Agricultural Finance Constraints and Innovative Models Experience for Ethiopia: Emprical Evidance from Developing Countries

Abstract

Efficient agriculture, agro-processing industries, and related distribution and logistics chains are essential elements of human development. In most developing countries, agriculture and agricultural value chains are inefficient and unproductive. Production yields fall short of potential, and products are spoiled during storage and transport. Crops regularly fail for various reasons, even though risk management and mitigation strategies exist. Lack of finance is one of the reasons why agricultural productivity in developing countries and Ethiopia in particular is very low. Recent studies confirm that the lack of agricultural finance is as pressing as ever. In spite of government programmes undertaken over the years, supply and demand for financial services continue to be mismatched, both in terms of the types and the volume of services. Government policies have not been able to remedy these shortcomings. Nevertheless, recent innovations in agricultural finance have created renewed interest in the sector. Such innovations include value chain finance approaches involving traders and processors, warehouse receipt finance, agricultural (index) insurance, (rural) microfinance, just to name a few. Building on these positive developments, this study will attempt to contribute ideas based on recent experiences with innovation from developing countries in order to spur more innovations in rural finance. Thus, this study aimed to identify constraints that keep the financial sector from serving agriculture effectively and agricultural finance innovations to mitigate these constraints.

Keywords: agricultural finance, constraints and innovative models, empirical evidence