Risks and opportunities of non-bank-based financing for agriculture: the case of agricultural value chain financing

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For several years, development agencies have supported non-bank-based financing for agriculture, recognizing its potential to alleviate financing constraints in the private sector, exemplified by agricultural value chain financing. However, the risks and opportunities associated with these financing methods for both the financial sector and agricultural development remain unclear. This study aims to address this gap by exploring the implications of agricultural value chain financing. It reviews existing literature, analyzes practical experiences, and conducts expert interviews to identify the key advantages and disadvantages of non-bank-based financing. Additionally, it discusses policy measures to mitigate potential risks, such as inadequate consumer protection. The findings emphasize the importance of addressing these risks, as non-bank financing is unlikely to be fully replaced by formal financial institutions. Even as financial sectors evolve and become more sophisticated, there will always be niches for non-formal financial intermediaries, particularly for specialized, small, or urgent loan requests that commercial banks may not effectively serve.