Defining the Problem

Globally, 2.6 billion people survive on less than $2 a day. 75% of these people live in rural areas and depend on agriculture as their primary economic activity.

With limited access to reliable and well-paying markets, modern technology, quality inputs and affordable credit, smallholder farmers struggle to eke out a living and often resort to survival tactics such as slash-and-burn agriculture or illegal logging that deplete resources for future generations. At the same time, population growth in low- and middle-income countries is driving increased demand for food, and the global population is expected to surpass 9 billion by 2050. A growing world population and increasing wealth in emerging economies in the coming decades will increase food demand by more than 70%, put pressure on land and water resources, and increase greenhouse gas emissions.

Producer organizations or private businesses that aggregate several hundred or several thousand farmers can help to break this cycle of poverty and environmental degradation by linking farmers to better-paying and more stable markets; providing technical assistance to facilitate adoption of sustainable practices and improved yields; purchasing inputs in bulk and distributing them at lower cost; and investing in equipment to improve quality and add value at origin. Yet these businesses are often trapped in the missing middle—too large for microfinance but considered too small and too risky by commercial banks. Without access to credit, these businesses do not realize their full potential to contribute to the long-term health and well-being of rural households, their communities and the surrounding ecosystems.

Although the majority of smallholder farmers in the world are not organized into cooperatives or agricultural businesses, millions of farmers are already aggregated into such entities, and many millions more could be in the coming years. Extending financial markets to serve these agricultural businesses in the missing middle, and finding innovative ways to finance other aggregation points in the agricultural value chains so as to provide financing to disaggregated farmers, can play an important role in supporting environmentally sustainable economic activity that can feed farm communities and the growing population that depends upon them.

Social lenders began addressing this underserved market in the 1990s, both to have an impact on the businesses they could reach directly and to demonstrate models that other financial institutions could replicate and scale. In 2013, disbursements of the seven lenders who are founding members of CSAF totaled an estimated $362 million.[1] This lending activity is reaching only a small fraction of the estimated addressable market gap of over $12 billion.[2] Yet this is just the tip of the iceberg, given that:

  1. There is significant demand for financial products other than short-term trade credit and for financing in crops beyond the high-value cash crops (e.g., coffee, cocoa) that are the current focus of the leading social lenders.
  2. The vast majority of smallholder farmers are not linked to agricultural businesses in formal value chains, either domestically or internationally.

By 2016, CSAF members expect to lend $500 million a year to agricultural businesses in the missing middle, and to ensure the additionality of that lending by offering a wider range of financial products and reaching businesses in underserved geographies and value chains.

Beyond the ambitious growth targets set by CSAF members, there is substantial need for additional capital both from other players currently operating in the market and from new entrants. Yet capital alone will not be sufficient. Industry standards are needed to guide responsible lending practices and orient lenders to grow the market that is being served—as opposed to simply competing for the easiest-to-serve clients that are already being reached—and to meet long-term economic, social and environmental goals.


[1] Analysis by the Initiative for Smallholder Finance.

[2] "Catalyzing Smallholder Agricultural Finance," Dalberg 2012.