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New ways to understand an increasingly sophisticated market

The rapid evolution of the rural agricultural finance sector over the last three years requires us to re-examine old frameworks, and build out new models to align finance needs with service provision.
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A new rural pathways model moves us from a static understanding of smallholder households based on their characteristics at a particular moment, toward a dynamic view of how households might evolve over time and how their needs change as they move along different development trajectories. The model lays out the different transition pathways smallholder households may take as they pursue increased resilience and agency through various livelihood strategies. These transition pathways coalesce around four centers of gravity — broad categories of livelihoods that rural households may choose to engage with:

  • Farming as a business: Smallholder households remain in primary production. As a smallholder household invests in growing its farming business, it may move from subsistence to more intensified or commercialized farming. Households in this category may eventually transition into a medium or large farm enterprise.
  • Rural services entrepreneurship: Some smallholder households may shift away from primary agricultural production, pursuing entrepreneurship-based livelihood strategies. They may focus on agricultural services (e.g., inputs, veterinary services, processing, or aggregation) or non-agricultural services (e.g., transportation, running a local shop). Micro and small entrepreneurial ventures may eventually grow into medium and large enterprises.
  • Rural labor: Households may remain in a rural area but focus their livelihood strategy on employment that supports the activities of large commercial farms or SMEs. This labor may be agricultural or non-agricultural, formal or informal.
  • Urban migration: Facing enough push and pull factors, a rural household may migrate to an urban area and transition fully to non-agricultural livelihood activities.

It is important to note that, over the course of a lifetime, there will be both forward and backward movement along these pathways. A single household may also change pathways or simultaneously pursue multiple pathways as they adapt to changing priorities. In many of these pathways, rural SMEs may play a vital role. These enterprises can be started by local entrepreneurs moving along pathways #4 or #5, or by urban entrepreneurs who move to rural areas to set up enterprises that provide employment opportunities for those on pathway #6. Thus, the rural pathways model doesn’t just illustrate choices and behaviors on the smallholder household level but offers insights relevant to rural economies as a whole.

Rural Pathways Model: A new way of thinking about rural clients

Why this new perspective matters

The goal of successful financial inclusion strategy is not a single interaction, but rather a long-term engagement that allows smallholder households and agricultural SMEs to improve their economic standing over their lifetime. For financial service providers, this is closely tied to the concept of “customer lifetime value,” where profitability is increased by a relationship that endures and matures over an extended period of time.

By examining the transition points along these pathways, we can begin to understand how a smallholder’s use of financial services and products may change over time. This dynamic understanding will help financial service providers and donors tailor products, bundle offerings, and better communicate with their clients. Perhaps the most striking aspect of the dynamic model is the simple recognition that many rural households will not remain smallholder farmers at all. Therefore, delivering inclusive economic development over time will require a wider range of non-agricultural products and services.


As the rural agricultural finance sector continues to evolve, we need new models to understand an increasingly sophisticated market for service provision. Our new service delivery model typology goes beyond a type of organization to create segments based on two variables: 1) Primary objectives for service delivery and 2) Scope of services offered to rural households and SMEs. By mapping providers’ primary objective for service delivery against their service offering, we can create a new typology that acknowledges why providers are serving rural clients and with what services.

Primary objectives for service delivery

  • Supply security: Providers offer services to farmers or SMEs, often in exchange for a purchase agreement, to ensure a sufficient supply of products for their own business operations. Services offered are a means to an end: the end being the availability of products at the right time, in the right quantity and quality.
  • Service profitability: Providers offer services that, in themselves, are the core business objective. Services are focused on creating monetizable value for the rural household and/or SME and at least one service is profitable on its own (e.g., earning interest on a loan). In some cases, additional services may be offered that are not necessarily profit-motivated, but that can be cross-subsidized to increase overall positive customer value (e.g., advisory services).
  • Client outcomes: Providers offer services to increase the income, wellbeing, independence, and resilience of the rural household or SME. The services themselves are a means to an end: the end being a richer, more resilient household or business.

Scope of services

  • Finance only: The provider only offers financial services to clients. These services may include credit, savings, payments, insurance, and asset financing for farmers; as well as credit, insurance, and asset financing for agricultural SMEs.
  • Finance and productivity-enhancing services: The provider offers a combination of finance and productivity-enhancing and capacity building services to clients. These services include finance and some combination of inputs, training, advisory, or technology for farmers; as well as a combination of finance, business development, technology, and advisory services for agricultural SMEs.
  • Finance, productivity, and market access services: The provider offers finance bundled with productivity-enhancing and market access services to clients. For farmers, this bundle may include finance, inputs, training, advisory, technology, and off-taking or market access services. For SMEs, the bundle may include finance, business development, advisory, technology, and market or partnership-brokering services. Providers may source goods for their own supply security or facilitate access to external markets.

This typology model establishes nine segments of financial service providers. In the current market, within each segment, providers may engage exclusively with either rural households or agricultural SMEs, or may address the needs of both types of clients. When utilizing this new typology, it’s important to note that service delivery model segments are not static. Service providers can have more than one objective and experiment with more than one type of service offering. Providers may inhabit an overlapping space between multiple segments.

Prevalence and examples of service delivery models serving farmers

Prevalence and examples of service delivery models serving agri-SMEs

It is also important to acknowledge that there are various ways that providers are designing their business models to optimize financial sustainability and impact. These design dimensions include, among others, how services are structured and delivered, the extent to which technology is embedded in service delivery, how the customer relationship is approached, and how the provider generates revenue.

Click here to see a snapshot of how different service delivery models are configured using a number of common design dimensions. A given provider can fall anywhere along a spectrum for each of these design dimensions depending on the underlying structure of their model. By mapping providers to these service delivery model design elements, we can drill down for deeper insights into how their model is structured and what differentiates it from other models in the same segment.

Why this new perspective matters

Over time, in response to both existing and new challenges, the diversity and complexity of models for service provision have increased. As a sector, we must continually update our collective understanding of what exists, what is working, and what differences there are between different models. With this more robust typology, we can draw out lessons to help the sector tackle big questions such as: What are the common experiences of different models across the world? What are the most promising innovations? What is the impact potential of a given model? What drives profitability in financial service provision for rural clients? This new typology also allows us to explain the broader ecosystems in which different financial service providers operate.

Perhaps most importantly, this new typology helps us better articulate how to align the three levels of the market: clients, providers, and capital. When combined with the rural pathways model, the service provider segmentation can help us determine what type of service providers are best suited to serve different client segments — and eventually, what types and amounts of capital flows should be directed toward different types of service providers to help them reach sustainability and scale.

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