In 2019, ISF Advisors and RAF Learning Lab launched Pathways to Prosperity, a report about the state of the rural and agricultural finance sector. The report presents new, dynamic frameworks for accelerating progress toward closing the $170 billion smallholder financing gap. Recognizing the critical role they play in rural economies, the research included deep dives on engaging both women and youth in achieving inclusive agricultural transformation. In this blog, we share key learnings from the youth deep dive. 

The global youth challenge

Of the 1.2 billion young people (aged 15-24 years) in the world, 1 billion live in developing countries. About half of this youth population resides in rural areas. Despite shrinking population growth rates across the globe, in low-income countries the youth population is growing rapidly. This is the largest demographic challenge and opportunity of our time. While more young people are seeking to enter the workforce, youth unemployment is three times higher than it is for older adults. For youth in rural areas, agriculture is still the primary source of employment—though mainly informal. In sub-Saharan Africa alone, over the next five years it is expected that most youth will work on family farms and in household businesses; only one in four will find waged employment, and a fraction of those jobs will be in the formal economy. That’s why it’s vital to support rural youth in undertaking viable livelihoods strategies.

The rural transition pathways model and how it relates to youth

In the Pathways to Prosperity report, we introduced a new framework (seen above) for understanding and segmenting rural households. This rural transition pathways model describes a series of predictable development trajectories for smallholder households as they pursue resilience and agency through various livelihood strategies. The model moves us from a static understanding of smallholder households based on their characteristics at a particular moment in time, toward a dynamic view of how households might evolve as they move along the different pathways.

The pathways model can help financial service providers determine the right engagement for their rural customers at the right time. But given the unique position of youth in the rural economy, providers must layer on an understanding of their specific needs and challenges. At a foundational level, young people have the same set of rural transition pathway options as older populations. But, based on their unique life stage, skills, networks, and assets, youth have different needs, opportunities, and challenges that may lead them to transition differently through the rural pathways model.

Unique challenges for rural youth

Young people face many of the same challenges that are experienced by the broader rural population: the challenging economics of smallholder farming and agricultural value chains; relatively underdeveloped rural markets and services economies; limited financial resources available for entrepreneurship and investment; limited market access opportunities; and an often weak enabling environment. However, they also face a number of additional challenges and service requirements that providers must address.

Mobility: Youth tend to be more mobile than older adults, moving between urban and rural areas, between various kinds of formal and informal employment, and inside or outside of agriculture.

Urban migration: That higher level of mobility is associated with higher levels of urban migration, driven at least in part by perceived and actual limited opportunities for employment in rural areas. A study in 29 countries found that rural youth are 40% more likely than older adults to migrate to urban areas.

Assets: Relative to older adults, youth are significantly less likely to own or manage agricultural holdings and medium or large rural enterprises. This is often due to a variety of interlinked factors, including lack of access to financial resources (often due to lack of collateral), as well as legal and communal land ownership restrictions.

Family of origin: The familial starting point of youth has a very strong impact on their livelihood trajectory. Recent research found that youth born into farming households are most likely to end up being employed in farming, while the opposite holds true for youth born into non-farming households.

Gender: Opportunities to accumulate human capital, build social networks and access assets are highly gendered, which means that young men and women often accumulate vastly different amount of these resources. The result is that rural young women often lag behind men in educational attainment, asset ownership, economic participation, and productivity.  Social norms can also influence youth’s transitions between pathways. As young men transition into adulthood they may find that income-generating opportunities increase along with expectations of their role as main breadwinners, whereas doors begin to close for young women as they transition into adulthood and are increasingly expected to take on the role of child-bearer and caretaker.  For more information about how to understand women’s rural transitions and service needs, see our previous blog post.

With this broader context in mind, it is possible to consider how these youth-specific dynamics play out in different rural transition pathways.

Serving youth through a pathways lens

What comes next?

The issue of youth livelihoods in rural areas will become an increasingly important one in the years to come. Building on the broader impact investment theses and concepts in the Pathways to Prosperity report, we believe there is an opportunity:

• For practitioners and thought leaders to deepen research into the unique needs and challenges of youth as they pursue different livelihood pathways; 
• For existing service providers to put a youth lens on their service provision that takes into account these challenges and dynamics; 
• For governments, donors, and NGOs to further innovate multi-stakeholder or multi-dimensional programs that deal with youth-specific challenges in a way that is closely linked to more structured employment and livelihood opportunities.

To learn more, explore the full youth deep dive here.

In 2019, ISF Advisors and RAF Learning Lab launched Pathways to Prosperity, a report about the state of the rural and agricultural finance sector. The report presents new, dynamic frameworks for accelerating progress toward closing the $170 billion smallholder financing gap. Recognizing the critical role they play in rural economies, the research included deep dives on engaging both women and youth in achieving inclusive agricultural transformation. In this blog, we share key learnings from the gender deep dive. 

The global gender challenge

Despite their vital role in the development and transformation of rural economies, women continue to have unequal access to opportunities that help them build resilient livelihoods. Gender inequality is not only holding women back, it’s holding entire countries back. Women currently represent half the world’s working-age population, but generate only 37% of global GDP. In agriculture, gender inequality limits agricultural productivity, among other things. This is a major concern, given the increasing pressure climate change is placing on our food security. At least one estimate posits that if women had equal access to productive assets, yields could increase between 20% and 30% per household. In a world where hunger and malnutrition has risen for the third consecutive year, this would be a game-changer.

The rural transition pathways model and how it relates to gender

In the Pathways to Prosperity report, we introduced a new framework (seen above) for understanding and segmenting rural households. This rural transition pathways model describes a series of predictable development trajectories for smallholder households as they pursue resilience and agency through various livelihood strategies. The model moves us from a static understanding of smallholder households based on their characteristics at a particular moment in time, toward a dynamic view of how households might evolve as they move along the different pathways.

The pathways model can help financial service providers determine the right engagement for their rural customers at the right time. But given the unique position of women in the rural economy, providers must layer on an understanding of their specific needs and challenges. At a foundational level, women have the same set of rural transition pathway options as men. But, as noted above, women face significant barriers in accessing the skills, networks, and assets needed to transition through rural pathways. As this limits women’s agency and mobility across different livelihood strategies, it’s vital that service providers take these barriers into account.

Unique challenges for rural women

Serving women through a pathways lens

So how can providers match their service delivery to women’s unique needs and constraints? The pathways model is an effective framework to better analyze and map out service provision opportunities for any rural customer, including rural women in different life stages. Using this approach, providers can optimize service delivery for women moving through each pathway:

• Service providers targeting women in subsistence farming households (pathway 1) should aim to improve their access to productivity-boosting assets, including land, credit, social networks, and information. For example, One Acre Fund requires all input loan contracts be signed by the person tending to the fields, meaning that a large percentage of loan contracts are signed by women.
• As smallholders move into more intensified agricultural activities (pathway 2),  service delivery channels, market access, and collateral requirements must be adapted so that women can accumulate the productive assets needed to intensify their farm operations. Mercy Corps Agrifin Accelerate has been working directly with several providers, including Zanaco in Zambia and Safaricom in Kenya, to design gender-inclusive financial products in order to ensure greater uptake and usage by rural women.
• The transition from farm intensification to land consolidation (pathway 3) requires opportunities for women to secure leased, joint ownership, or sole ownership of land. In Tanzania, for example, an experimental study used financial incentives to encourage co-titling of landholdings between husbands and wives.
• For women transitioning into formal enterprise (pathway 4), their lack of access to financial services is aggravated by non-financial constraints such as negative stereotypes relating to women as business owners. Service providers can make concerted efforts to help women-owned or -led rural SMEs access financing and capacity building by setting ambitious gender targets, as Root Capital does through its Women in Agriculture Initiative.
• Women who pursue entrepreneurial opportunities in rural services (pathway 5) are more likely to start enterprises with low capital costs and barriers to entry, often relying on informal sources of finance. Service providers should strive to design products that can overcome the constraints female entrepreneurs typically face, such as savings accounts or credit with flexible collateral requirements. For example, Diamond Bank and Women’s World Banking create a special savings account that can be opened in less than five minutes with no minimum balance and no fees.
• Women’s need for flexibility to balance their productive and reproductive roles means they often pursue rural employment opportunities (pathway 6), especially part-time. Interventions that aim to reduce the gender gap in wages, improve working conditions, and address occupational segregation are necessary in this pathway. Technoserve’s Girls Apprenticeship Program (GAP) is one example that supported girls in generating stable incomes and entering the formal workforce.

What comes next?

As emerging economies continue to industrialize and undergo agricultural transformation, women must play a crucial role in unlocking rural growth. Achieving gender equality will require not only adapting service delivery to overcome challenges, but — perhaps more importantly — making fundamental investments in systemic change. Only by making these investments can we remove structural barriers and create sustainable opportunities for women to build more resilient and prosperous livelihoods.

In the context of the pathways transition model, we see an opportunity for:

1. Improving our collective understanding of women’s service needs: This means shifting away from talking about women in general terms and instead recognizing distinct segments of women, according to their pathway and life stage. This recognition can help drive changes in how services are designed and delivered.
2. Driving innovation in market access initiatives: Because most innovation in market linkages has been private sector-led, it has targeted the most attractive customer segments, and therefore failed to reach women — despite their high potential for impact. But translating productivity gains into income gains requires rural women to have access to markets at fair prices.
3. Aligning capital investment with capital needs for the delivery of services to women customers: Rural women tend to require a more intensive package of services than the “standard” customer, delivered in a higher-touch manner. Since the economics of serving female smallholder farmers can be particularly challenging, donors and service providers must improve their understanding of the capital needs for serving this segment.
4. Engaging across sectors to coordinate action on gender-transformative initiatives: The complex and multi-dimensional nature of gender inequality requires cross-cutting approaches. With a unified view of the various dynamics that affect rural women’s transition pathways — and how specific service models can support these transitions — government, private sector, and civil society actors can better engage in concerted, targeted actions.

To learn more, explore the full gender deep dive here.

The expanding market for rural finance

In our 2016 Inflection Point report, ISF Advisors and the Lab issued a call for action to close the agricultural finance gap and spur investment in new models to extend financial services to smallholder farmers. While it is difficult to capture an exact picture of the scale of growth in different service delivery models in the past three years, it is clear that the service industry has evolved.

Just five years ago, commercial banks and microfinance institutions were mostly serving large-scale farmers in commercialized value chains, while non-profits were serving subsistence farmers. Meanwhile, state banks in Asia served all segments, but with the exception of a few impact-driven microfinance institutions (MFIs), there was very little activity in the ‘missing middle’, or those serving emerging rural households with more complex financial needs.  Since the Inflection Point report, we have witnessed a fundamental shift in the market. We have started to see a change in how profitability of the smallholder finance market is perceived. Rather than being a beneficiary, the smallholder farmer is increasingly viewed as a potentially valuable customer. And with this change, we have seen a significant influx of private sector, for-profit providers—both innovators and incumbents—who are innovating and expanding the market frontiers.

Key market trends


This market shift has been enabled by a number of trends that have influenced the underlying dynamics of providing financial services to smallholder farmers and agricultural small and medium enterprises (SMEs). Many of these trends interact with and reinforce each other, ultimately combining to create the market shift that has galvanized so many new and established providers into the market.

1. Key donors, such as the Mastercard Foundation, the Bill and Melinda Gates Foundation, and USAID, as well as niche impact investors, such as Acumen and Accion, have contributed over USD $250M in targeted funding for smallholder and rural finance initiatives. These impact-driven investments have provided the patient capital innovators require to prove their business models and product-market fit. As such, they have enabled a proliferation of new models, services, tools, and products that change how FSPs engage with smallholder households and rural agricultural SMEs.
2. We have seen a rise in the presence of ecosystem “connectors” — such as CSAF, SAFIN or Propagate Coalition — bringing private, public, and philanthropic actors together to coordinate agendas, share learnings, and mobilize action. At the heart of these collective partnerships and donor funding, is the mutual commitment to agricultural transformation and the acknowledgment of smallholder farmers and agri-SME as crucial players in global food and nutrition security.
3. There has been an explosion of new digitally-enabled services and approaches to rural finance. These innovations are not only changing what products are being offered, such as new micro-insurance and asset financing options, but are also changing how FSPs conduct their businesses, for example via digitally-based credit scoring, digitally-enabled distribution infrastructure — including e-commerce and interactive farmer training programs. The spread of digitization is impacting both traditional service providers and newcomers, though in slightly different ways, as summarized by CGAP’s latest paper on Fintechs and Financial Inclusion. Traditional players, such as commercial banks and MFIs, tend to leverage digitization to improve their economics and drive operational efficiencies. Meanwhile, the innovators, such as Fintechs and platform players, are leveraging technology to solve pain points that are not addressed by the market incumbents. Underlying this explosion in digital models is a massive expansion in available technologies, alternative data sources, mobile phone ownership, and mobile network infrastructure; providing the basis for digital financial services and digital agriculture solutions that can be layered onto financial services for better risk assessment and service delivery.
4. We are also seeing more bundled products and services as more providers recognize that to effectively meet farmer needs and achieve sustainability a more holistic approach is required — where finance is no longer an end in and of itself, but rather, an enabler of greater impact and overall profitability. From a service provision standpoint, this insight implies a fundamental shift, from considering service-level profitability to customer-level profitability, often utilizing cross-subsidization of multiple service lines and product types. From a farmer standpoint, it implies the acknowledgment that to translate access to finance into positive impact, finance must enable access to inputs, markets, and other value-added services that can drive farm productivity and income gains.
5. We have witnessed a renewed and increased focus on agri-SMEs and value chain finance, driven by the recognition of the leading role a strong SME ecosystem plays in delivering services to farmers and, more broadly, in creating jobs, driving innovation, and shifting to higher value-added economies. An increasing number of corporations, foundations, and governments are supporting small and growing businesses. At the same time a stronger ecosystem of incubators, accelerators, technical assistance providers, investors and impact funds is emerging to address the distinct finance and business development needs of ag-SME. African Management Initiative, Enablis, Technoserve Entrepreneurship, and Stawi Africa are some examples of organizations that recently designed programs for agri-SME entrepreneurial and/or capital support.
6. Finally, we note the emergence of a more sophisticated business-to-business (B2B) market to support the FSPs working in this space. This has taken the form of both B2B products and specialist applications, such as partnership platforms and technology solutions aimed at digitizing specific business processes including, for example, customer registration and data collection, credit risk assessment, or advisory services; as well as business development services (BDS). As business models, product classes, and capital investment structures have become more sophisticated, a specialized set of external consultants (BDS providers) has developed in response, with services ranging from product design, to digitization, to capital restructuring. This strong ecosystem of B2B players has allowed FSPs to focus on their core activitied and outsource risky and time-consuming investments.

A deeper understanding of our market

In addition to trends above, which have reshaped the rural agricultural finance market in the past few years, there has been a significant deepening of the ‘management science’ approach to understanding how actors in this market are functioning. This line of inquiry seeks to gather and synthesize the data of market stakeholders to understand how financial services can be effectively and sustainably provided to smallholder households. In particular, the work of IDH, the Lab, and Mercy Corps have provided significant new information and perspective on the various ‘Service Delivery Models’ used by providers and their potential for both impact and profitability.

Drawing on this intelligence, our State of the Sector report includes a new typology of FSP models. Our segmentation categorizes FSPs according to both their ‘Objective for Service Delivery’ and their ‘Service Delivery Model’.

We have found three distinct types of Primary Goals for Service Delivery, which explain a service provider’s motivation for offering financial and non-financial services to their customers.

1. Supply security: Service providers offer services to farmers often in exchange for a purchase agreement. They are motivated by ensuring sufficient supply of produce and, as such, their unit of profitability is not the producer of the commodity but a different actor further downstream in the value chain (e.g. wholesaler). The services themselves, although sometimes monetizable, are a means to an end; the ‘end’ being availability of produce at the right time and in the right quantity and quality.
2. Service profitability: Service providers offer services themselves as the core business objective. Recipients (farmers and SMEs) engaging with the services are the unit of profitability, either as each service offered is monetizable and potentially profitable stand-alone (e.g., earning interest on a loan), or as other, often non-ag or non-financial services, offered to the recipient are profitable. In the latter case, some services may not necessarily be profit-motivated stand-alone, but can be cross-subsidized for an overall positive customer value.
3. Client outcomes: Service providers offer services to increase the income, wellbeing, independence, and empowerment of the farmer or SME. The services themselves are a means to an end; the ‘end’ being a richer, more resilient farmer or business.

Once we understand why a service provider is offering financial services, we then turn our attention to how they have structured themselves to deliver those services.

There are four types of Service Delivery Models, which describe how the FSP is structured to deliver financial services to clients.

1. Focused: Service provider offers a single service (e.g., loans, TA, inputs, analysis) to farmers and SMEs, without partnering.
2. Focused Plus: Service provider offers 1-3 services to farmers and SMEs, often partnering with other providers to create the menu of services.
3. Holistic: Service provider offers all the services farmers require, without partnering. This is often a very intensive process.
4. Platform: Service provider acts as a connector between farmers and affiliated service providers, sometimes offering their own services as well.

By mapping over a thousand existing FSPs according to these criteria, we have established 10 segments that each demonstrate a coherent approach to market engagement and organizational structure. In addition, our research indicated that these segments tended to engage with smallholders and agri-SMEs in different proportions, with some models focused exclusively on one client type and some addressing the needs of both. Of the twelve potential segments, one was unpopulated (Indirectly Profit-Driven, Focused Plus) and the other was so nascent (Directly Profit-Driven, Holistic) that is was designated as a ‘Proto-Segment’. It is important to note that these segments are not necessarily static — service providers can have more then one goal and can be experimenting with more than one service delivery model; thereby lying somewhere along the spectrum of different segments or evolving over time as they scale and become more sustainable.

Why we believe this new provider segmentation matters

What comes next?

Over the next few months we will continue to fine-tune the providers segmentation model to better understand trends and links to farmer pathways and capital market flows. In particular, we hope to:

• Update Inflection Point’s supply-side sizing, adding a new “innovators” sizing that was not considered back in 2016
• Consolidate an updated global database of profiled providers that allows us to stress test the relevance of the new segmentation
• Refine analysis of current and likely future trends
• Articulate how the providers segmentation model links to farmer pathways and to capital market needs, flows, and trends
• Conduct select case studies to help readers visualize how farmer pathways, providers delivery models, and capital flows come together as holistic investment theses

Segmenting smallholder farmers: A brief historical context

Just five years ago, our ability to segment smallholder farmers primarily relied on agriculturally related variables — what they produced, how they sold it, farm size, etc. These variables could describe smallholders’ activity, but could not explain the hows and whys of smallholder households’ engagement with markets. There was little data available to determine what was driving smallholders’ behaviors and attitudes, and by extension, it was difficult to construct programs, services, and products that resonated with their underlying motivations and needs.

In recent years, efforts from a number of actors has allowed us to shift toward a data-led cluster and segmentation, helping us refine our understanding of smallholder households. In 2016-2017, CGAP undertook an extensive data collection effort, using national surveys and financial diaries to develop a deep, data led, understanding of smallholder household livelihood profiles. Based on their research, they identified three segments of smallholder households — Subsisting, Commercializing, and Diversifying — that are summarized in their latest segmentation publication. This research reveals that rural households have rich and complex financial profiles with a range of income sources and choices to make.  In this context agriculture is an important, but not the only economic driver of livelihoods and progression.

Even with these advances in our understanding, to date, segmentation has been static — a categorization of smallholder households based on their characteristics at a particular moment in time. But smallholders are dynamic. As they pursue their goals and face challenges over the course of their lives (and across generations) their needs evolve. Accordingly, we have developed a new dynamic model around typical ‘transition pathways’, which describe a number of predictable development trajectories for rural households. These pathways offer micro- and macro-level insights into how smallholders’ needs evolve over time and how that will shape the rural economy.  These pathways are not intended to prescribe the path that should be followed but more to layout the universe of possibilities that households could follow as choices are made about how to build resilience and agency within the household.

The new starting point: Smallholder segments

We use CGAP’s data-led segmentation as the starting point to anchor our ‘transition pathways’ model. Their work identified three segments of smallholder households, as explained below:

• Subsisting: Farmers in the Subsisting segment are generally rural dwellers whose livelihoods focus on agriculture, primarily in order to feed their own families. These smallholders complement their agricultural activity with income from day labor, also often in agriculture. There is little indication that they will transform their agricultural activities into a sustainable, commercial business. This segment has the lowest use of formal and informal financial services.
• Commercializing: In contrast to the other two smallholder segments, Commercializing smallholders consider farming to be a business and estimate that most of their income comes from agriculture. This segment is better connected to value chains, also selling to wholesalers and resellers. While still poor overall, they earn relatively higher incomes than Subsisting farmers and use a combination of formal and informal financial services.
• Diversifying: Smallholder households in the Diversifying segment have a multi-dimensional livelihood strategy. These households on average farm smaller plots of land and consume most of their agricultural output. While they may earn some income from agriculture, their primary income source is more likely their own business or regular or casual employment. Their income tends to be as high as or higher than the Commercializing segment, and they may use formal financial tools such as bank accounts and mobile money.

The dynamic extension: Transition pathways

The segments above represent a smallholder household’s current state. To understand how smallholder households are likely to evolve over time, our team has laid out the different pathways they take as they pursue resilience and agency through various livelihood strategies. In general, the transition pathways coalesce around four ‘centers of gravity’— broad categories of livelihoods that rural households may choose to pursue.

Within these four centers of gravity, there are seven pathways that smallholder households typically move along as they pursue incremental resilience and agency over time. Within farming, households (1) improve their resilience and (2) intensify their production, with eventual (3) land consolidation and (4) enterprise organization for those that attain high levels of growth and commercial sustainability. For those rural households that choose to transition away from primary agricultural production, they may choose to (5) convert to agricultural services and industries, (6) convert to non-agricultural livelihoods within their rural setting, or (7) migrate to urban areas.

It is important to note that over the course of a smallholder’s life, there will be both forward and backward movement along these pathways as they experience successes and shocks at different points. Additionally, a single household may change pathways or simultaneously pursue multiple pathways as they adapt to changing priorities and external context.

Why we believe dynamic pathways are a new paradigm of thinking

Building on the framework: What comes next?