Microfinance - financing agriculture, the need for innovations

Agriculture has already started to become a primary global concern. Prices of agricultural goods are characterized by a high degree of volatility. Food security is no longer guaranteed and high food prices are a short-term problem for the poor in many countries. This situation gives peasants who are struggling to survive in Southern countries a chance to earn a decent living. Thus farmers still need to invest and increase production; access to finance is therefore decisive. The new rural finance paradigm has redefined the roles of the various factors involved in providing financial services, especially governments. Public subsidies have been redirected towards creating new microfinance institutions (MFIs) to enhance financial inclusion. The focus is now towards financial inclusion and depth of outreach while achieving financial sustainability thanks to cost-covering interest rates. This emphasis on financial inclusion instead of financing a specific economic sector has led to a low interest of microfinance towards agriculture and in rural areas, a low adaptation of financial services to small farmers’ financial needs. Yet despite a renewed and more promising approach based on financial markets construction in comparison to the “old rural finance paradigm” based on public intervention in credit markets, the majority of peasants in developing countries are still excluded from access to financial services.