Investments in this strategy aim to increase financial inclusion for rural populations and thus enable them to invest in and grow their businesses, improve financial security, and protect against risks posed by natural disasters and climate change. The sections below include an overview of the strategy for achieving desired goals, supporting evidence, core metrics that help measure performance toward goals, and a curated list of resources to support collecting, reporting on, and using data for decision-making.


Dimensions of Impact: WHAT

Investors interested in deploying this strategy should consider the scale of the addressable problem, what positive outcomes might be, and how important the change would be to the people (or planet) experiencing it.

Key questions in this dimension include:

What problem does the investment aim to address? For the target stakeholders experiencing the problem, how important is this change?

Globally, compared to those living in urban areas, rural populations are largely underserved and have less socioeconomic development on average, with higher poverty rates, lower levels of employment, lower levels of education, and more limited access to myriad opportunities for economic improvement. Their stifled development is largely because remote rural locations often have poorer infrastructure than urban centers and are therefore more difficult and costlier to reach. Traditionally, formal financial institutions (e.g., branch-based commercial or rural banks) have avoided or failed to offer sustainable services in rural areas. Hence, rural villagers deal mostly in cash. Informal or semi-formal financial institutions as well as alternative providers, are major providers of financial services in rural areas. However, these informal providers often have weak institutional and managerial capacity, and their operation in isolation from the financial system has let some of these providers charge steep interest rates (1).

Rural populations—particularly agricultural producers—are also more vulnerable than others to climate change, natural disasters, and environmental degradation, such as soil erosion. In addition, agricultural producers are subject to volatility in the global prices of agricultural commodities; financial services can help them to smooth consumption (e.g. loans, savings) and protect from changes in weather (e.g. insurance).

Financial products and services designed specifically for agricultural production, agriculture-based industry, non-farm enterprises, and household consumers, together with innovative delivery methods that reduce transaction costs (such as electronic cash cards, agent banking, mobile phones, and other digital means) can effectively reach those located in remote, hard-to-reach locations. Electronic technology is revolutionizing the provision of rural financial services and driving down the costs of handling small transactions. Branchless banking allows financial services to reach formerly untouched clients. However, for digital financial services to add value, they must address the clients' needs and preferences by design and adapt to the particular local characteristics of the population being served. Technical assistance, access to value chains, and financial literacy (including mobile literacy) should also be part of solutions that aim to provide opportunities to rural populations to help them to improve their livelihoods (1).

What is the scale of the problem?

  • Rural poverty accounts for nearly 63% of poverty worldwide (2). Rural poverty is also persistent; at current trends, the World Bank expects the global percentage of poor in rural areas to fall below 50% sometime after 2035 (3).
  • According to the International Labour Office, nearly eight of every 10 people who are working poor live in rural areas (4).
  • Compared to urban adults, rural adults are more excluded from financial markets, just 46% of adults in rural areas have access to financial services, compared to 58% in urban areas (5).*
  • About 235 million unbanked adults in developing economies receive cash payments for the sale of agricultural products. Among them are 110 million women and 125 million adults in the poorest 40% of households (6).

*The 2014 and 2017 Global Findex Databases do not quantify the urbanrural gap because of the complexity of distinguishing between rural and urban areas in a cross-country context. What might be considered rural in Bangladesh or India, for example, might be considered urban in less populous countries.


Dimensions of Impact: WHO

Investors interested in deploying this strategy should consider whom they want to target, as almost every strategy has a host of potential beneficiaries. While some investors may target women of color living in a particular rural area, others may set targets more broadly, e.g., women. Investors interested in targeting particular populations should focus on strategies that have been shown to benefit those populations.

Key questions in this dimension include:

Who (people, planet, or both) is helped through investments aligned with this Strategic Goal?

Smallholder Farmers: Most rural people in poverty are smallholders and family farmers. According to the Food and Agriculture Organization of the United Nations, small farms of up to two hectares account for more than 80% of all farms worldwide, while covering only about 12% of the world’s farmland (7).

Non-Farm Rural Workers and Entrepreneurs, Including Migrant and Home Workers: While not directly connected to agricultural production, non-farm workers and entrepreneurs in rural areas also face difficulties accessing financial markets and resources that would allow them to secure decent work.

Actors Along the Agricultural Value Chain: Agribusiness value chains span the provision of farm inputs upstream (fertilizers, seeds, machinery) to processes downstream that add value (food processing, storage, distribution, and logistics). Micro-, small-, and medium-sized enterprises (MSMEs) comprise the bulk of agricultural value chains. The involvement of smallholder farmers in the value chain remains a key challenge, as does linking between informal and formal value chains.

Women in Emerging Markets: Women comprise 45% of the agricultural labor force worldwide, ranging from 20% in Latin America to up to 60% in parts of Africa and Asia (8). Gender inequalities prevent women from reaching their full potential, weakening the agricultural sector and undermining rural development (9).

Children: Almost 60% of all child labor worldwide is found in agriculture, affecting nearly 100 million children (9). Addressing rural poverty would help prevent children from being put to work at a young age, allowing them to enroll in school instead.

What are the geographic attributes of those who are affected?

  • Ninety-five percent of the world’s rural poor live in East Asia, South Asia and sub-Saharan Africa (8).
  • Though rural–urban disparities exist around the world, they are most severe in developing countries, which generally also have larger rural populations. Compared to OECD member countries, where 30% of the population is rural, in low- and middle-income countries the rural proportion is 51%.
  • Sub-Saharan Africa and South Asia have the highest proportion of rural residents, at 62% and 67% respectively (see World Bank data for further detail).


Dimensions of Impact: CONTRIBUTION

Investors considering investing in a company or portfolio aligned with this strategy should consider whether the effect they want to have compares to what is likely to happen anyway. Is the investment's contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How much and Who?

Key questions in this dimension include:

How can investments in line with this Strategic Goal contribute to outcomes, and are these investments’ effects likely better, worse, or neutral than what would happen otherwise

Financial products and services tailored to the needs and preferences of rural populations and provided provided through innovative delivery channels* to reduce transaction costs can help rural populations invest in and grow businesses to improve their income levels, build savings and other assets to improve their financial security, and protect against the risks posed by natural disasters and the impacts of climate change.

Digitalizing agricultural payments could cut the numbers of unbanked adults by up to a quarter in Mozambique, Nigeria, and Vietnam, by up to roughly a third in Burkina Faso and Sierra Leone, and by up to half or more in Ethiopia. Among unbanked adults receiving payments in cash, 59% have a mobile phone (6).

To ensure that financial products and services contribute to better outcomes for rural populations, investors must consider several other factors, including the following:

  • Products and services must be properly diversified and tailored (e.g., insurance tailored to agriculture, micro-savings) to the needs of rural populations (with e.g.,their higher dependence on seasonality);
  • High-quality data must be collected on clients to enable proper customer segmentation and service delivery. Recent national pushes to advance rural enrollment in national identity cards has greatly progressed this work by allowing unique identifiers to be leveraged across multiple databases;
  • Technical assistance and financial education tailored to the needs and literacy levels of rural populations must be provided so that they are empowered to make informed financial decisions and grow their businesses;
  • Technical assistance must be provided to staff of financial institutions to help them develop and use appropriate digital branchless banking tools (e.g.,  remote loan origination) that meet business requirements,
  • Financial service providers serving rural and remote areas must have sufficient management capacity, including sufficient capacity to adhere to customer-centric best practices and standards (such as the Social Performance Task Force's Universal Standards for Social Performance Management and the GSMA's Code of Conduct for Mobile Money Providers).
  • The broader environment must be enabling (without, for example, interest rate ceilings that do not allow financial service providers to recover their full costs) and must have necessary infrastructure critical to increasing rural productivity. Central bank regulations can deeply affect the feasibility and sustainability of rural lending products; for example, recent regulation in Mozambique on Farmer Group Registrations has greatly increased the cost of group lending). Also consequential are the disparities between regional policies concerning digital innovations. For example, Zambia regulates mobile money through the telecommunication companies while, in Malawi, mobile money is regulated under the central bank. These discrepancies create challenges for multinational service providers as platform adaptations are costly and hinder interoperability. Basel II regulations have also had a substantial impact in terms of capital provisioning and bank decision-making by raising the opportunity cost of financing rural clients.

* Innovative delivery channels might include mobile banking units or agents in the value chain who can cost-effectively help collect the data at the farm  or individual level needed to build customer segmentation or agricultural credit scorecards.

How Much

Dimensions of Impact: HOW MUCH

Investors deploying capital into investments aligned with this strategy should think about how significant the investment's effect might be. What is likely to be the change's breadth, depth, and duration?

Key questions in this dimension include:

How many target stakeholders can experience the outcome through investments aligned with this Strategic Goal?

As noted above, about 235 million unbanked adults in developing economies receive cash payments for the sale of agricultural products. To their large number may be added unbanked adults in rural but non-agricultural businesses.

How much change can target stakeholders experience through investments aligned with this Strategic Goal?

The amount of change will depend on the suitability of the provided products and services to the needs of their rural clientele. Some examples of the changes experienced by clients who used well-designed products include the following:

  • Providing short-term credit to farmers in Zambia between harvests boosted their output by 8% and their earnings (daily wages) by 9–16%compared to villages that did not receive loans. Food consumption also increased, with households being 11% less likely to run out of food (10).
  • Malawian farmers of cash crops who used a commitment savings product—which did not allow withdrawals until a certain date—increased investment by 13% and boosted crop output by 21% (11). In addition, savings products allowed farmers to manage their expenses during the down season.
  • A study in rural Kenya showed that access to savings accounts helped some households decrease their reliance on informal networks outside the village and increased support among those within the village.
  • Evidence suggests that insurance against primary catastrophic risks can help increase farmers’ asset base and productivity (12).


Dimensions of Impact: RISK

Key questions in this dimension include:

What impact risks do investments aligned with this Strategic Goal run? How can investments mitigate them?

Risk Factors include the following (categorized according to the IMP Impact Risk Framework):

  1. Stakeholder Participation Risk: Lack of proper attention to client protection and/or appropriate tailoring of products, technical and financial literacy, understanding of the objectives and experience of those affected by the investment, or trust in financial and technology service providers could result in less positive impact on rural clients that an investment otherwise would have had.
  2. External Risk: Lack of a supportive local regulatory framework, inappropriate government intervention, or poor infrastructure could impede the healthy growth of the market. Macro-economic effects, such as economic downturns, may also affect the behavior of rural populations in terms of lending and or re-enrolling. For example. small holder farmers might to chose to not reapply for a loan when market outlook is not perceived as positive during a specific season. Climate change and environmental factors affecting the target population, such as reduced access to water,  may increase impact risk.
  3. Contribution Risk: Oversaturation of markets could result in over indebtedness of clients (refer to MIMOSA index).
  4. Execution Risk: Weakness of governance structure of financial service providers could result in inability of the organization to accomplish social/environmental mission as well as poor treatment of clients.
  5. Unexpected Impact Risk: Investments by beneficiaries in unsustainable farming techniques could result in environmental damage.

Diversification of investments across countries and regions, together with a generally strong commitment to the principles of expanding responsible access, putting client interests first, integrating the voice of those significantly affected (refer to "Engaging All Affected Stakeholders"), and a focus on environmental screening and monitoring means that on a global level, such risks are well mitigated. The inclusive finance community engages in direct discussions with external parties, including regulators, to strengthen the sector, and proactively addresses issues such as client protection (Client Protection Principles), environmental standards, management standards and best practices to put clients at the center of all decisions of financial service providers (Universal Standards for Social Performance Management), as well as principles for mobile money providers (GSMA Code of Conduct for Mobile Money Providers). In addition, the inclusive financial sector counts with different types of third party assessments, certifications, and ratings that allow investors to better understand whether and how the practices of financial service providers (investees) align with global principles and standards (e.g., Client Protection Assessment and Certification, SPI4 Assessment, Social Ratings, Mobile Money Certification).

What are likely consequences of these impact risk factors?

Such risks could lead to an inability of clients to use the services provided effectively and could result in negative impacts on clients who carry excessive debt burdens, are resented for their access to such products and services, or suffer opportunity costs from the use of products and services that are not effectively tailored to meet their needs.

Illustrative Investment

LOLC Cambodia is a financial service provider working to improve the lives of rural low-income Cambodians by offering a diverse suite of financial and non-financial products and services that help clients to become more resilient against external income shocks. LOLC's portfolio of Water, Sanitation, and Hygiene (WASH) loans, approximately USD 4 million in size, has enabled 6,000 clients to build latrines. As of 2017, the institution served an active borrower base of more than 200,000 low-income Cambodians. According to the institution, in recent years 7% of its clients, on average, moved out of the 150% National Poverty Line, “very poor,” and “poor” categories.

Gumutindo is an Ugandan coffee cooperative that aggregates, processes, and exports coffee from 7,000 farmers. Since receiving its first loan from a social investor in 2005, Gumutindo has increased both revenue and total payments to producers six-fold, tripling the number of producers reached while doubling payments per producer. In addition, Gumutindo provides public goods such as savings and credit programs for members and schools for their children. As it has grown, Gumutindo has been able to access capital from a global commercial bank.

Draw on Evidence

This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.

The Impact of Food and Cash Loans on Smallholder Farmers in Zambia

“The Impact of Food and Cash Loans on Smallholder Farmers in Zambia.” The Abdul Latif Jameel Poverty Action Lab. Accessed May 22, 2018.

Facilitating Savings for Agriculture: Field Experimental Evidence from Malawi

Brune, Lasse, Xavier Giné, Jessica Goldberg, and Dean Yang. “Facilitating savings for agriculture: Field experimental evidence from Malawi.” Economic Development and Cultural Change 64, no. 2 (2016): 187-220.

Expanding Banking Access to the Rural Poor in Kenya: Challenges and Opportunities

Dupas, Pascaline, Sarah Green, Anthony Keats, and Jonathan Robinson. “Challenges in Banking the Rural Poor: Evidence from Kenyas Western Province.” 2012. doi:10.3386/w17851.

Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment

Burgess, Robin, and Rohini Pande. “Do rural banks matter? Evidence from the Indian social banking experiment.” American Economic Review 95, no. 3 (2005): 780-795.

Agricultural Decisions After Relaxing Credit and Risk Constraints

Karlan, Dean, Robert Osei, Isaac Osei-Akoto, and Christopher Udry. “Agricultural decisions after relaxing credit and risk constraints.” The Quarterly Journal of Economics 129, no. 2 (2014): 597-652.

Reducing Barriers to Savings in Rural Malawi

Brune, Lasse, Xavier Giné, Jessica Goldberg, and Dean Yang. “Reducing Barriers to Savings in Rural Malawi: A Field Experimental Approach’.” Innovations for Poverty Action. (2009).

Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.

Define Metrics

Core Metrics

This starter set of core metrics — chosen from the IRIS catalog with the input of impact investors who work in this area — indicate performance toward objectives within this strategy. They can help with setting targets, tracking performance, and managing toward success.

Additional Metrics

While the above core metrics provide a starter set of measurements that can show outcomes of a portfolio targeted toward this goal, the additional metrics below — or others from the IRIS catalog — can provide more nuance and depth to understanding your impact.