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What is Agricultural and Rural Finance?
Rural and agricultural finance services are offered by financial institutions to help households who rely on agricultural production for their livelihoods. These households comprise the largest segment of
. Keep in mind that not all agricultural finance is rural, and not all rural finance is agricultural.
It has been observed that only 20 percent of populations in developing countries have access to financial services, such as agricultural and rural finance programs. And in Africa, the number of people with a bank account is only four percent of the total population. The number is even smaller for those who have access to agricultural and rural finance. And that’s why the governments and private sector are working together to improve those statistics.
Rural finance is composed of financial services that are needed by households and enterprises in rural areas.
It includes loans, insurance, payment, money transfer, savings, and other financial services. Agricultural finance falls under rural finance.
Agricultural finance consists of financial services that range from short, medium and long-term loans;
crop and livestock insurance; and leasing. The services cover the whole agricultural value chain that includes production and distribution, input supply, processing, wholesaling, and marketing. When used properly, financial services in the agricultural sector can improve productivity.
Agriculture remains the backbone of African nations. It is the main source of income not just in Tanzania, but across the continent. However, the sad news is that the sector’s growth rate only increased around 5 percent in the last couple of years. And one of the contributing factors was the lack of access to credit.
There is a high demand for financial services in the rural areas. Farmers need the funds for the provisions during the planting, harvesting, transporting, processing and marketing of the products. Most households in the rural areas require short term loans at the start of crop year; medium to long term loans for equipment; and savings to protect themselves against unforeseeable events in the future. They also require non-financial services such as technical assistance, extension, and monitoring demand.
Financial services can have a huge impact to help the agricultural sector achieve their full potential. However, financial institutions often face several constraints even if they want to reach out to those in the rural areas. These include poor infrastructure, price and yield risks, collateral limitations, and dispersed demand. The people in rural areas have a low level of financial literacy, which is why they can’t voice out what they need when it comes to financial services.
The good news is that financial institutions have slowly penetrated the rural areas, all thanks to the advancements in technology. Providers now find it viable to reach out to their clients in rural areas. They also understand the needs of their potential customers and provide the right services to them.
These are the things you need to know about agricultural and rural finance. These services are greatly needed by the households in the rural areas, where their only source of income and food is through farming.
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