Financial institutions and investors must consider cash flow based lending which is best suited for “un-bankable” business owners that have a regular cash flow but have personal credit issues. In this scenario, loans are based on the cash flow of the business instead of the credit rating of the owner and usually do not exceed a certain percentage of annual cash sales. Any smallholder farmer that keeps a record of his/her transactions can then qualify.
Financial support for farmers and agribusinesses is poorly understood, however at the Global Conference for Agricultural Research in Johannesburg recently, Calvin Miller, Group Leader of the Agribusiness Finance Group at the UN Food and Agriculture Organization (FAO), presented some recommendations for all actors in the value chain that may just make agri-financing accessible.
Worldwide, agriculture is a major source of income for the rural poor, and agricultural growth has been shown to help reduce rural poverty. Access to finance is one way to achieve this growth. Mr Miller says that agribusinesses that look for financing must understand their market demand and how their outputs respond to that demand. Since the lending institutions do not have the competence to assess individual market demand, the burden is on the borrower to do so. Because the market is at the one end of the value chain and the farmer is at the other, solutions to access to finance depend on the actors…
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