Unlocking Smallholder Finance for Sustainable Agriculture In Southeast Asia

An estimated 100 million smallholder farmers reside in Southeast Asia. These small-scale producers dominate the region’s agricultural sector, leading the production of commodities such as palm oil, rubber, cocoa, and coffee, as well as staple crops including rice, wheat and maize.

The adoption of sustainable farming practices to support these farmers is critical for farmer resilience in the face of a changing climate, and for disentangling commodity agriculture and the resulting agricultural expansion from environmental degradation. Supporting smallholders to make a sustainable transition requires both short and long-term finance, tailored to the specific business models that these farming practices require.

Demand for smallholder finance in the broader region currently stands at USD 100 billion annually, but less than one-third of this demand has currently been met. Nonetheless, the region is seeing a growing number of collaborative partnerships between financial service providers, agribusinesses, public funders and civil society organizations that are testing new ways of catalyzing capital flows to smallholders. These partnerships — boosted by digital agricultural solutions — are unlocking new service delivery models, strengthening the business case for investments in sustainable agriculture.

This new report, produced by Climate Focus in partnership with WWF Germany, presents the business case for smallholders to transition to sustainable farming practices, highlighting:

• barriers currently hindering smallholder uptake of sustainable farming practices in the region;
• the business case for smallholders’ sustainable transition, and viable entry points for finance streams;
• approaches for structuring finance schemes and de-risking investments;
• international case studies with innovative strategies for smallholder financing; and
• recommendations on how financial service providers and civil society organizations can facilitate this process.