The rate at which subsistence or smallholder farmers develop all over the world is meager because they lack access to sufficient capitals. This keeps them at constant stage without any remarkable development. Over the years, subsistence have contributed to the economy immensely. And yet, only a few of these farmers have been able to benefit or access lending from financial institutions; this has incapacitated smallholder farmers leaving them with no other option but to run to other cooperate bodies in search of loans with extremely high-interest rates. Smallholder farmers are being starved of capital and the only visible alternative is innovative financing.
Innovative financing is a money raising process which uses non-traditional means that are innovative to raise funds for development. These non-traditional means includes taxes, market-based financial transactions, micro-contribution, private partnership as well as market-based transactions.
However, before a method of financing can be considered innovative, it must pass some basic parameters because innovative financing is not all about raising capital alone, it also has to do with the all-round development of smallholder farmers. It should be able to introduce new and original approaches or financial products to solve the problems of smallholder farmers, help to market and increase the sales of smallholder farmers agricultural products, and finally, it must include new means of getting investors ready to change the fate of smallholder farmers by providing them with funds to finance their farms.
Innovative financing for smallholder farmers can be grouped into private and public sector-led innovative financing, though they both work interchangeably to raise capital for smallholder farmers.
Private sector innovative financing utilize financing tools which complement the traditional resources like government investment, foreign investments, development aid, and remittances. This non-traditional means of raising capital has been know to help smallholder farmers raise capital to finance their farms by simply addressing the failures in the market and also speeding up private investment. This simple activity drives growth and development in the sector, meaning that smallholder farmers will generate more revenue.
Public sector innovative financing involves the collaboration of several agencies which includes the Governments, community, non-profit organization and business to raise capital for smallholder farmers. Unlike the private sector-led innovative financing, it does not aid growth, and development neither does it drives agricultural activities. The primary objective of public sector financing is to source capitals to support smallholder farmers.
Innovative financing instruments have been in existence for centuries which are majorly guarantees and bonds, and it is used to improve the growth and development of smallholder farmers. Innovative financing has been used as a major financing mechanism in the agricultural sector in which it addresses the developmental problems of smallholder farmers.
Over the years, Africa continent has tremendously used innovative financing to catalyze growth and development in the agriculture sector in which the smallholder farmers are the major beneficiary. These include the KfW German sponsored Africa Agriculture and Trade Investment Fund (AATIF) and also the Agricultural Development Bank (ADB) in Ghana. These innovative financings have helped crowd in both private and public capital into the agriculture sector. The outstanding efforts of Alliance for a Green Revolution in Africa (AGRA) has helped provide credit guarantee and risk sharing facilities that have been more productive and committed by sharing the risk with public sector and providing capital for smallholder farmers.
Innovative financing is the foundation of growth and development that is capable of transforming agriculture if effectively managed. There is no doubt that innovative financing has been helping smallholder farmers to grow and compete with farmers with large capitals. They are also unlocking investment opportunities for smallholder farmers and also providing them with basic economic instruments that can aid their growth in our changing economy. Finally, the mechanisms mentioned above used by innovative financing are helping smallholder farmers bear the enormous risk associated with agriculture business and giving them an opportunity to rise again if crumbled by any unforeseen circumstances.
However, innovation financing also has its challenges. This includes the unpredictable Change in the demand and supply of farm produce which the mechanisms of innovative financing have not been able to put under control because it only focuses on the supply aspect of agriculture neglecting the demand. Nevertheless, innovative funding creates an environment that is more than just the supply of capital alone.
“Innovative Finance – AGRA.” AGRA, agra.org/program-development-and-innovation/innovative-finance/.
“Innovative Financing.” Wikipedia, Wikimedia Foundation, 19 Dec. 2017, en.wikipedia.org/wiki/Innovative_financing.
“KfW’s Agricultural Financing in Africa.” KfW Bankengruppe, www.kfw.de/KfW-Group/Newsroom/Press-Material/Themen-kompakt/Agrarfinanzierung/.
Innovative Agricultural Sme Finance Models – IFC. www.ifc.org/wps/wcm/connect/55301b804ebc5f379f86bf45b400a808/Innovative Agricultural SME Finance Models.pdf?MOD=AJPERES.