Rick van der Kamp
This article revisits some of the most often held assumptions around smallholder finance, and presents field experiences and research challenging these ‘myths’ around supply and demand of agri-finance. On the credit supply side, the article finds that smallholders do not necessarily lack access to ‘finance’, but do not use formal bank loans much and rely more on informal lending. It argues that the characterization of informal moneylenders as usurious is overly simplistic, and sees clear market mechanisms at play in informal lending. The article also presents evidence that the agri sector is riskier than others sectors. On the demand side, evidence suggests that farmers do not always want to apply fertilizer to their farms, or even take out a loan if it were available. Finally, the opinion that farmers deserve a fair (low) interest rate is investigated. In conclusion, the article provides recommendations to policymakers and project designers about approaching agri-finance as a new product in an existing market, and checking assumptions about demand at each stage.