Policy Instrument:

Inclusive credit, insurance and financial services

Keywords: Financial Inclusion; Economic Inclusion; Climate Resilience; Insurance; MSMEs; Gender Equality

Definition

Access to finance refers to the ability of individuals, households, and enterprises to obtain and effectively use a range of appropriate, affordable, and timely financial services, including credit, savings, insurance, payment systems, and grants, to support their productive activities, manage risks, smooth consumption, and invest in long-term development opportunities.

Rationale

Access to finance (e.g, credit, insurance, grants) plays a critical role in strengthening the productive and investment capacity, earnings and resilience of both rural and urban actors. It is a vital enabler and a key instrument in the policymaker’s and strategy/programme formulator’s toolbox for achieving an array of development objectives.

In many countries, despite recent progress, large disparities persist among actors in terms of their access to finance. The gap is particularly important for smallholder farmers, poor individuals living in urban areas, micro and small size agri-enterprises, women, youth, Indigenous Peoples, people with disabilities and other disadvantaged groups. The gap is biggest for long-term finance that is critical for investments, and bigger still for green and climate finance.

This policy instrument presents several interventions aimed at promoting access to finance for the target beneficiaries mentioned above. These can be conceived as stand-alone interventions or components within a broader development programme/project, often complemented by other interventions that can strengthen the capacity of the actors to access financial services, such as skills development mentoring, business management training, strengthening market linkages, promoting aggregators and some forms of vertical integration, enhancing diversification, etc.

Key interventions

Financial inclusion programme for small-scale family farmers (SSFFs): This seeks to promote SSFFs’ financial inclusion through a series of layered and well-sequenced interventions. Typically, the programme provides participatory assessment of needs, as well as financial education, access to savings and insurance, training for financial institutions (FIs) to expand their outreach, and access to finance in the form of credit lines, revolving funds, matching grants, partial guarantees, etc. The programme also integrates complementary (non-financial) activities that promote access to land, inputs, and other productive resources; enhance market access; support value addition; and foster non-farm employment opportunities and training.
Inclusive insurance and/or and /or compensation schemes: Farmers, particularly smallholders, often have limited access to risk financing tools and services that can provide protection from the resulting financial losses. Governments can support climate-vulnerable households to manage these risks and reduce vulnerabilities using an integrated set of risk management strategies that include access to inclusive insurance, risk reduction measures and financial services. These tools complement each other and provide support for different risk severity levels, enabling individuals to manage a variety of risks. Inclusive insurance is a tool unlocking access to unserved and underserved populations to appropriate insurance cover to provide protection against risks affecting their lives, health, income, agriculture, business, property, credit, amongst others. Specifically, climate risk insurance describes a set of instruments for financial risk transfer that provides protection against risks arising from weather events that are increasing in frequency and severity because of climate change. Agriculture insurance transfers risks of stakeholders of agriculture value chains so they can cope with financial losses due to those events. Examples include: (i). Subsidized insurance schemes for small-scale livestock farmers (extending insurance coverage to small-scale livestock farmers with strong public sector financial support); and (ii). Compensation scheme for incentivizing early reporting of notifiable livestock disease (the compensation can cover live animals, but also consequential losses).
Programme to unlock inclusive green and climate finance for small-scale actors in the agrifood sector: The programme promotes value-chain finance arrangements to bring green and climate finance to smallholder producers and other small-sized actors. It strengthens collaboration with local scientific and research institutions, community-led initiatives and FIs for localized solutions suitable to these small-scale actors. In addition to improving the bankability of would-be beneficiaries, the programme focuses on de-risking green agricultural investments and financing by leveraging the broader facilitating/ enabling/ catalysing role of the public sector. Key components include technical support on ecosystem and enabling environmental aspects (e.g., adequate regulatory frameworks, incentive structures), linking up with concessional sources of finance, and the innovative use of financial instruments such as matching grants schemes and specialized credit guarantee funds to improve risk-return ratios.
Strengthening youth’s and women’s financial inclusion: The programme focuses on capacity building and mentoring, asset creation, and the development of alternatives to conventional collateral and grants. This also includes inclusive digital financial education to help women and young farmers effectively use mobile banking and other digital financial services based on their needs and available assets having in mind digital gaps.
Matching grants provision: The main goal of this programme is to support smallholder producers and agricultural micro, small, and medium-sized enterprises (MSMEs) to improve their productivity, resilience, and capacity to access further financing. Such grants can be used, for example, for technical assistance, working capital and farm-level investments to promote the application of innovative technologies, sustainable agricultural practices and climate-resilient solutions.
Integrated approach to agricultural cooperative marketing based on service complementarity: This intervention combines the provision of financial services to small-scale producers through Savings and Credit Cooperative Organisations (SACCOs) with marketing services through Rural Producer Organisations (RPOs) and Area Cooperative Enterprises (ACEs).
Financing windows (credit) to promote climate-smart agriculture;
Specific financial facilities such as partial credit-guarantee schemes for improving access to finance for women farmers;
Revolving funds for a sustained cycle of loans available to SSFFs;
Promote inclusive digital finance including digitalization of FIs services to improve outreach and service delivery in rural areas, expansion of mobile money and branchless banking to benefit farming communities, etc.

Poor individuals living in urban areas, micro, small and medium-sized enterprises (MSMEs), small-scale producers across different agricultural value chains, encompassing farming, livestock, fisheries and aquaculture. Focus is given to particularly marginalized sub-categories, such as:

Women,
Youth,
Indigenous Peoples,
Pastoralists
Migrant workers,
People with disabilities.

Overview

A growing body of empirical literature demonstrates that access to inclusive financial services, including credit, savings, and insurance, plays a significant role in improving agricultural productivity, strengthening resilience to shocks, and reducing poverty among smallholder farmers. Financial services enable farmers to invest in productivity-enhancing inputs such as improved seeds, fertilizers, irrigation technologies, and machinery, thereby increasing yields and household incomes (FAO and IPA, 2024; Armendáriz and Morduch, 2010).

Evidence indicates that improved access to credit can significantly increase farmers’ investment in agricultural technologies and inputs, including fertilizers, irrigation infrastructure, and mechanization, ultimately leading to higher productivity and farm incomes (Adjognon, Liverpool-Tasie and Reardon, 2017). Agricultural insurance also plays a crucial role in risk management. Weather shocks, pest outbreaks, and price volatility can significantly affect farm incomes and food security. Evidence suggests that access to insurance can encourage farmers to adopt higher return but riskier technologies and increase investment in agricultural production (Cole et al., 2013; Carter et al., 2017).

Evidence from selected countries

Brazil: Brazil has implemented several programmes aimed at expanding access to financial services for family farmers and rural entrepreneurs. The Program for Strengthening Family Farming (PRONAF) provides subsidized credit to family farmers to support agricultural investments and productive activities. The programme has significantly expanded access to institutional credit among smallholders, enabling investments in productive assets and improved technologies. Estimates from a study by Silva and Ciríaco (2022) shows that those who participate in PRONAF have an average income 29.3% higher compared to non-beneficiaries. Additionally, initiatives such as the National Program for Productive-Oriented Microcredit (PNMPO) provide microcredit to low-income entrepreneurs, including rural households, to promote income generation and small-scale enterprise development. In addition, the Harvest Guarantee (Garantia-Safra) programme provides financial compensation to farmers in drought-prone regions when crop losses occur, helping stabilize incomes and strengthen resilience to climate shocks (Kühne, 2020).

India: India has implemented the Pradhan Mantri Mudra Yojana (PMMY) as part of its strategy to expand financial inclusion and support micro-entrepreneurship. Launched in 2015, the programme provides collateral-free loans to micro and small enterprises in the non-corporate, non-farm sector, through banks, microfinance institutions, and other financial intermediaries. A study conducted by Rathee and Aggarwal (2025) using a sample of 360 women entrepreneurs in Haryana found that 67% of respondents reported business expansion after receiving PMMY loans. The study also found that access to the loans also led to business start-ups as 54% of respondents started their enterprise using PMMY credit.

China: China has implemented targeted microcredit programmes to support productive investments among poor rural households. These programmes provide subsidized credit to farmers and rural entrepreneurs, enabling them to invest in agricultural production, small-scale businesses, and other income-generating activities. The initiative formed part of China’s broader targeted poverty alleviation strategy and contributed to expanding financial inclusion among rural populations who previously had limited access to formal financial institutions. Evidence suggests that access to microcredit increased agricultural production income among poor rural households in China by approximately 6,000–8,000 yuan annually (Yu et al., 2020).[1]

Pakistan: Empirical analysis indicates that access to agricultural credit is associated with 26–32 percent higher farm income among credit recipients, with most borrowed funds allocated to productivity-enhancing inputs such as fertilizer and improved seeds (Riaz et al., 2026).

Rwanda: An empirical study by Ali, Deininger, and Duponchel (2014), based on a large nationally representative survey conducted by the World Bank, suggests that removing credit constraints could increase agricultural output by 17 percent.

References

Adjognon, S., Liverpool-Tasie, L., & Reardon, T. (2017). Agricultural input credit in Sub-Saharan Africa. Food Policy.

Ali, D. A., Deininger, K., & Duponchel, M. (2014). Credit constraints and agricultural productivity: Evidence from rural Rwanda. Journal of Development Studies, 50(5), 649–665.

Armendáriz, B., & Morduch, J. (2010). The Economics of Microfinance. MIT Press.

Carter, M. R., de Janvry, A., Sadoulet, E., & Sarris, A. (2017). Index insurance for developing country agriculture: A reassessment. Annual Review of Resource Economics, 9, 421–438.

Cole, S., Giné, X., Tobacman, J., Topalova, P., Townsend, R., & Vickery, J. (2013). Barriers to household risk management: Evidence from India. American Economic Journal: Applied Economics, 5(1), 104–135.

FAO and IPA. 2024. Accessing finance to invest in agrifood – A review of experimental evidence. Investment Brief. Rome.

Kühne, E. (2020). Building climate resilience through social protection in Brazil: The Garantia Safra public climate risk insurance programme (Policy Research Brief No. 70). International Policy Centre for Inclusive Growth (IPC-IG).

Rathee, S., & Aggarwal, D. (2025). Examining the interrelation between microcredit, entrepreneurship and women’s empowerment: An insight into the effectiveness of PMMY. SEDME: Small Enterprises Development, Management & Extension Journal.

Riaz, M., Dehong, L., Haider, I., Nawaz, H., & Khan, A. A. (2026). Heterogeneous effects of agricultural credit on productivity and sustainability: farm-size dynamics in Pakistan’s agricultural sector. Frontiers in Sustainable Food Systems, 10, 1687052.

Silva, S. P., & Ciríaco, J. D. S. (2022). Análise do efeito do Pronaf sobre a renda de agricultores familiares no meio rural nordestino. Instituto de Pesquisa Econômica Aplicada (IPEA), Texto para Discussão No. 2827.

UNDP (2023). Agriculture Insurance for Smallholder Farmers in Mexico – Tripartite Agreement Project: Fact Sheet. Insurance and Risk Finance United. Nations Development Programme.

Yu J, Han X, Chen B, Ren J (2020). Estimating the Impact of Poverty Alleviation Microcredit on the Income of Poor Households Using the Propensity Score Matching Method: Evidence from China. Agriculture.10(7):293.

For the adequate implementation of such interventions, it is essential to be able to leverage local partners from the public and non-profit sector capable of providing the types of capacity building mentioned in the description (e.g. financial education, business skills, training for FIs).  A possible risk is providing partner FIs with unfair competitive advantages over other types of private financial providers that seek to finance poor individuals in urban areas and small actors in rural and agricultural areas, on account of the support provided by the intervention to the partner FIs.

Additional risks relate to the availability of complementary non-financial services to farmers, such as extension services and business development services, which are essential for the success of financial inclusion initiatives.

Furthermore, there may be limited interest among FIs to partner or to provide loans without additional incentives such as guarantees, subsidies, or tax breaks. These factors underscore the importance of a supportive enabling environment to ensure programme success.

The availability of public resources for implementing the insurance schemes for livestock farmers, pastoralists and others. In addition, agencies implementing the scheme must be able to audit farms to ensure farmers comply with the minimum requirements agreed as part of the contracts.

On the “compensations scheme”, it is important to note that governments require allocating enough funds to cover the stock of animals that must be killed to prevent further spread (estimated around 10% of the stock), as well as an efficient system to estimate and transfer the funds to individual livestock owners in a short period of time. Furthermore, the following are prior conditions required for the success in implementation of inclusive insurance interventions:

Special consideration should be made to ensure that the most vulnerable households are not excluded from accessing insurance schemes;
Strong alignment, coordination and capacity building of governments, private insurers, donor agencies, NGOs and other public and private sector stakeholders is critical;
Sustainability of insurance schemes should be part of any initial programme design, that define the financing sources and potential premium contribution mechanisms.

c) support access to basic services (education, health, water and sanitation and housing), productive assets, appropriate technology (prioritizing low-carbon options), information, integrated social and economic inclusion programmes, skill building (including technical assistance and extension services in rural areas), financial inclusion, decent employment creation and access to safe, nutritious, and sufficient food (e.g.,home-grown school meal programmes) (SDG targets 1.4, 2.1 and 2.2), e) target smallholder farmers (family farmers, forest dependent groups, fisherfolks, pastoralists) and among them those more likely to be left behind (e.g. women, youth, elderly, indigenous populations, communities which are land-locked or living in isolated areas, pastoralists, fishers, forest dwellers) with a view to increasing their productivity and incomes through secure and equal access to land, other productive resources and inputs, knowledge, financial services, remittances and diaspora contributions, access to credit and markets, including institutional markets, and opportunities for value addition as well as non-farm employment (SDG target 2.3) and promoting rural and territorial development, and h) reduce the exposure and vulnerability and increase the resilience of poor and vulnerable populations to climate related-extreme events and social, economic, and environmental shocks and disasters, as well as their capacity to properly respond to these shocks, when they occur (SDG targets 1.5 and 2.4)

SDG 8  - Decent work and economic growth

Target 8.3 - Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services.
Target 8.10 - Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all.

SDG 9 - Industry, innovation and infrastructure

Target 9.3 - Increase the access of small-scale industrial and other enterprises, particularly in developing countries, to financial services, including affordable credit.