Financial systems development

Financing small and medium-sized enterprises and agricultural financing

Farming in Cochabamba, Bolivia.

More than 45 per cent of small and medium-sized enterprises (SME) in low-income coun­tries have no opportunity to take out a formal loan, because no suitable provider of financial services is available: for microfinance institutions, the loans needed by SMEs are too high, but for commercial banks it is still too low. Since up to 45 per cent of the workforce in de­vel­op­ing counties work in SMEs, which generate more than 30 per cent of the coun­tries’ gross domestic product, this gap in the supply of financial services has dramatic consequences.

Financing SMEs in the ag­ri­cul­tur­al sector is a special challenge. This is a sector marked by seasonal income cycles and across-the-board risks in de­vel­op­ing coun­tries. A tropical storm, for instance, can wipe out the harvest of entire regions.

It is the declared goal of German de­vel­op­ment co­op­er­a­tion to expand the provision of needs-driven financial services for individuals and SMEs in rural areas. To this end, German de­vel­op­ment co­op­er­a­tion uses a wide range of financing instruments. Guarantees, harvest insurance schemes and loans are used to strengthen ag­ri­cul­tur­al value chains. Agricultural production is increased and employment boosted, thus helping ensure food security.

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