Alternative finance in commodity chains
Working Paper Alternative Finance
How small entrepreneurs and farmers can benefit from novel ways of financing.
Access to affordable and reliable financing in agrifood commodity chains is of key importance for all actors along the chain, to use as working capital, and to invest in capital assets. There are a wide range of financing instruments available but these do not always meet the demands of these businesses. Smallholder farmers, small and medium-sized enterprises (SMEs) and other vulnerable groups in developing countries are at a particular disadvantage with regard to access to necessary financing services.
There are many options that are being promoted for smallholder farmers and SMEs, such as microloans, village saving and lending associations, and contract farming (e.g. Magaja & Agai, no date) however, this article focusses on some alternative options for businesses in commodity chains, including (reverse) factoring, leasing, warehouse receipt and blended finance. As well as looking into the reasons why smallholder farmers and SMEs are not reached by traditional finance, this article provides some inspiring examples where such alternative finance mechanisms have been introduced to secure access to finance where none existed. With more innovation and new ways of tackling existing problems, vulnerable groups can improve their access to finance and enhance their businesses.