Understanding Smallholder Demand for Financial Services
Smallholder families represent the largest global segment (by livelihood) of those living on less than $2 a day. With an estimated 500 million smallholder farming households, representing more than 2.5 billion people, understanding how best to support their “growth out of poverty” is an imperative for governments and development practitioners worldwide.
Yet when it comes to serving the needs of smallholder families—especially those in rural areas—one challenge emerges consistently: a lack of information. In this blog series, we’ve explored why deeper understanding of smallholder demand for financial services is so critical: author Roger Thurow gave us a snapshot of smallholder families’ precarious life between harvests; Dan Zook of Dalberg Global Development Advisors outlined how financial service providers can begin to learn more about these lives and the unpredictable income flows that destabilize them; and Lesley Denyes of MercyCorps looked at how smallholder farmers access market and financial information that can help them improve their yields and, with them, their lives.
Photo Credit: Ha Tran Bao
For its part, CGAP is prioritizing targeted demand research on poor smallholder households, working to accurately identify the full spectrum of their financial needs. After all, smallholder families are not only agricultural producers. They are also consumers who have diverse financial needs. We also know that most smallholder families typically earn income from a variety of nonagricultural sources, including the sale of labor and off-farm enterprising, for example. It is in part this diversity that calls for a deeper understanding of what smallholder families experience—from their perspective.
Enter the CGAP financial diaries project, which aims to understand how poor smallholder farmers manage their cash flows at a fine-grained level. It also aims to understand farmer preferences, attitudes, and behaviors.
The project, which will begin in the coming months, will test a range of hypotheses about the financial behavior of smallholder farmers, including whether diversifying income sources may be a more effective path out of poverty than a narrower focus on simply increasing agricultural yields. Related to this are questions around the value proposition of financial services currently available to smallholder farmers as well as the effectiveness of various organizations—from MFIs to funeral societies and cooperatives—in delivering those services. The results of the research will be publically available and disseminated to policymakers, industry, researchers, and others—all to inform the development of financial markets for smallholder farmers.
Throughout, our goals will be to: (i) provide hard, quantitative evidence for a range of potential hypotheses with a number of potential answers; (ii) identify questions that might not have been envisioned in advance; and (iii) challenge long-held assumptions of behavior.
The project, which will be conducted among a sampling of 90 smallholder households in each of Tanzania, Pakistan, and Mozambique will yield new insights into what works—and what doesn’t—when trying to reach smallholder families. As important, though, we hope that these insights will serve as the foundation of informed client-centric financial products, future research, and impact-driven development programs.
Michael Tarazi is a Senior Financial Sector Specialist with CGAP, where he coordinates the organization’s initiative on financial innovation for smallholder families.
This blog post is part of a series on understanding demand for smallholder financing, which brings together a range of perspectives on farming households' array of financial services needs. Read the rest of the posts in the series on the CGAP Blog.