This Post Kicks Off A Special Series On Reaching Small Holder Farmers Through Innovative Finance. Over The Coming Weeks The Series Will Feature A Variety Of Voices On This Topic. We Welcome Your Participation Through Comments.

With More Than 50% Of The Developing World’s Population (3.1 Billion People) Living In Rural Areas And Global Commodity Prices On The Rise Again, There Is Growing Awareness Of The Need For The Development Community To Work In Tandem With The Private Sector To Create Opportunities To Increase Farm Family Incomes And Reduce Food Insecurity.  Facilitating Access To Rural And Agricultural Finance Is An Important Part Of What Is Needed To Support The Development Of Rural And Agricultural Markets In The Coming Years.

Attracting Private Sector Investment Into Rural And Agricultural Markets Is Tough. And Here Are Some Approaches We Have Tried At AZMJ.

Working With Socially Responsible Investors To Assess And Reduce Risk Associated With Rural And Agricultural Lending.

Socially Responsible Investors Are Increasingly Interested In Investing In Rural And Agricultural Markets, Especially If Partnerships Can Be Formed To Protect Natural Environments And Create A Sustainable Development Impact.  AZMJ Has Conducted Due Diligence Of More Than 40 Microfinance Institutions And Investment Funds For Socially Responsible Investors.

In Peru, AZMJ Is Working With USAID, Carana Corporation And A Local NGO To Develop A Concept That Would Leverage Public And Private Sector Investments In Areas Where Coca Had Been The Predominant Crop.  AZMJ Is Forging Private Sector Alliances With Impact Investors, Including Calvert Foundation, MicroVest, And The Inter-American Development Bank, And Agribusinesses To Support Legitimate Agricultural Market Development Opportunities Near San Martin, Huanuco And Ucayali. To Attract These Investors, USAID Will Be Matching Technical Assistance Funds And Providing A Credit Guarantee For Up To 50% Of The Agricultural Portfolios Into Which They Will Be Investing.

The Local NGO Will Then Work With The Local Financial Institutions To Place The Funds, By Assisting In Identifying And Vetting Potential Borrowers. To Reinforce The Investments, The Project Will Also Be Providing Business And Agricultural Technical Assistance To Strengthen Productive Value Chains, Including Organic Coffee And Cocoa, By Working With Farmers, Input Providers, Processors, Wholesalers And Retailers, As Well As Local Technical Assistance Providers.

Blended Finance Is A Key Mechanism To Attract Private Investors To Close The Estimated $2.5 Trillion Annual Gap To Finance The Sustainable Development Goals (SDGs). In Financial Inclusion, Blended Finance Is An Important Enabler Of The SDGs. Blended Finance Is Not New; It Has A Strong Track Record In Attracting Private Investments From International And Local Sources. 

Within The Framework Of The SDGs, Donors And Development Finance Institutions (DFIs) Are Encouraged To Use Their Funding To Crowd In Private Capital. And Even If Progress Is Slow, The Signs Are Clear: More Private Capital Will Become Available For The SDGs And Development, Including Financial Inclusion. However, Mobilizing Resources Should Not Come At The Cost Of Neglecting Problems That Cannot Be Solved With Investments. Is There A Risk That Projects That Do Not Create Financial Returns Receive Insufficient Attention? 

Donors And DFIs Must Continue To Address The Underlying Constraints That Hold Back The Development Of Inclusive Financial Services Markets Or The Inclusion Of Specific Populations Or Communities. The Following Are A Few Ways Donors And DFIs Can Optimize Their Impact: 

Address Underlying Issues That Discourage Private Investors.
Leverage Existing Funds And Facilities And Avoid Reinventing The Wheel. 
Empower DFIs To Take More Risks In Building Markets More Broadly.
Focus On Developing Local Capital Markets.
Mitigate Foreign Exchange Risk.
Support Information And Transparency To Build Investor Confidence.
Promote And Implement Responsible Investing.
This Brief Presents Opportunities For The New Wave Of Blended Finance And Points To Areas That Deserve Further Attention To Optimize The Use Of Different Funding Sources To Advance Responsible Financial Inclusion.

The Majority Of The World’s Poor Live In Rural Areas. Yet Most Lack Access To The Range Of Financial Services They Need. Financial Services Available To Them Are Relatively Costly Or Rigid, Whether From Formal Or Informal Financial Providers Or Traders And Agricultural Processors Offering Input Credit. Financial Institutions Seeking To Work In Rural Areas Face Numerous Constraints, Such As Poor Infrastructure And Low Education Levels. Moreover, The Main Products Of Many Microfinance Institutions – Short-Term Working Capital Loans With Frequent Expected Repayments –Are Not Well-Suited To Seasonal Or Longer-Term Agricultural Activities.

The Recent Introduction By Some Donors Of The Financial Systems Approach In Micro And Rural Finance –Which Emphasizes Favorable Policy Environment And Institution-Building –Has Improved The Overall Effectiveness Of Rural Fi