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The long-term growth and development of agricultural markets depends on access to a range and volume of capital which, over time, naturally eclipses governments’ ability to provide that capital directly. As private capital markets and financial service providers become involved in the agricultural finance market, the challenge for governments becomes how to appropriately create, incentivize and regulate space for the private sector. As countries move to higher levels of agricultural productivity, more mature agricultural markets, more sophisticated banking systems, and larger farm sizes, the commercial business case for financial service provision emerges. However, this process can take decades and often remains incomplete with some market segments requiring on-going subsidy to attract financial services. Questions remain: How to accelerate the participation of private sector financial service providers while markets are still developing? How to do so in ways that are aligned with national development goals, including transitioning subsistence farmers to viable livelihoods and ensuring domestic food security?
This Briefing Note builds on previous analysis of the natural stages of agricultural finance and interrogates more deeply the transition that coun-tries make from government-led to more bank-led agricultural finance. By adding the historical experiences of Mexico, Turkey, and Uganda (as well as other specific initiatives in other coun-tries around the world) to past research by ISF Advisors into the United States, Germany, and South Korea, we gain a greater understanding into the unique approaches that different coun-tries have taken to make this transition. While these approaches are heavily influenced by each country’s macro-level approach to managing the economy, analysis shows the importance of meso-level enablers and more direct micro-level interventions. As we unpack government actions into these different levels and acknowledge the dynamic interplay between the agricultural and finance sides of the market we create a more systemic view of these historical experiences.