NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

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In financing smallholder farmers, there’s a gap of over $400 billion between demand and supply. As investors, technical assistance providers, certification bodies and corporations work to close that gap, impact and risk metrics play an important role.

Metrics can a) help demonstrate industry impact, b) improve operating efficiency, and c) foster collaboration on industry infrastructure to grow the market. A well-implemented metrics strategy can also help reduce the risk of client default in smallholder agricultural finance, which is directly linked to an agricultural lending program’s ability to drive impact in the form of increased production, stable and premium pricing, and sustainable practice adoption.

But the current landscape of smallholder finance impact and risk metrics is crowded with multiple units of analysis, target users and objectives; it is confusing to industry leaders and daunting to potential new entrants.

In an effort to clarify the space and enable greater collaboration, the Initiative for Smallholder Finance created three new metrics collaboration tools, which are explained in depth in our briefing document, “Smallholder Impact and Risk Metrics: A Labyrinth of Opportunity.”

The first tool, a universal theory of change for smallholder finance, seeks to build a shared vision among ecosystem actors and enable greater collaboration when measuring and reporting impact.

The theory of change allowed us to build the smallholder impact literature Wiki, which aggregates research, trials, and studies on smallholder impact so smallholder agricultural investors can quickly access a growing body of research about the impact of their work.

The theory of change also underpins an interactive Prezi map of the current landscape of smallholder impact and risk assessment tools, which intends to help practitioners quickly identify metrics and data collection tools to report the scale of their impact.

These tools seek to: a) clarify the current impact and risk metrics landscape; b) drive the industry toward greater collaboration in reporting industry-wide impact; c) support the industry to set clear expectations about the impact of smallholder agricultural finance; and d) push the smallholder community to develop coordinated metrics so that efforts can more efficiently grow the supply of smallholder agricultural finance.

What’s Next in Smallholder Impact and Risk Metrics?

Building off the foundation of these tools and previous collaboration efforts, we believe the smallholder finance space is ready to use impact and risk metrics to create data-driven collaborations and truly catalyze industry growth to better meet the financing needs of smallholders.

If “Metrics 1.0” was using smallholder measurement to prove impact, “Metrics 2.0” is standardizing metrics to reduce costs and comparisons across organizations. We’ve seen progress here with the recent launch of the Council on Smallholder Agricultural Finance (CSAF), an industry alliance committed to promoting the development of the smallholder agricultural finance market. The alliance – which includes Alterfin, Oikocredit, Rabobank’s Rabo Rural Fund, responsAbility Investments AG, Root Capital, the Shared Interest Society, and Triodos Investment Management – will convene on a pre-competitive basis to exchange views and experiences related to industry standards, responsible lending practices, and social and environmental impact.

This is a great start. But as shown in the chart below, there is still an incredible dearth of metrics initiatives aimed at catalyzing industry growth. A few ideas to fill this gap include:

• A data-sharing platform into which farmers or cooperatives enter metrics data for other industry actors to use, akin to a Capital IQ for the smallholder space
• A system that classifies cooperatives based on payment history or credit extended, akin to the credit bureaus in developed markets
• A tool that identifies regions and value chains where smallholders are active, akin to the Microfinance Information Exchange

With the release of the Initiative for Smallholder Finance’s latest tools and the launch of common metrics from CSAF, metrics and measurement in smallholder finance have become simpler and more standardized. The next step – Metrics 3.0 – is to collaborate on metrics efforts that can drive business value.

So now we pose the question to you: How do you think smallholder agricultural finance and other impact sectors can harness the power of data-driven collaborations to spur industry growth, and what are the next steps towards establishing these collaborations?

To learn more about Metrics 3.0, register to attend ANDE’s “Metrics from the Ground Up” Conference on June 3-4 in Washington, DC.

CJ Fonzi is a project leader at Dalberg Global Development Advisors. Sara Wallace is a communications coordinator at Dalberg Global Development Advisors supporting the Initiative for Smallholder Finance.