Blended Finance: Call for Innovative Partnerships for Bolstering Agricultural Finance

Private capital investments fail in many parts of the world due to many risks that can be attributed to weak institutions, inefficient financial markets, environmental factors, economic and political instability. This is rampant among developing economies, many of whose economies are dependent upon agricultural and food value chains.

Private capital investments fail in many parts of the world due to many risks that can be attributed to weak institutions, inefficient financial markets, environmental factors, economic and political instability. This is rampant among developing economies, many of whose economies are dependent upon agricultural and food value chains.

In order to promote the availability and effectiveness of private capital flows, public-private partnerships have to be innovative to drive private investments. It is evident that public-private partnerships, in different forms and sectors, increase investments and leverage enabling business environments. According to a Dalberg's report, "the need for more development financing and private investor interest in emerging and frontier markets is an enormous opportunity for public and private investors to join forces."[i] This joining of forces by both parties – private and public – to mitigate business risks and impact social and economic growth by leveraging private investment flows can be termed Blended Finance.

Agricultural sector shouldn't be left behind in the sense of Blended Finance. Smallholder agriculture in developing countries is massively under-funded and faces the aforementioned risks. Less than a quarter of the financing needs of smallholder farmers in developing countries are met, leaving an annual financing gap of more than US$ 150 billion.[ii] It is evident that deploying Blended finance techniques will drive private capital investments in agricultural finance for smallholders, thereby creating an enabling business environment for private investors (such as microfinance institutions) and agricultural value chain actors.

Led by Lamon Rutten, Program Manager of Policies, Markets and ICTs (PMI) at Technical Centre for Agricultural and Rural Cooperation (CTA), Blended Finance for Agriculture (Blending4Ag) will involve the strategic use of international and national development finance and philanthropic funds to mobilize private capital flows into smallholder-inclusive agricultural value chains in developing countries. Most of the discussion around blended finance has been related to healthcare, financial services and infrastructure, but it is beneficially demanding that blended finance in the agriculture sector deserves its own debate.

At CTA, we believe Blended Finance approach can bolster agricultural financing—driving private finance with public funds alongside using mechanisms like technical assistance, risk underwriting and market incentives. For instance, instead of the formal direct lending and giving-of-grants to smallholder farmers by private and public sectors, public and philanthropic institutions can utilise more effectively leveraging over US$ 5 of private sector’s lending with every US$ 1 of their own funds.

CTA, as one of the leading development organizations in promoting agricultural and rural innovations hereby calls for decision-makers and advisers involved in blending operations, and those from private sector financiers (banks, investment funds, agribusiness firms), to dialogue-to-action in an event tagged Blending4ag.

This is expected to lead to improved practices among participants as related to leveraging different sources of funding to drive profitable agricultural financing. Thereby, leading to a number of new partnerships among participants for sharing risks in smallholder finance.

For more information and expression of interest, please visit www.blending4ag.org   

 

[i] http://dalberg.com/blog/?p=3565

 

[ii] http://www.mastercardfdn.org/wp-content/uploads/2016/04/Inflection-Point_April-2016.pdf