Microfinance Practice: [MFP] CGAP Newsflash: Many Smallholder Farmers Require Specialized Financial Services

CGAP Newsflash: Many Smallholder Farmers Require Specialized Financial Services

With an estimated 2.5 billion people living in 500 million smallholder farm households in the developing world, agricultural production plays a powerful role in poverty reduction. A new Focus Note by CGAP, Segmentation of Smallholder Households, differentiates this large and diverse population into three segments determined by commonalities in how they engage with markets and how those markets are organized.

"Not all smallholders are the same and this paper signifies renewed momentum behind understanding the financial needs of various smallholder segments," notes Michael Tarazi of CGAP. "The segments identified in the paper aren't meant to be iron-clad divisions, but rather a starting point for recognizing common financial needs and goals and matching them with appropriate financial products."

Providing financial services for specific agricultural activities has proven challenging thus far, but the paper notes some promising opportunities that can fill the gaps between the demand of smallholder households and the supply from financial service providers. Commitment savings accounts, for example, are practical ways to limit the accessibility of funds and target their use. Mobile phones are a powerful delivery channel for reaching large numbers of clients with a range of information at a low cost. More information is needed to better understand what products agricultural households find useful, but these models suggest potential offerings relevant to each of the three main segments CGAP identifies.

Read the new Focus Note and related press release at CGAP.org.

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