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The Government of Indonesia is aiming to diversify the country's food system by developing and strengthening high-value-added and more nutrient-rich value chains. In this regard, the government is focusing on diversifying into horticulture and small ruminant livestock. Undertaking Value Chain Analysis (VCA) is a critical part of this process as it helps in the identification of constraints and opportunities in relevant sectors. Agriculture funding and finance are vital components of this analytical process. This report presents a preliminary overview of opportunities and constraints as well as areas for future interventions. The analysis is based on a World Bank and FAO scoping mission to Indonesia that took place between March 2 - March 13, 2020. This report focuses on the supply-side of capital. The key findings suggest that supply-side constraints are minimal. The liquidity in Indonesia's banking system is enough and there already exist extensive physical banking networks within the country. The Indonesian banking networks include a selection of commercial and specialized banks, membership-based groups, and fintech organizations. Also, there exist several large food manufacturers that could potentially aid in the process of financing and the creation of linkages through vertical integration of value chains. The Small and Medium Size Enterprises (SMEs) in the food and agriculture sectors have been growing strongly, and they can act as accelerators and facilitate the process. The Indonesian government is supporting the development of value chains and has been actively promoting the creation of farmer organizations to aid the process. Lastly, there exists a demand for the creation of a blended finance facility that could help amplify the effects of the value chain projects, and the Tropical Landscapes Finance Facility (TLFF) is a proof of such a concept that is working well in Indonesia.
This report describes the present state of agricultural value chain finance in Indonesia and suggests policies that could help expand its availability where formal financial services have been unable to meet value chain actors’ needs. We first consider the features of a policy environment needed for agricultural value chain finance to flourish. Key points related to the policy environment are: Allow interest rates for loans from the formal sector to be priced by the market; Support secure, inclusive payment systems and transaction frameworks; Develop a legal framework that supports both the use of movable collateral in loans and a warehouse receipts system; Develop a legal and/or regulatory framework that supports contract farming among smallholders; And allow for a more open, technology-driven financial architecture that facilitates market entry among nontraditional financial service providers.
The study is a result of the growing interest on the part of FAO on the analysis and use of financial technology (fintech) applications as effective enablers of financial inclusion for smallholder farmers, as well as that of other financially underserved actors active in the agricultural value chains of developing and emerging countries. Many of these countries have witnessed, in recent years, an exponential rise in the number and variety of fintech start-ups focused on the agriculture sector, which have emerged with the specific intent of seizing the enormous clientele segment composed of small-scale rural actors whose financial needs are not adequately serviced by traditional financial institutions, such as commercial banks, microfinance institutions, and financial cooperatives The objective of this publication is to analyse and illustrate some of the most interesting business models and innovations brought forward by fintech companies that have sought to address the common financing constraints associated to small-scale agriculture all around the world, showcasing in particular the challenges they have faced to become profitable and sustainable, the solutions they have found to overcome such challenges, the positive developmental externalities that they have generated through their activity, and the possible lessons that can be drawn from their experience which can inform further replications or adaptations of their specific model in other contexts.
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This book expands the theory that poverty in the world's poorest regions could be eased by providing loans to microentrepreneurs. This volume presents empirical evidence drawn from comparative experiences in seven developing countries.