape of agriculture value-chain finance, including an analysis of how gender affects access to finance.

Dr Alan de Brauw, a senior research fellow at the International Food Policy Research Institute and project leader, said this revealed that female farmers regularly had less access to capital than their male counterparts.

The project has continued to engage with the gender dynamics of agriculture finance, exploring gender-based financial decision-making throughout various value chains.

Another key finding was limited government-supported low-interest loan options for disadvantaged groups, especially for agriculture.

Building effective value chains

Dr de Brauw said the project aims to develop more private sector financing options for agriculture to create more effective value chains, as public financing can cause distortion to value-chain development.

The project has established pilot projects in Indonesia and Vietnam that are testing various finance models that involve engaging with farmers as a collective. In Vietnam, the pilot was run with a coffee company, and the Indonesian pilots included rice polishing, shallots and vegetable value chains.

‘Companies are motivated to engage with the model to improve regular supply or expansion potential,’ said Dr de Brauw. ‘And private banks can have more confidence in loaning to farmers because they have a regular flow of money, so they are going to be able to pay back those loans. Especially if you include insurance in the model.’

Dr de Brauw noted that the uptake of the offered loans was not as high as they had expected, so the final year of the project will analyse factors influencing uptake.

ACIAR Research Program Manager, Agribusiness, Mr David Shearer, said it is essential to develop mechanisms that enable finance to flow into the agrifood system at all stages of the value chain, to create more sustainable systems that can address larger challenges, and effectively scale innovations.

‘Financial mechanisms are a key pillar of being able to take innovation to scale. And we need innovation to address big global challenges, such as agriculture’s contribution to greenhouse gas emissions. If we don’t get the financing right, we won’t get the impact right,’
said Mr Shearer.

Mobile financial services

Another newly launched ACIAR-supported 6-year project is exploring the impacts of mobile financial services on farming households in Cambodia and Laos.

It will involve a literature review of existing global evidence of the impacts of mobile finance tools such as savings, financial management tools and credit. It will then engage in research on the impacts of these tools in the specific contexts of farmers in Cambodia and Laos.

Managing director of Finthropology and project co-leader Dr Erin Taylor said understanding the positive and negative impacts of access to mobile finance services can then help inform policies and direct development programs involving the digitisation of financial services for agriculture.

‘It’s widely understood that efforts to include people in the formal financial system can have lots of positive impacts. But what’s happened recently is that a lot of tools have become digital. So, our big question is, when farmers start to use digital tools instead of cash, what happens?’ said Dr Taylor.

Mobile financial tools can provide access to financial services to a much broader range of people, such as remote communities who can make faster transactions with lower transaction fees without immediate access to a physical bank. Women can also access these financial resources independently of their family.

However, it can also have negative effects. This includes potentially increasing indebtedness through increased access to credit through microfinance institutions. There have also been contexts where access to mobile money has made it easier for people to gamble. 

ACIAR Research Program Manager, Social Systems, Dr Todd Sanderson said context is critical when researching the impact of a new technology, as the effects can vary greatly in different social environments.

‘Every new technology will land in a different country context in a different way. It will reflect the peculiarities of social structures and values, and the way this manifests in behaviours and decisions,’ said Dr Sanderson. ‘I see this project as a good example of the contribution we can make to the global public-good knowledge base, to affect development pathways in positive ways.’

ACIAR PROJECT: ‘Inclusive agriculture value chain financing’ (AGB/2016/163); ‘Building the evidence base on the impacts of mobile financial services for women and men in farming households in Cambodia and Laos’ (SSS/2020/160)