While it is difficult to estimate the exact size of the gap between the supply and demand for formal financial services for agriculture and rural areas in Africa, recent surveys show that, across the continent, rural population are less banked (19%) than urban (34%). Available country-level data paint a bleak picture as well: in South Africa—a country with one of Africa’s most developed financial sectors—less than 5% of rural individuals and 37% of rural small business owners report using formal savings facilities.5 Similarly, in Zambia, 62% of farmers do not use any financial services.6 Rural populations need access to credit, payment services and insurance products. Credit allows them to invest and grow their business; payment services facilitate more efficient and less costly transactions; and insurance products help reduce their exposure to risk. This is all the more important as the poor are often the most at risk. However, as shown in Figure V.1, a person from a rural area in Africa is twice less likely to own a credit card or to buy health 85 insurance than a person from an urban area. Interestingly, the portion of adults originating a new loan from a financial institution does not seem to be significantly different for the 2 groups.
The limited level of finance provided to rural areas in Africa seems to be a consistent pattern across different types of finance providers. As shown in Figure V.2, lending to agriculture by commercial banks accounts for a limited share of total bank credit in Africa. Commercial banks have not engaged rural populations at a large scale on the continent due, among other reasons, to their limited footprint in rural areas and perceptions of risk and low profit potential for farmers. With approximately a trillion dollars in deposits across the continent, commercial banks hold significant potential for extending financial services for the rural population and agriculture provided they develop large-scale models for including those groups. Microfinance Institutions (MFIs) also cater to rural populations and often have better presence in rural areas compared to banks. Yet, they typically offer small loan amounts and short maturities which is not adequate to address investment needs (Miller et al., 2010). MFIs provided an estimated USD 7.8 billion in loans to 6.1million borrowers and held USD 7.5 billion in deposits from 19.3 million depositors in 2011.7 A large share of these clients are located in rural areas.