According to the Food and Agriculture Organization of the United Nations (FAO), over 60% of people in Sub-Saharan Africa depend on the agricultural sector for their livelihoods. The FAO also reports that approximately three-quarters of those living below the poverty line live in rural, primarily agricultural, areas. Despite the importance of agriculture, many rural and agricultural households lack access to financial products and services that would allow them to build assets, invest in technology, increase productivity, and cope with shocks such as droughts. Mobile technology and new digital financial products are making formal financial services more available in rural areas, but our understanding of the effects of these products and how these effects might differ between rural and urban populations is limited.

What do we know about rural financial services?

The Evans School Policy Analysis & Research Group (EPAR), in partnership with the MasterCard Foundation, conducted a review of evidence on the impact of financial products on measures of production, consumption, wealth, and resilience, with a focus on rural and agricultural populations in Sub-Saharan Africa. We reviewed 38 high-quality studies that used an experimental or quasi-experimental approach to test the impacts of these financial products on rural and agricultural populations. The study examined four main categories of financial products:

  • Microcredit is a popular program which loans small amounts of money to generally poor individuals, including rural farmers. One particular type of microcredit program uses a group liability model where loans are disbursed to group members, and the group as a whole is responsible for any individuals who default.
  • Savings products and services allow farmers to build assets by providing an incentive, and a safe place, to save money. Savings support purchases of more infrequent but large items, such as tools and school fees, and allow farmers to be more prepared for the seasonal shocks inherent in agriculture.
  • Insurance for crops lowers risk for farmers from losses due to extreme weather events or other shocks. Health insurance can help farmers avoid shocks due to large unexpected health expenses. Insurance could redirect some of the capital households save for emergencies to investments on the farm or in other productive activities, and decrease the risks associated with undertaking new investments. 
  • Mobile money allows people to transfer money electronically through cell phones. This can lower the cost of money transfers, which may be especially high for rural populations, and make financial services more accessible in rural areas where traditional banking services may not exist. 

While many financial products are basically the same in rural and urban areas in that they offer access to financial services to low-income individuals, some specifically target rural populations. For example, agricultural insurance disburses payments to farmers if they lose their crop due to bad weather (such as drought). Other products take into account the seasonal nature of farming and offer loans before planting with the payment due upon harvest. Some loans even accept repayment in the form of farm output, such as maize flour. Still other programs attach training­­­­—in input use or marketing—to loans in an attempt to ensure that farmers can put their loan investments to good use.    

Overall there are more studies of rural financial services in South Asia, but microcredit, savings, insurance, and mobile money programs are relatively new for rural households in Sub-Saharan Africa, who have traditionally relied on informal lending systems and family or friends for loans. While access to new financial products has the potential to benefit farmers and other rural populations, the extent to which these populations actually adopt them and how they may benefit from these products is not well understood.

What are the impacts of financial services?

Based on our review of 38 recent empirical studies credit products seem to have received more attention relative to the other products in recent years: we found 18 high-quality studies for microcredit products while finding 7, 8, and 9 studies that examined savings, insurance, and mobile money products respectively. The context and the outcomes measured vary from study to study, making broad generalizations difficult, but overall the evidence suggests that these financial products generally have a small, but positive, impact on consumption, food security, income, production, or resilience for rural and agricultural households.

For example, a group-liability loan program in Kenya was found to increase household incomes by as much as $641 per year and a study from Tanzania reported that access to credit was associated with 12 fewer days of child labor per month. For savings products, a study in Burundi found that the establishment of 80 village savings and loan associations (VSLAs) resulted in a 14 percent net reduction in poverty in the villages that had a VSLA as compared to those without. Researchers studying a health insurance program in Ethiopia found that it was linked to higher crop output and household incomes, as well as less chance of debt, although they also reported this program was more beneficial to wealthy households than poorer ones. Finally, a study from Kenya found that mobile money use was associated with increased input use, profits, income, and receipt of remittances.   

In several cases, however, we find no evidence of a significant positive impact. One study found that a United Nations-run microcredit program in Nigeria had no significant impact on crop production or food security status, and another study found that while a loan program in Mali increased the value of harvest, the change in profit was not significant.    

A result of no significant impact in a study does not mean that a program did not actually affect people because many of the studies measured the average outcome for a group of farmers. Financial products may impact people differently, with some farmers seeing a benefit while others are negatively affected by the same product. For example, one study found that a loan program in Morocco had an average return on investment of 140%, but one-quarter of the borrowers had a negative return. With so few resources to invest, the chance of losing an investment could be enough to discourage many farmers and rural entrepreneurs from taking up financial products.

How much of an overall impact access to financial services has on rural and agricultural populations is ultimately not clear. While the studies we reviewed suggest generally positive impacts, the evidence base is too small to evaluate how different contexts or product characteristics may affect the effectiveness of different services in achieving desired outcomes. More research is required to determine whether the current financial products available to rural populations in Sub-Saharan Africa actually do promote household welfare, and to understand what types of financial services are most effective. Additionally, there is a further need to understand what support rural populations may need to adopt financial services, as well as any potential for unintended consequences of these services. 


By David Coomes

Summarizing research by Pierre Biscaye, Chris Clark, Katie Panhorst Harris, C. Leigh Anderson, & Mary Kay Gugerty

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