agriculture, and is young and full of aspirations, but this same group is poorly educated. What can African leaders do?

# **8. Addressing the Key Constraints**

The four pathways described above are already operable and observable, but are highly constrained at present. Creation of opportunities commensurate with the number of young people who will need employment requires proactive efforts to relieve or remove constraints to the acquisition of capital, land, and skills. Recent developments in each area are discussed next. Removal of other constraints ranging from agricultural research and infrastructure to improving the rural investment climate is also important to raise agricultural productivity and create jobs but these constraints are not specific to opportunities for young people and therefore are not addressed here.

## **Financial services for more dynamic agriculture**<sup>**5**</sup>

Access to capital and credit for smallholders has been a perennial problem and the subject of analysis for decades. Small farmers in Africa, like their counterparts elsewhere, work in risky environments that are expensive for financial institutions to serve. Most have little or no usable collateral and little experience with financial services. A history of public intervention in credit markets has created expectations that defaults on agricultural loans will carry little penalty to the borrower. All of these challenges for outreach of financial institutions to small farmers are relevant for young farmers, and are compounded by the fact that young farmers have little experience. Not everyone will be able to access credit, although many farmers can benefit from a wider array of financial services such as insurance and money transfer. Yet small farmers, particularly the young, need capital to adopt the technologies and secure the land and equipment that will allow them to become more commercially active. Because of the importance of finance and the potential future client base if the challenges can be overcome, banks and NGOs continue to experiment with innovations that will overcome the barriers and achieve sustainable outreach to large numbers of smallholders. A brief review of some of these new products and services follows. It should be noted that many of the innovations in rural finance discussed herein are still being tested and their performance and sustainability on a large scale are not yet known. They nonetheless warrant close attention in the future so that successes can be identified for replication and scaling up while failed designs are avoided.

_Institutions and organizations._ A variety of actors offers financial services, including bank and non-bank financial institutions, insurers, and payment service providers. As commercial banks tend to have limited outreach in rural areas, alternative institutions such as self-help groups, savings and credit associations, and cooperatives have emerged to fill the gap and to address both credit risk (usually higher in the agriculture sector) and covariant risks specific to agriculture (e.g., weather, climate, pests, disease, etc.). Community-based financial organizations have developed to serve primarily the rural unbanked poor, providing saving, lending, and other financial services (e.g., insurance). Two successful models include village

> 5 This section draws heavily on AgriFin (2012) and IFPRI and World Bank (2010).

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