How farmers’ access to finance boosts investment in agrifood systems

The FAO Investment Centre, in collaboration with Innovations for Poverty Action (IPA), has launched a new Investment Brief, titled Accessing finance to invest in agrifood: A review of experimental evidence, which provides critical insights into how access to finance can empower farmers and small and medium-sized enterprises (SMEs) in lower-middle-income countries (LMIC) to invest in the agrifood sector.

Drawing on 43 experimental and quasi-experimental studies, the research reviews the economic benefits of financial services for farmers and firms, and highlights the barriers that limit access.

Focusing on three key areas – credit, risk, and savings – the brief brings together evidence underscoring the significant role that financial products can play in boosting agricultural productivity and improving livelihoods.

Yet, the findings also reveal persistent challenges to accessing finance, particularly in rural areas, where formal financial services remain limited.

“This brief provides policymakers and investors with actionable insights into how access to finance can unlock new opportunities for farmers and entrepreneurs,” said Mohamed Manssouri, Director of FAO’s Investment Centre. “The findings from this review can help policymakers refine approaches to boost access to finance for farmers and firms that need them the most.”

Unlocking investment and market access

The experimental evidence presented in the brief highlights how access to credit – particularly microloans – can enable farmers to invest in technology and inputs, access new markets, and drive increased productivity.

For instance, studies from Uganda show that credit facilitated the use of fertilizers, which doubled crop yields. In Kenya, collateralized loans for water tanks led to a significant increase in loan uptake, demonstrating that when financial products align with local needs, they can spur investment and improve farm-level outcomes.

Yet, the success of credit interventions often depends on context. In some regions, wealthier farmers are more likely to benefit from loans, while poorer farmers may face challenges in accessing credit, due to factors like collateral requirements or limited financial literacy.

The findings emphasize that tailored credit products are essential to ensure that smallholder farmers can access them to enhance their productivity and incomes.

Savings products

Financial savings products, especially those aimed at women farmers and entrepreneurs, are another key focus. In Mozambique, mobile savings accounts enabled farmers to accumulate funds and invest in fertilizers, leading to improved agricultural productivity.

The flexibility of mobile savings, combined with high-interest incentives, encourages farmers to save more consistently. This, in turn, helps build financial resilience, allowing farmers to manage cash flow and invest in long-term agricultural improvements.

Village Savings and Loan Associations (VSLAs) are particularly effective in rural communities. These community-based savings groups enable members to pool their resources, providing access to credit and capital for investment.

VSLAs are especially beneficial for women, empowering them to invest in agriculture, and contribute to their households’ economic security.

Mitigating risks

The key role of agricultural insurance in managing risk is another important finding. While insurance products can stabilize incomes and protect farmers from climate-related shocks, their uptake is often influenced by product design and local conditions.

In Kenya, flexible premium payments tied to harvest seasons resulted in higher adoption rates of agricultural insurance. This design innovation helped farmers manage their cash flow, making insurance more accessible.

By contrast, in Ethiopia and India, factors such as risk aversion, low trust in insurance providers, and price sensitivity hinder broader uptake of agricultural insurance products.

Paths forward

The brief offers crucial guidance for policymakers and financial institutions, emphasizing the importance of understanding barriers to access to finance for agrifood systems.

“Policymakers need better data and evidence to design flexible financial products that enhance access and measure long-term impacts on livelihoods,” said Claudia Casarotto, Chief Global Programs Officer, Innovations for Poverty Action. “While credit, savings, and insurance products can drive agricultural investment and resilience, their adoption  hinges on liquidity, awareness and social dynamics.”

By highlighting how access to financial products and services can enhance investment, productivity and farmers' livelihoods, these findings can help policymakers tailor policies to pave the way for fostering sustainable agrifood systems and supporting rural economic growth.