Research & Analysis

Early Insights from Financial Diaries of Smallholder Households

Renato and Hecinta are raising six young children in a rural area of Mozambique’s northern Nampula Province. On just half a hectare, they grow rice, maize, beans, cashew, peanuts, cabbage, and tomatoes, selling what they can and eating the rest. But, like many of the 475 million smallholder households worldwide, agricultural production is just one of their many income-generating activities. They balance several sources of income, within and outside of agriculture, while juggling a range of family needs and using an equally diverse portfolio of financial tools.

Smallholder households like Renato and Hecinta’s represent the largest global segment by livelihood of people living on less than US$2 a day. They are a financial inclusion imperative, facing a unique set of financial needs that are not yet fully understood and are far from being met. Smallholder families have specific financial needs arising from agricultural production that are complicated by a number of factors: income from farming is often erratic and infrequent; agriculture requires costly inputs and investments at specific times of the year; and families involved in farming are exposed to risks from pests, droughts, floods, and other environmental shocks. However, smallholder families have other financial needs as well, particularly since very few of them are able to earn enough from agriculture alone. Most households typically earn income from a variety of nonagricultural sources as well, including the sale of their labor and management of off-farm enterprises. Smallholder households are also consumers, giving rise to a yet another set of financial needs, as they manage common issues such as paying regular expenses, covering school fees, responding to emergencies, and financing family milestones such as weddings.

Renato and Hecinta’s household is part of the Smallholder Households Financial Diaries project (the “Smallholder Diaries”) launched by CGAP in June 2014. The Smallholder Diaries are designed to enhance the understanding of the financial lives of smallholder families by capturing the cash flows of 270 households in Mozambique, Tanzania, and Pakistan over one year of their lives. At the end of the research, the extensive data will generate a balance sheet for each family that details all their sources and uses of income, highlighting the interplay among cash flows, the role of in-kind agricultural income, the financial tools in use, and the pain points where additional or improved financial tools could add value.

The Smallholder Diaries will provide a holistic picture of the financial lives of smallholder households not only as agricultural producers, but also as consumers, laborers, and off-farm entrepreneurs. The ultimate goal of this research is to translate the insights from the Smallholder Diaries into financial tools and provider practices that more effectively respond to the needs and preferences of this important client group. Drawing on initial data, this Focus Note shares early insights from the Smallholder Diaries, providing a first look at how smallholder households weave together agricultural and nonagricultural sources of income and employ a range of financial tools to meet their families’ needs. A nuanced picture of smallholder families will continue to emerge as more data are collected, with increasing focus on how they anticipate and manage risk, make household financial decisions, and leverage a range of financial tools.