Impact of financial exclusion in agricultural sector

Financial exclusion leaves millions of farmers without opportunities.

There are 5.5 million of farmers in Mexico and 93% of them have no access to formal credits. They are a big part of the total vulnerable sector that is financially excluded. Traditional financial institutions find lending to farmers very risky. New solutions like fintechs and neo banks are becoming very helpful for the unbanked, but they are not focused on the specific needs of the sector and their communication doesn’t reach rural areas. There are various reasons for lack of financing for the agro sector in Mexico:

  • The agro industry is very informal. The majority of the transactions are made in cash as farmers don’t use bank services like debit accounts or credit cards. Lack of financial traceability makes it complicated to estimate the paying capacity of the farmers to issue credits. It becomes a vicious circle, year after year farmers are left outside of the financial system.

  • The majority of farmers are smallholders and due to the volumes of the production they can’t sell directly to retailers or big supply chains. They have to sell through the bigger players. These bigger farmers tend to take advantage of the situation, they buy without invoice and offer unfair prices. It means the real income of farmers is not traceable.

  • Agriculture is a traditional industry in which digital operations and data analysis is not used for optimization of all the processes. That is why it is costly and complicated to reach farmers in remote areas, as big financial institutions can’t ensure succursale presence there.

  • The average education level of the farmers is 5 school years. Lack of access to the educational materials result in lack of financial education. Moreover, farmers are paid once or twice a year. They find it complicated to make financial planning, to prove the financial stability of their business and show the ability to repay the credit.

  • The agricultural activity is risky because it depends on the weather conditions, few farmers want to hire insurance because it means additional cost.

Despite the fact that the sector is really productive, financial institutions don’t see it attractive. They have very complicated requirements for obtaining credits as they have to mitigate all the risks of lending to farmers. As a result farmers can’t fulfill these requirements. They face liquidity problems and are limited to grow with their resources. It directly affects the life quality of farmers in Mexico.

The costs of farmers are very high, they have to pay seeds, fertilizers, agrochemicals, gas for the machinery and renovate the equipment they have. Without financing farmers can’t afford good quality agro supplies for their fields or new machinery. It causes low productivity, low quality of the production and low incomes year after year. Farmers are deprived of the opportunity to use advanced farming tools and techniques that increase crop yields.

This hard economic situation makes farmers leave the fields. What does it mean for the consumers like us? Just in Mexico 200 different crops are grown and they are exported to 160 countries. The economic stability of this industry is crucial.

Not only does it affect farmers economically. Since the pandemic has changed our normality, everyone could feel how financial exclusion is directly related to personal well-being. People without access to a debit or credit card can’t use the convenience of e-commerce and digital technology. This means financially excluded people face higher risks.

Giving farmers access to financial and educational resources means that they can increase productivity, deliver better quality to the crop buyer and increase incomes every year. Farmers also become part of digital society and use technology for the benefit of their business. With the necessary tools farmers could make their businesses grow, ensuring a sustainable future for the industry.

Nowadays there is a great opportunity to provide a tailored solution for this sector. With the high rate of internet coverage in Latin America and young farmers having access to smartphones, it is the right time to build scalable solutions for vulnerable sectors that can impact millions of lives.

Earning fair incomes would enable farmers to ensure better living conditions for their families, spend more money on health care, nutrition for them and good quality education for their children—investments that could produce long-term, positive results for farm families.

In Verqor we give farmers the opportunity to buy everything they need in their fields on credit. Not only do we democratize access to credit but provide farmers with technical and administrative assistance. All this with the aim to unlock agro potential in Mexico and give farmers the opportunities they deserve.

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