Financing Agriculture: Risks 
        and Risk Management 
             Strategies
      Ajai Nair, Consultant, World Bank
      3rd Agribanks Forum, theme ‘Africa Value 
      Chain Financing’, October 16-19, Nairobi, 
      Kenya .
      What are the major risks agricultural 
      financing?
      Systemic/Correlated Risks
         – Production Risks –weather, pests, farming 
          practice.
         – Price Risks – for inputs and outputs.
         – Political Risks – export bans, price caps, debt 
          write offs
      Idiosyncratic/Independent  Risks
         – Willful default
         – Over-financing, under-financing, wrong pricing. 
         – Life, Health, Asset
      What is the impact of these risks?
      At a proximate level,
         – Low availability of finance for farming and agribusiness.
         – Slow adoption of agricultural technology and private 
           sector investments in agribusinesses.
      Ultimately, 
         – High volatility in household income / food security for 
           households
         – Higher impact on low income households because  of 
           reduction in consumption and liquidation of assets. 
      What are the solutions?
      Reduce / better manage Systemic and 
         Idiosyncratic Risks
         – Development and improved access to seeds, farming 
           practices and technology, agricultural development 
           services.
         – Development and improved access to physical 
           (forward sales, minimum price guarantee contracts, 
           etc) and financial tools (insurance, derivatives)
      Better credit-risk assessment and management 
         by lenders.
      World Bank’s work on Commodity Risk 
      Management
      Ongoing work
         – Price Risk Management: Options (Tanzania, Zambia, Mozambique, 
          Malawi)
         – Weather Risk Management: Rainfall Index Insurance (India, Malawi, 
          Ethiopia, Thailand)
      Users: Governments, Financial Institutions, Producer 
        Organizations, Agribusinesses, and producers.
      Services offered
         – Policy advice
         – Technical assistance: Risk Assessment, Contract Design, Pricing, and 
          Program management.