Farmers who produce for the market need financing to maintain and improve their agricultural production. Banks in developing countries are looking for business investment opportunities. But what is needed to match the interests of farmers and bankers?

To answer this question we need to understand, firstly, that agriculture follows the seasons and that therefore most farmers have a seasonal pattern in their cash flow. Their expenses are highest during the growing season, with peaks at planting and harvesting. It is only when selling their produce after harvesting that cash will start coming in. This seasonal pattern is also reflected in the prices: most farmers have no choice but to sell when prices are at their lowest. Farmer organisations that have the ability to bulk produce still need to balance the seasonal patterns with market opportunities. Farmers and their organisations are therefore interested in financial services that can help them overcome the seasonal constraints. Some farmers have themselves organised saving and credit schemes for this purpose.

On the other side are the banks and other financial institutions that look for opportunities to sell their financial services. Often, however, they have difficulties expanding into rural areas. First, transaction costs are higher due to poor infrastructure, reduced value of land and livestock as collateral, and the fact that potential clients live far apart. Secondly, the risks are higher due to the low level of capitalization of rural entrepreneurs and the seasonal peaks in demand. The strategies that these banks use to target poor consumers and small entrepreneurs in towns, may not apply to the countryside. Banks, in short, need a better understanding of the agri-business.

The Agri-ProFocus network wants to help bring about a better match between farmers and bankers. This is done through three main activities:

• Help farmers improve their business so that they can qualify for the services that banks have to offer.
• Help banks improve their knowledge about agriculture and the financing needs of farmers.
• Initiate and coordinate exchange and learning events that bring together farmers, bankers and other stakeholders. Value chain finance is an important subject for such events. If done effectively, value chain finance will help to increase profits and thus benefit both the actors in the value chain and the financial service providers.