The enormous gap between the supply and demand of formal credit for smallholder farmers is caused, in part, by the extreme lack of information available to lenders on potential borrowers. The lack of information create risks for financial institutions and limits their willingness to lend to smallholder farmers and other “thin file” borrowers in developing countries.

New research from the Initiative for Smallholder Finance explores how innovative lenders are using new data sources and analytics to assess the creditworthiness of borrowers. From mobile phone usage data to e-wallet data, lenders are experimenting with a variety of approaches to unlock credit in underserved markets in the developing world.

While credit scoring models that use alternative data are still new in the agriculture sector, our research on several trends suggests that this market will soon be better served – thanks in part to the increasing penetration of smartphones and improved rural connectivity, both of which increase the availability of digital data.