Title page 1

Contents 4

Foreword 12

Acknowledgments 13

About the Authors 14

Executive Summary 16

CHAPTER 1. How Agricultural Finance Matters for Development: An Overview 23

1.1. Introduction 23

1.2. The Book's Research Issues 25

1.3. What Is Agricultural Finance? 27

1.4. Why Agricultural Finance? 31

1.5. How Do We Know Agricultural Finance Matters? 35

1.6. Current State of Agricultural Finance 38

1.7. Why Agricultural Finance Is Not Sufficiently Available 40

1.8. Why the Challenge Is So Difficult 43

1.9. Organization of the Book 45

REFERENCES 55

CHAPTER 2. Measuring Financial Inclusion for Agriculture Using Global Findex Data 59

2.1. Introduction 59

2.2. Potential Role of Financial Services in Raising Agricultural Productivity 61

2.3. Main Questions and Findings 64

2.4. Data 65

2.5. Which Dimensions of Financial Inclusion Matter More for Individuals in Market-Based Agriculture? 72

2.5.1. Financial Inclusion and Its Constraints 76

2.5.2. Econometric Analysis: Relative Effects of Education and Income on Financial Inclusion 78

2.6. Conclusion 84

REFERENCES 85

CHAPTER 3. Thailand: Mature Farm Lending with State-Owned Banks for Agriculture 87

3.1. Introduction 87

3.2. Are Farmers Banked? 91

3.3. The System of Agricultural Finance 93

3.4. The Financial Needs of Farmers 97

3.4.1. Are Farmers Credit-Constrained? 102

3.4.2. The Players 104

3.5. The Role of Government 109

3.5.1. Productive Investment 109

3.5.2. Taxes and Subsidies 110

3.5.3. Loan Moratoria 113

3.5.4. Insurance 114

3.6. Who Borrows? 115

3.7. How Important Is Credit to Farmers? 118

3.7.1. The Village Fund 118

3.7.2. Bank for Agriculture and Agricultural Cooperatives 122

3.7.3. Complementary Lending: Village Fund and Bank for Agriculture and Agricultural Cooperatives 124

3.7.4. COVID-19 126

3.8. Conclusion 127

REFERENCES 129

CHAPTER 4. Viet Nam: Dynamic Agriculture with Moderately Effective Microfinance 134

4.1. Introduction 134

4.2. Agriculture in Viet Nam 134

4.3. Are Farmers Banked? 139

4.4. Institutions of Agricultural Credit 145

4.5. Are Farmers Insured? 150

4.6. Patterns of Borrowing 150

4.7. Formal Analysis of Borrowing 155

4.8. The Impact of Microcredit 158

4.9. COVID-19 172

4.10. Conclusion and Policy Implications 173

REFERENCES 175

CHAPTER 5. Bangladesh: How Microfinance Can Support Agriculture 180

5.1. Introduction 180

5.2. Government Support for Agriculture 184

5.3. Agricultural Lending 189

5.3.1. Trends in Microfinance for Agriculture 192

5.3.2. Savings Mobilization 195

5.3.3. Is Agricultural Lending Cost-Effective? 200

5.3.4. Digitization of Agricultural Finance and the Pandemic 202

5.4. Agriculture Finance: Status at the Household Level 204

5.4.1. Effects of Borrowing on Household Income and Productivity 207

5.4.2. Do Credit Constraints Affect Farmers' Income and Productivity? 213

5.4.3. Returns to Borrowing from Institutional Sources 216

5.4.4. Is Borrowing from Institutional Sources Cost-Effective for Farmers? 219

5.5. Conclusion 221

REFERENCES 224

CHAPTER 6. India: Trends in Institutional Credit to Agriculture 229

6.1. India's Agricultural Sector Expands, but Challenges Remain Over Productivity Growth 229

6.2. Financial Services in Agriculture and the Rapid Growth of Institutional Credit 235

6.2.1. Financial Performance of Banks in Agriculture 239

6.2.2. Other Rural Financial Services: Accounts, Mobile Banking, and Insurance 240

6.2.3. Distributional Trends for Institutional Credit Growth in Agriculture 243

6.3. The Role of Institutional Borrowing in Agricultural Investments Across the Landholding Distribution: Evidence from the India Human... 246

6.3.1. Data 247

6.3.2. Methodology 253

6.3.3. Estimation Results 254

6.4. Conclusion 265

REFERENCES 266

CHAPTER 7. How Mobile Technology Can Support Agricultural Finance: Evidence from Sub-Saharan Africa 268

7.1. Introduction 268

7.2. Farmers' Access to Finance in Sub-Saharan Africa vis-à-vis Other Regions: What Does the Global Findex Data Say? 270

7.2.1. Farmers' Access to Finance 273

7.2.2. Farmers' Access to and Purpose of Institutional Borrowing 275

7.2.3. Access to Mobile Finance in Sub-Saharan Africa vis-à-vis Other Regions 279

7.2.4. Access to Institutions for Savings Deposits 280

7.2.5. Tales of Two Systems of Financial Inclusion from Two Countries in Sub-Saharan Africa 281

7.2.6. Agriculture Finance in Ethiopia 283

7.2.7. Seasonality of Agriculture 284

7.2.8. Policy Setting 285

7.3. Farmers' Access to Finance: Household-Level Survey Data Analysis 289

7.3.1. Policy Options to Enhance Access 291

7.3.2. Agricultural Finance in Uganda 294

7.3.3. Policy Setting 294

7.4. Trends in Agricultural Lending 296

7.4.1. Government Policies Pursued to Improve Farmers' Access through Microfinance and Cooperatives 299

7.4.2. Digitalization of Financial Services 301

7.4.3. Interrelationship Between Financial Inclusion and Farm-Level Income and Productivity 302

7.5. Conclusion 310

REFERENCES 311

CHAPTER 8. Dualism and Innovation in Agricultural Finance: Lessons from Latin American Countries 316

8.1. Introduction 316

8.2. Portrait of Agriculture 318

8.2.1. Trade 322

8.2.2. Farmers 324

8.3. Are Farmers Banked? 324

8.4. Sources and Uses of Farm Credit 331

8.4.1. Microfinance Lenders 335

8.4.2. Government Funding: Mexico 336

8.4.3. National Program for Strengthening Family Farming (PRONAF): Brazil 337

8.4.4. Who Borrows? 338

8.5. Innovations and Recent Developments 348

8.5.1. Pix: Brazil 348

8.5.2. Index Insurance: Peru 349

8.6. Conclusion 349

REFERENCES 351

CHAPTER 9. Digital Financial Services for Agriculture 354

9.1. Scope of Digital Finance in Agriculture 354

9.2. Benefits of Digital Financial Services in Agriculture 357

9.3. Why Is Digitalization of Agricultural Finance Necessary? 358

9.4. Current State of Digital Finance in the Developing World 361

9.5. What Policies and Infrastructures Are Necessary to Expand Digital Outreach to Farmers? 366

9.6. What Can Donors and Other Stakeholders Do for Digitalizing Agricultural Finance? 368

9.7. Digitalizing Microfinance: A Test Case for Determining the Extent of Digital Financial Services Offered to Smallholders 371

9.8. Conclusion 373

REFERENCES 375

CHAPTER 10. Strengthening Access and Efficiency of Agricultural Finance 381

Table 2.1. Descriptive Statistics for Individuals in Market-Based Agriculture, 2017 Round 69

Table 2.2. Source of Emergency Funds for Individuals in Market-Based Agriculture, by Whether They Own a Financial Account, 2017 Round 70

Table 2.3. Share of Individuals in Market-Based Agriculture Engaging in Financial Activity, 2017 Round 73

Table 2.4. Purpose of Saving and Borrowing, 2017 Round 74

Table 2.5. Reasons for Not Owning a Financial Account, for Individuals Involved in Market-Based Agriculture, 2017 Round 78

Table 2.6. Probit Regressions: Correlates of Financial Activity, 2017 80

Table 2.7. Probit Regressions: Correlates of Reasons for Not Having a Financial Account, 2017 82

Table 3.1. Agricultural Holdings, Income Source, and Debt Use by Farm Size 89

Table 3.2. Indicators of Financial Inclusion from Findex Survey, 2021 92

Table 3.3. Sources of Agricultural Credit, 1993-2013 94

Table 3.4. Sources and Amounts of Loans for Agricultural Households, 2002-2013 95

Table 3.5. Income and Poverty for Rural Households, 2011 and 2019 98

Table 3.6. Sources of Income for Rural Households, 2021 98

Table 3.7. Indebtedness Among Farm Borrowers from the Bank for Agriculture and Agricultural Cooperatives, 2021 100

Table 3.8. Characteristics of Farmers Who Can and Cannot Borrow More for Business Purposes in 2013 103

Table 3.9. Sources of Funds for the Bank for Agriculture and Agricultural Cooperatives 106

Table 3.10. Dependence on Subsidies and Return on Equity for the Bank for Agriculture and Agricultural Cooperatives 108

Table 3.11. Evidence of Government Investments in Rural Areas, Thailand 110

Table 3.12. Measures of Protection for Agriculture 111

Table 3.13. Models of Borrowing for All Debt and for Agricultural Debt, Thailand, 2013 116

Table 3.14. Estimates of the Effects of Village Fund Borrowing Using Rural Panel Data for 2002 and 2004 121

Table 3.15. Estimates of the Effects of Borrowing from the Bank for Agriculture and Agricultural Cooperatives, Using Rural Panel Data... 123

Table 4.1. Vietnamese Agricultural Production: Selected Crops 136

Table 4.2. Household Agricultural Holdings, Income Source, and Debt Use by Farm Size 138

Table 4.3. Sources of Borrowed Funds in Communes 140

Table 4.4. Vehicles for Savings, 2020 141

Table 4.5. Proportion of Households with a Bank Account, 2020-2021 142

Table 4.6. Reasons for Not Having a Bank Account, 2014 142

Table 4.7. Information Technology Access for Farmers and Nonfarmers, 2020-2021 143

Table 4.8. Indicators of Financial Inclusion from Findex Survey, 2017 144

Table 4.9. Principal Banks in Viet Nam 146

Table 4.10. Microfinance Lending and Saving (c. 2015) 147

Table 4.11. Vietnam Bank for Social Policies in Comparative Perspective 147

Table 4.12. Lending to the Bottom of the Pyramid (2007) and Microfinance Lending (2013) 151

Table 4.13. Sources of Borrowing by Agricultural Households 152

Table 4.14. Annual Interest Rates by Lender 154

Table 4.15. Uses to Which Agricultural Households Put Their Loans 155

Table 4.16. Models of Borrowing for All Debt and for Agricultural Debt, Viet Nam, 2014 156

Table 4.17. Measures of Loan Churning in Rural Viet Nam, 2004-2008 162

Table 4.18. Descriptive Statistics for 2006 164

Table 4.19. Estimates of the Impact of Vietnam Bank for Social Policies Credit on the Natural Log of Real Consumption per Capita:... 167

Table 4.20. Estimates of the Impact of Vietnam Bank for Social Policies Credit on Outcomes: Intention-to-Treat Model 169

Table 4.21. Estimates of the Impact of Vietnam Bank for Social Policies and Agribank Credit on Outcomes: Quantity-of-Credit Model 171

Table 5.1. Agricultural Credit Disbursement in Bangladesh by Institution Type in 2021-2022 191

Table 5.2. Distribution of Agricultural Loans by Palli Karma Shahayak Foundation, Fiscal Years 2011-2012 to 2020-2021 193

Table 5.3. Sector-Wise Distribution of Microenterprise Loans, 2016-2017 and 2020-2021 194

Table 5.4a. Efficiency of Rajshahi Krishi Unnayan Bank 196

Table 5.4b. Efficiency of Bangladesh Krishi Bank 197

Table 5.5. Indicators of Efficiency of Bangladeshi Microfinance Institutions 198

Table 5.6. Financial Inclusion for Agriculture: Bangladesh, India, and Developing World, 2021 205

Table 5.7. Incidence of Borrowing from Alternate Sources and Share in Total Loans 208

Table 5.8. Distribution of Main Purpose by Source of Borrowing 209

Table 5.9. Panel Estimates of the Impacts of Cumulative Amount of Borrowing on Household Income (P-score Weighted Household Fixed Effects) 212

Table 5.10. Share of Credit-Constrained Borrowers for Alternate Borrowing Sources by Farm Size 214

Table 5.11. Panel Estimates of the Impacts of Loan Volume and Credit Constraints on Household Income (P-score Weighted Household... 215

Table 5.12. Marginal Return to Household Borrowing on Household Income based on Table 5.11 217

Table 5.13. Panel Estimates of the Impacts of Borrowing Status and Credit Constraints on Household Income (P-score Weighted Household... 218

Table 6.1. Percentage Distribution of Rural Households' Cash Loans Across Institutional and Noninstitutional Sources, by Cultivator/Non-Cultivator Status 244

Table 6.2. Share of Households Across the Distribution of Landholdings 248

Table 6.3. Source of Borrowing in Agriculture: Largest Loan Taken in the Last 5 Years, 2011-2012 251

Table 6.4. Ordinary Least Squares Regressions of Household Characteristics Associated with Borrowing 255

Table 6.5. Ordinary Least Squares Regressions of Changes in Agricultural Outcomes from Agricultural Borrowing 257

Table 6.6. Ordinary Least Squares Regressions of Changes in Agricultural Outcomes from Nonagricultural Borrowing 260

Table 6.7. Ordinary Least Squares Regressions of Changes in Outcomes from Household Borrowing for Agriculture, by Landowning Distribution 261

Table 6.8. Ordinary Least Squares Regressions of Changes in Outcomes from Household Borrowing for Agriculture: Effects of Source... 263

Table 7.1. Selected Development Indicators Across Regions, Excluding Organisation for Economic Co-operation and Development and... 271

Table 7.2. Access to Finance in Global Regions, Excluding Organisation for Economic Co-operation and Development and High-Income Countries 273

Table 7.3. Borrowing in Global Regions, Excluding Organisation for Economic Co-operation and Development and High-Income Countries 276

Table 7.4. Borrowing by Different Account Holders in Global Regions, Excluding Organisation for Economic Co-operation and High-Income... 279

Table 7.5. Selected Financial Indicators of Ethiopia 288

Table 7.6. Lending in Agriculture in Ethiopia 289

Table 7.7. Access to Finance by Farmers in Ethiopia from Household Survey Data 290

Table 7.8. Borrowing by Farmers in Ethiopia from Household Survey Data 290

Table 7.9. Uganda's Financial Sector Presented in Tiers 295

Table 7.10. Borrowing by Farmers in Uganda from Household Survey Data 305

Table 7.11. Purpose of Borrowing by Farmers in Uganda from Household Survey Data 306

Table 7.12. Impacts of Borrowing by Farmers on Farm Income in Uganda 308

Table 8.1. Agricultural Outcomes, Latin America and Selected Countries, 2000-2021 320

Table 8.2. Background Information on Income, Agriculture, and Trade 321

Table 8.3. Measures of Financial Inclusion for Farmers, 2021 328

Table 8.4. Reasons Given by Farmers for Not Having a Bank Account, 2021 329

Table 8.5. Main Source of Emergency Funds over 30 Days for Farmers 330

Table 8.6. Farm-Related Credit to Farmers: Sources, Uses, and Reasons for Denial or Not Applying, 2014 332

Table 8.7. Frequencies of Rationing Mechanisms 334

Table 8.8. Outcome of Microfinance Lenders, 2018 335

Table 8.9. Allocation of Funds from the National Program for Strengthening Family Farming by Region (2007) and Regional Breakdown... 338

Table 8.10. Household Characteristics of Borrowers and Non-Borrowers 339

Table 8.11. Income Characteristics of Borrowers and Non-Borrowers 341

Table 8.12. Probit Regression Results: Dependent Variable Is Whether a Household Borrows 341

Table 8.13. Characteristics of Farmers Who Sought Loans, 2014 344

Table 8.14. Correlates of Loan Applications and Their Success, 2014 345

Table A9.1. Recent Examples of Digital Finance Targeted to Agriculture 378

Boxes 11

Box 6.1. Major Policies Since the Late 1990s to Expand Agricultural Institutional Credit 236

Box 6.2. Main Sources of Institutional Lending for Agriculture 237

Box 7.1. Government Efforts to Engage Formal Finance in Agriculture 296

Box 7.2. Pre-Pandemic Policy Efforts by the Uganda Government to Improve and Sustain Microfinance 299