18 Dec 2025
•
4 minutes read
by
Kafui Adjogatse,
Rosalie Dekker
What is this document and why does it matter?
This guide contains actionable steps on how to design and implement a Tripartite Financing Agreement. Smallholder finance is often a key enabler for improving smallholder livelihoods, but many organisations (including agribusinesses and financial service providers) struggle with offering finance in a profitable and scalable manner. Tripartite Financing Agreements have the potential to accelerate access to finance. Because the concept of Tripartite Financing Agreements is still relatively new, evidence of their impact is rather limited. This guide is based on the evidence and direct experience of companies who have implemented Tripartite Financing Agreements in a range of contexts (albeit skewed towards Sub-Saharan Africa).
This guide is for companies (including off-takers and providers of inputs, mechanisation services and equipment), financial service providers (“FSPs”) and support organisations looking for solutions to improve access to finance for smallholder farmers. For those already implementing tripartite financing agreements, this guide gives useful tips on how to optimise.
Use the navigation pane on the right-hand side to jump to the information most relevant to you.
What is a Tripartite Financing Agreement?
A tripartite financing agreement is a loan agreement involving three or more parties to stimulate the provision of credit to smallholder farmers by leveraging non-traditional forms of collateral. Such agreements typically include a farmer (or farmer group), an off-taker (e.g., SME, aggregator, processor) and an FSP. Central to the tripartite financing agreement is a guaranteed off-take contract between the farmer (group) and off-taker of produce. This off-take contract serves as collateral to secure the loan provided by an FSP to the farmer (group). In many cases, the FSP incurs all the credit risk but also benefits from the interest payments on the loan. However, in some cases, risk and revenue sharing among the different parties can be included into the structure of the tripartite financing agreement.
Tripartite financing agreements can also include other actors as signatories to the agreement if they play a specific role within the transaction. For instance, a service provider may deliver inputs or mechanisation services as part of an in-kind loan rather than cash.
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How does it typically work?
This guide is meant to provide an overview of the key aspects a company should consider when designing or strengthening a Tripartite Financing Agreement. In the below visual, we explain how a Tripartite Financing Agreement works.
- An off-take contract is agreed between the off-taker and the farmer (or farmer group).
- The off-take contract is provided to the FSP as collateral/comfort. Initial due diligence conducted by the off-taker is made available to the FSP who often conducts additional due diligence to determine whether the farmer is approved for credit.
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The FSP either:
- Advances the loan to the service provider (if inputs/equipment/services will be provided in kind), or alternatively.
- as cash or input/service vouchers direct to the farmer.
-
If:
- the loan was advanced to the service provider; the farmer receives the inputs/equipment/services from the service provider at the start of the season.
- he loan was advanced to the farmer; the farmer uses the cash or input/service voucher to purchase inputs or acquire services from a service provider.
- At harvest, the farmer sells produce to the off-taker
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Either
- The off-taker deducts the loan amount from the value of the farmer’s produce and transfers the surplus back to the farmer. In this case the off-taker repays the loan amount to the bank, and the loan is closed for the season (Note: in some cases, the loan amount to the bank is automatically repaid, before the remaining balance is available for disbursement to farmers), or alternatively
- the off-taker makes the payment for produce to the smallholder farmer, and the loan repayment is done through a direct debit from the farmer (group)’s account
Why implement it?
Please click below for more detail on the benefits that Tripartite Financing Agreements can bring for different actors in the value chain:
FSPs
FSPs
- Lower customer acquisition & transaction costs. FSPs lending directly to smallholder farmers face high costs of finding and signing up new customers compared to the small returns they acquire from loans. Through a tripartite financing agreement, FSPs can access the existing customers of an off-taker, therefore reducing the amount of outreach they need to do, and improving loan economics. Furthermore, smallholders with existing relationships to off-takers are likely to be more professionalised, meaning that there is already a level of filtering done in the customer acquisition process
- Increasing customer base for the FSP. Once farmers or farmer organisations have registered for a tripartite financing agreement, they become an FSP (a deposit-taking institution in this case) customer and are given a bank account. Even if the initial credit isn’t profitable, customers will also use the bank account and transact which can attract fees for FSPs. Furthermore, clients tend to be relatively loyal to their FSPs. Therefore, these farmers and organisations can allow a bank to build up a customer base that delivers profitability over the long-term
- Access to data to perform credit checks. Value chain actors typically have closer relationships with farmers and a better understanding of their production cycles, market linkages, financial needs and creditworthiness compared to FSPs. FSPs are more effectively able to carry out credit checks when data is shared between value chain actors. For instance, for one bank in Uganda, the ability to access farmers where an off-taker already had collected data was a key incentive to pursue a tripartite financing agreement
- Lower repayment risk through non-traditional collateral. Compared to direct farmer lending, tripartite financing facilities use the off-take contract as collateral. With farmers having guaranteed market, FSPs can be more confident that they will be repaid at harvest. This is enhanced by the fact that value chain actors such as off-takers also have a vested interest in repayment, so will support the repayment and recovery process
- More confidence on the use of loan. In-kind loan payments in the form of inputs, mechanisation or other services reduces the risk of farmers using the loan for other purposes. The involvement of service providers and off-takers in the process often means there is more oversight over how loans are used. For example, input providers and field staff of an off-taker may supervise the application of inputs acquired through the loan
- Smoother loan repayment process. Loan repayment is also in-kind in many situations. This means that farmers sell their supply to the off-taker and the loan is automatically deducted from the payment due for the sale of produce, and transferred to the FSP. As a result, the FSP is repaid from the account of the off-taker, removing the need to administer and chase up loan repayments as they would if they provided loans directly to smallholder farmers. Where loan repayment is not in-kind, direct debits for loan repayments can be set up to execute the repayment direct from the farmer (or farmer group’s) account
Off-taker
Off-taker
- Reduced credit risk. Tripartite financing agreements often substitute for direct input financing where an off-taker takes on the credit risk for a direct loan to smallholder farmers. In a tripartite financing agreement, explicit credit risk is transferred to the FSP when the off-taker does not provide any guarantee on the loan and/or does not co-invest alongside the FSP
- Less involvement in loan administration. Under tripartite financing agreements, FSPs pick up most of the tasks involved with loan administration, freeing up off-takers to focus on their core business
- Free working capital (where previously financed). In many cases, off-takers are providing loans to smallholder farmers from their own balance sheet. Evidence has shown that for SMEs this can often be between 30% and 70% of their balance sheets and drains the working capital for core operations. This can be exacerbated when farmers are unable to pay due to climate events or unwilling to pay due to side-selling. In tripartite financing agreements, funding for loans is provided by the FSP which reduces the burden on the working capital of the off-taker. Off-takers can then use the freed up funding for the procurement of supply from farmers
- Increased source of raw materials. Bringing in a FSP can increase both loan size and the number of farmers who are able to access loans. This in turn can enable farmers to invest more in their farms (e.g., through input usage, land expansion), increasing production. For an off-taker this can mean there is a greater source of raw materials to procure, enhancing supply security/reducing supply risk
- Improved loyalty (where finance didn’t exist) – A tripartite financing agreement can disincentivise farmers from side-selling if selling to a specific off-taker is a condition for future finance. Moreover, a closer relationship with the off-taker through a tripartite financing agreement might create trust, which is shown to be an important factor influencing loyalty. That said, it is important to note that such agreements do not guarantee reduced side-selling
Farmers
Farmers
- Access to larger loans. Farmers who may have been relying on loans from off-takers, input providers or village savings and loans associations, often find that these loan sizes do not fully meet their needs. By getting finance through a tripartite financing facility, farmers are typically eligible to access more credit
- Improved access to formal finance. A farmer has more chance of getting loan approval under a tripartite financing agreement because transaction costs are lower and the off-take contract reduces a farmer’s risk profile compared to if a farmer approaches an FSP individually. This can be particularly helpful for women and youth who may not have access to the land title that many financiers require
- Access to guaranteed markets. In a tripartite financing agreement, the off-taker has an obligation to procure the farmers’ supply (sometimes for a pre-determined price) if they are to maintain the agreement. This reduces the risk for the farmer that they will not be able to sell their supply at harvest
- Availability of complementary services. A tripartite financing agreement packages multiple services in one (loans, inputs, off-take) but often also makes a farmer eligible for complementary services. For example, a FSP may provide financial literacy training and crop insurance to de-risk the loan they have made. Similarly, the off-taker and input provider may invest in training to ensure farmers use the inputs appropriately
- Building up of credit history. By acquiring a loan from the formal credit system via a tripartite financing agreement, farmers can build up a credit history which in the future allows them more easily to increase loan size and apply for other financial products
- Timely availability of inputs. The coordinated nature of service provision when a tripartite financing agreement is in place, tends to result in the provision of input credit being better aligned with sowing and harvesting cycles of the farmers, resulting in farmers being able to sow at the most ideal moment, improving productivity
- Better loan terms. Farmers are able to access credit on better terms than they’d without the tripartite financing agreement which sometimes leverages the (credit) profile of the off-taker in loan pricing
Input and/or Equipment Provider
Input and/or Equipment Provider
- Reduced cost of customer acquisition. By entering into a tripartite finance agreement, service providers are often able to access customers of an off-taker or FSP without having had to do the same amount of marketing that they would do when trying to acquire new customers themselves
- Higher sales volumes and secure markets. Improved access to finance for smallholder farmers via a tripartite financing agreement typically results in larger sales and increased profitability for service providers
- Lower risk of improper use of inputs or equipment. All parties to the tripartite finance agreement are incentivised to ensure farmers use the services well in their productive activities. For instance, off-takers often provide training and supervision to ensure the proper use of inputs and/or equipment given that this should increase the volume of produce available for off-take. For input and equipment providers, customer satisfaction with their goods and services is a key driver of customer retention and repeat sales. When inputs and/or equipment are used appropriately, farmers are likely to benefit from increased yields and quality, which in turn should lead to increased farmer incomes. Improved incomes and higher confidence in inputs will in turn lead farmers to become repeat customers for service providers
Context matters: what are enabling conditions for Tripartite Financing Agreements?
Context also plays a major role in the viability of Tripartite Financing Agreements. From implementing innovations across businesses in different contexts, we are able to identify the conditions in which Tripartite Financing Agreements flourish:
Value chain Perishability Geographical dispersion of farmers Degree of Farmer Organisation Policy environment Digital infrastructure Rural infrastructure
Why not? Key limitations, risks and unintended consequences
From the perspective of the implementing organisation, there are a number of risks and limitations that should be taken into consideration before you implement Tripartite Financing Agreements, including:
Coordination challenges Interdependencies Scope and scale constraints Informality and Side-selling (due to price fluctuations) Loan diversion
Similarly, there are unintended consequences that can emerge as a result of Tripartite Financing Agreements. These can impact (certain segments of) farmers, the environment, local community, partner organisations and other stakeholders. For instance:
Over-indebtedness Exclusion of ineligible farmers Power imbalances Misaligned input provider incentives
Smarter design choices can help mitigate some of the limitations, risks and unintended consequences of implementing Tripartite Financing Agreements. Read on further to see how to smartly design your intervention.
How to design a Tripartite Financing Agreements?
This section first outlines the steps involved in establishing Tripartite Financing Agreements, before providing key recommendations on how Tripartite Financing Agreements can be optimised to improve key performance outcomes. Click on each of the sub-headings below to reveal more details.
How to get started?
From our work supporting companies in the design and initial implementation of a Tripartite Financing Agreement, we propose the following five steps:
Design & Partner Selection
Design & Partner Selection
- Determine your key needs: The key needs will ultimately depend on what type of organisation you are and what roles within the tripartite financing agreement need to be filled. Typically, the actor looking to establish the tripartite financing agreement already has a relationship with farmers, or some target farmers identified. That could be (1) an off-taker already sourcing from farmers but looking to shift the burden of farmer financing from its own balance sheet; (2) a FSP providing loans to some farmers but seeking to better connect them to markets to boost repayment; (3) an input provider selling fertilisers and seeds, or equipment provider providing mechanisation, seeking partners to finance farmers to increase sales volumes; or (4) a support organisation looking to strengthen access to markets and finance for smallholder farmers. Depending on this starting position, you should know what (type of) services and off-take are needed in the partnership
- Identify Key Participants: Once the needs are known, identify potential off-takers, farmers, and FSPs who are interested in forming a tripartite financing agreement. Consider engaging with local agribusiness networks, cooperatives, and FSPs to find suitable partners. It’s essential to consider the reputation and reliability of each participant, as trust is crucial in informal markets where contracts may not always be strictly enforced.
- Assess Compatibility of Partners: Evaluate the alignment of goals, values, and operational capabilities among the selected partners with the needs identified. Conduct informal interviews or discussions to understand each party's expectations and willingness to collaborate. This step is vital to ensure that all parties share a common vision for the agreement and are committed to its success. Key selection criteria for different actors could include:
- Off-takers
- Experience sourcing target crops
- Capacity to off-take volumes at the required scale (including working capital availability)
- Existing relationships with smallholder farmers (any data available is a bonus)
- Field staff able to support farmers with training and extension, as well as able to support with monitoring throughout the season
- Ability to support with delivery, collection and timely payment upon harvest
- Input Providers
- Have a supply of the inputs that are needed to meet the needs of off-takers and smallholder farmers, including the right seed varieties, mechanisation equipment, crop protection and fertilisers
- Ability to deliver the required quantity of inputs on time in the required geographies
- Have competitively priced inputs that will be affordable to smallholder farmers
- Willingness to support in training and extension activities to reduce the risk of input misuse
- FSPs
- Familiarity with the dynamics of agriculture
- Experience in and/or a commitment to lending to smallholders and agri-SMEs (an existing relationship with the off-taker or input provider is a plus)
- Digitally mature to improve efficiency of operations
- Operational capacity (including staff, time and other resource) to support the partnership and operation of the tripartite financing agreement
- Sufficient organisational flexibility to allow for the creation of new products
- Smallholder Farmers
- Experience in selling crops to off-takers in terms of meeting requirements around quantity and quality
- Ideally organised into farmer groups where crops are of low value
- Have key documentation needed for due diligence (e.g., identification)
- Has a track record of meeting supply obligations
- Off-takers
- Align on common objectives: Organise a meeting or workshop to bring all stakeholders together. Use this opportunity to discuss the objectives of the tripartite financing agreement and the potential benefits for each party. Encourage open dialogue to address any concerns and build rapport among participants, which is particularly important in informal settings. After several discussions, begin to clearly define the roles and responsibilities of the off-taker, farmers, and FSPs. Document these roles to avoid misunderstandings later. In several instances, we’ve seen companies establish Memorandums of Understanding to document the initial agreements that have been made
Off-take Contract Negotiations (especially, if doesn’t exist already)
Off-take Contract Negotiations (especially, if doesn’t exist already)
- Negotiate Terms of the Off-take Contract: Collaborate with stakeholders to negotiate the terms of the off-take contract (read the Guaranteed Off-take Innovation Guide for more information). As part of the negotiation, there should be agreement on pricing, payment schedules, and quality standards for the produce. This negotiation will primarily take place between the off-taker and the farmer, but it is important to ensure there is some alignment with the capabilities and desires of the input provider (e.g., do they have inputs to support that quality or variety?) and the FSP (e.g., will off-take be guaranteed?).
- Set Delivery Schedules: Agree on timelines for the delivery of produce to align with the off-taker’s needs and market demands. Consider seasonal variations and potential delays in production.
- Document the Off-take Agreement: Draft and finalise the off-take contract, ensuring that all terms are clearly articulated and agreed upon by all parties. While formal documentation may be challenging in informal markets, having a written agreement duly signed by all parties involved often serves as the collateral which is needed by FSPs to be able to extend credit.
Tripartite Finance Agreement Negotiations
Tripartite Finance Agreement Negotiations
- Identify Eligible Farmers: To save on time, it may be wise for the parties to the tripartite financing agreement to do a pre-selection of eligible farmers. Generally, the party with the pre-existing farmer relationships is best positioned to lead on this. Criteria established above can be helpful to use, such as past contractual compliance, in addition to factors such as whether they have land title, whether they have a minimum land size, and whether there is commitment to invest in their farming activities
- Present the Off-take Contract as Collateral for FSP: The off-taker should ensure that the finalised off-take contract is presented to the bank as collateral for the loan. This step is crucial as it provides the FSP with a level of security, which can facilitate loan approval. The parties with the pre-existing relationship with the farmers should subsequently highlight the importance of the off-take agreement in securing financing for the farmers.
- Share data: Input Providers and Off-takers are advised to share any data that they have with the FSP. This includes production forecasts that estimate expected crop yields based on historical data and current practices, as well as historical sales data detailing past performance, pricing trends, and seasonal variations. Additionally, insights into market demand for specific crops can help FSPs gauge the viability of farmers' operations. Sharing payment history and information on input usage and costs further aids in assessing farmers' financial management and creditworthiness. Finally, creating profiles for individual farmers or groups that highlight their experience can provide valuable context, enabling FSPs to develop tailored financing solutions that meet the unique needs of smallholder farmers.
- Conduct Due Diligence on Farmers: The FSP conducts further due diligence on smallholder farmers. Due diligence is essential to determine the creditworthiness of the farmers and to mitigate risks for the FSP. As noted above, the sharing of data from other partners can expedite this process
- Identify Potential Risks: Conduct a risk assessment to identify challenges such as market fluctuations, crop failures, and other factors that could impact the agreement. Given the informal nature of the markets, it is important to consider risks related to contract enforceability and the potential for disputes. Document these risks and discuss them with all parties to ensure everyone is aware. By creating awareness, you can pre-discuss potential mitigants for when risks arise generally resulting in better thought through and measured responses. For instance, if there is crop failure, there could be agreements made in advance that a certain portion of the loan can be rolled over to the following season
- Draft the Tripartite Financing Agreement: Collaborate with all parties to create a formal agreement that outlines the terms and conditions of the financing arrangement. Ensure that the agreement addresses the roles of each party, the loan amount, repayment terms, repayment mechanism and any collateral requirements. This document will serve as a foundation for the tripartite relationship. Ideally, the FSP leads the documentation process given that financing is their core business.
Loan Processing & Administration
Loan Processing & Administration
- Coordinate Loan Approval Process: Actors may need to collaborate to carry out any final checks at farm-level. This may involve the use of each other’s field staff to verify information provided by farmers. Timely coordination is essential to ensure that loans are processed efficiently.
- Determine Loan Disbursement Method: Decide whether the loan will be advanced to an input provider or provided directly to the farmer as cash or input vouchers. This decision should be based on the needs of the farmers and the operational capabilities of the input providers.
- Facilitate Disbursement Logistics: Coordinate the logistics of loan disbursement to ensure timely access to funds or inputs for the farmers. This may involve working with input providers to ensure that necessary supplies are available when needed. Effective logistics management is crucial to prevent delays in the production process.
- Implement Monitoring Systems: Establish a monitoring framework to track the production process, ensuring that farmers adhere to best practices and quality standards. Regular check-ins and progress reports can help identify any issues early on and facilitate timely interventions. This can be a collaborative effort whereby the stakeholders with the strongest farmer relationships may be best positioned to provide that oversight role. Alternatively, continuous data sharing supported by interoperable data systems and APIs between different parties to the agreement can support regular and effective monitoring
Loan Repayment & Recovery
Loan Repayment & Recovery
- Facilitate the Sale of Produce: Assist farmers in selling their produce to the off-taker at harvest, ensuring that the terms of the off-take contract are met. This may involve providing market information or facilitating transport services. Facilitating sales is essential to ensure that farmers can repay their loans.
- Calculate Loan Deductions: Ensure that the off-taker accurately deducts the loan amount from the total value of the farmer’s produce based on the direction of the FSP (assuming repayment is in-kind). Transparency in this process is crucial to maintain trust among all parties. Clear communication about deductions will help prevent disputes.
- Transfer Surplus to Farmers: Facilitate the transfer of any surplus proceeds back to the farmers after loan deductions. The payment to the smallholder farmers of the surplus can either be made in cash or digitally (e.g., mobile money, bank transfer)
- Coordinate Loan Repayment to the Bank: The off-taker repays the loan amount to the bank promptly, closing the agreement for the season. In cases where the off-taker has an account with the bank, this process can be done automatically
- Evaluate the Agreement’s Success: Conduct a post-season evaluation to assess the effectiveness of the tripartite financing agreement and gather feedback from all parties for future improvements. This evaluation can provide valuable insights into what worked well and what could be improved, helping to refine future agreements. Reflecting the complexity of the approach, challenges should be anticipated in the first year. Therefore, it is important to reflect on the success over a longer time horizon before making conclusive decisions
How to optimise your Tripartite Financing Agreements?
From our work supporting companies on the ground, we have identified a number of enhancements that can be made to improve outcomes for off-takers, service providers, FSPs and farmers.
Improving Efficiency
Improving Efficiency
- Group Lending. By focusing on farmer groups rather than individual farmers, the transaction costs involved with administering the loan are lower. In Tanzania, we’ve observed FSPs who will only engage with farmer organisations for tripartite financing agreements, unless farmers have large land holdings.
- Technology-enhanced data sharing. At a minimum, partners will need to share some information, especially for the due diligence checks for farmers. However, the effective use of digital solutions, such as Farm Management Information Systems and other information platforms, can enhance transparency, speed and reduce administrative burdens. For instance, these platforms can facilitate continuous sharing of data, reducing the need for human interaction whenever there is an information need
- Capacity Building for FSP staff. Low familiarity with smallholder agriculture and high perceptions of risk, can mean that due diligence processes are long and costly. Investing in the capacity building of FSP staff can improve the overall functioning of the tripartite financing agreement
- Sharing staff and coordinating activities. Key actors can collaborate during training, loan administration, loan monitoring and repayment by leveraging each other’s staff. For instance, if an off-taker’s extension staff oversees loan monitoring and repayment, this reduces the human resource burden for the FSP. Furthermore, collaboration on logistics can minimise transportation costs and delays.
- Streamline Communication. Establish clear communication protocols among all parties to ensure timely information sharing. Regular updates on production schedules, market conditions, and financial status can help prevent misunderstandings and delays, ultimately reducing transaction costs.
- Standardize loan and input packages. Through defining a set of standard loan sizes linked to crop type and acreage, and pre-approving a small number of input bundles for each crop and region, partners can simplify decision-making and reduce delays. When every farmer’s loan or input package is customised, the process becomes slower, more complex, and harder to manage at scale. Avoiding case-by-case loan structuring allows financial institutions, off-takers, and input providers to process applications more quickly and consistently, making it easier to scale the model to larger numbers of farmers without increasing administrative burden.
Increasing Impact
Increasing Impact
- Timely Delivery. Getting inputs such as seeds, fertilisers and crop protection to farmers on time ensures that they are most likely to be implemented correctly, improving yields and crop health
- Additional Service Providers. Facilitate access to services which may improve the productivity or resilience of smallholder farmers. For example, access to combine harvesters can allow farmers to harvest more efficiently and effectively, reducing the risk of post-harvest losses and side-selling, and improving their ability to repay. Similarly, creating access to irrigation can enable farmers to better adapt to climate change
- Additional Off-takers. Increasing the number of off-takers that are party to the tripartite agreement can better ensure market access. This can be particularly helpful to get farmers to invest in additional crops
- Farm-level Supervision. Ensure that good agricultural practices are employed, and inputs are used appropriately. Having extension workers available to farmers can improve adoption and farm-level outcomes
- Women and/or Youth tailored products. Consider creating financial products to segments of farmers who may not access finance otherwise. For instance, women and youth may often lack land title, which for some FSPs can be a barrier to financial access. By developing special products for these groups, it can improve their access to finance
- Encourage Farmer Participation. Involve farmers in decision-making processes related to the tripartite agreement. By giving farmers a voice, stakeholders can better understand their needs and preferences, leading to more effective interventions and improved outcomes.
- Embed Incentives in Service Offering. Design incentives that reward farmers for consistent, long-term performance. For example, this could include gradually increasing loan sizes or offering better terms based on sustained repayment. Using simplified performance tiers can help balance such investments with operational efficiency
Mitigating Risk
Mitigating Risk
- Demotivate side-selling. Explore a range of options to reduce the risks of side-selling (including in-kind repayment). This can include incentive-based approaches that restrict access to credit to those who have a good track record of delivering under off-take contracts. Alternatively, minimum prices in off-take contracts have been employed to reduce side-selling by acting as a buffer guarantee against major produce falls. In addition, timely payment at harvest can dissuade farmers from selling to intermediaries when in need of quick cash. Finally, close monitoring of the farmers by the off-taker can also help prevent side-selling
- In-Kind Delivery and Repayment. Sometimes known as a closed loop system, this means that the loan is disbursed in the form of inputs (or equipment) and repayment is made in the form of produce. By removing cash from the loan process, this can avoid cash being diverted for other needs at both loan disbursement and loan repayment. In situations where there are limited competitive options for farmers to sell their produce to, in-kind repayment can be an effective risk mitigation approach
- Financial Literacy Training. It is important that farmers are aware of the implications of credit. Financial literacy training is therefore a key condition for successful implementation of a tripartite financing agreement and can help avoid over indebtedness among farmers and high default rates
- Segment Farmer (Organisations). In some cases, Farmer Organisation Segmentation or Farmer Segmentation is a useful tool to help pre-select farmers. These approaches can be used to ensure that farmers are only eligible to be part of the tripartite financing agreement if they have met certain criteria. These criteria can be based on factors such as historical performance (e.g., contractual compliance under off-take contracts), assets (e.g., access to post-harvest storage), motivation (e.g., treating farming as a business), and professionalism (e.g., completion of financial literacy training)
- Insurance Bundling. Explore options for bundling crop insurance or weather-indexed insurance products that can protect farmers against unforeseen events. FSPs can work with insurers to offer tailored products that align with the specific risks faced by smallholder farmers. In the potato value chain in Kenya, we observed that some FSPs made insurance a mandatory part of the bundle to mitigate risks
- Collective Liability. When loans are made to a group, collective liability can mean that the group as a whole is responsible for covering the shortfalls of any individual member. This has also been seen to work as a sort of social pressure where individuals are less likely to renege on loan responsibilities because it will impact their peers
- Be flexible and build strong relationships. It is important that risk and returns are well-balanced in the tripartite agreement. Without a win-win outcome for all participants involved, the long-term sustainability of agreement will most likely be affected. As a result, it is important that actors can demonstrate flexibility
- 3rd Party Guarantee. Other actors, such as NGOs are sometimes willing to provide (partial) guarantees to increase access to finance and/or lower the cost of finance. For example, in one tripartite financing agreement in the maize value chain in Tanzania, an NGO sought to provide a guarantee which lowered the interest rates faced by farmers and encouraged the FSP to lend to more farmers. However, over-reliance on instruments such as guarantees can distort markets by encouraging lenders to participate only while external support is available, discouraging realistic risk pricing, and crowding out sustainable commercial finance. When support for these instruments is withdrawn, financing often collapses, leaving farmers and off-takers without viable alternatives.
- Flexible Payment Terms. Design payment terms that align with farmers' cash flow cycles, allowing for flexibility in repayment schedules. This can help farmers manage their finances more effectively and ensure that they can meet their obligations without compromising their operations.
- Ensure value and cost distribution are commensurate with risk exposure. Aligning value-sharing with each party’s contribution and risk exposure helps ensure that all actors remain commercially committed to the arrangement and invested in its long-term success
Scaling Up
Scaling Up
- Additional FSPs. Working with a single FSP can limit the number of farmers who can receive finance due to the lending criteria of that FSP. Due to the varying needs and profiles of smallholder farmers, adding more FSPs can broaden the number of farmers who meet the lending criteria of at least one FSP. In some cases, this may require a second tripartite financing agreement to be established
- Blended Finance. When the amount and price of capital available is the barrier, attracting additional (concessional or commercial) capital through blended finance can help scale up tripartite financing. For example, co-investment by (impact) investors into FSPs (or special purpose vehicles) can increase the amount of loan capital available and help lower the cost. Furthermore, incentives such as grants can be used to lower the transaction costs faced by FSPs, which in turn can reduce the interest rates that are passed onto farmers
- Leveraging Existing Relationships. Where possible, scale with partners who have existing relationships with smallholder farmers. This will reduce any customer acquisition costs and will enabling scaling up at lower risk and in a more efficient manner. In some cases, this may require finding new partners if looking to expand into new geographies and crops rather than through organic growth
- Improve off-taker and service provider capacity. Scale can be often limited by an off-taker’s ability to purchase produce and/or a service provider’s ability to supply sufficient goods or services. Providing financial support, such as working capital loans combined with appropriate technical support can enable both off-takers and service providers to increase activity
Recovering Costs
Recovering Costs
- Charge commissions for fairer distribution of costs and value. Some actors may benefit more than others relative to the costs they incur and the risks that they take. As a result, charging commissions can help finance the costs taken by other actors. For instance, if the off-taker incurs a lot of costs in collecting data and monitoring farmers, charging an input commission on inputs sold by the input provider can be a means to more fairly redistribute value among partners
- Claw-back Mechanisms. The off-taker and FSP typically face more production and climate risks compared to input and equipment providers. One way of allowing them to recoup any losses in the event of a climate shock is to establish a margin sacrifice mechanism, whereby the input/equipment provider sacrifices their profit margin on goods/services sold if the other actors are adversely affected
- · Bundling services. Explore what the opportunities are for bundling and cross-selling different financial products that go beyond credit, as well as non-financial services such as mechanisation and additional sourcing activities. For instance, FSPs can encourage farmers to set up current accounts which can also make them eligible clients for other products (e.g., insurance, savings).
- Establish Risk-Sharing Mechanisms: Similarly, explore options for sharing risks among the off-taker, farmers, input providers and FSPs. For instance, farmers can put forward a deposit ahead of taking the loan. Alternatively, the off-taker and the input providers can take (part of) a first loss position whereby they reduce the credit risk faced by the FSP, such as in the case of the AGRA Risk Sharing Model. This can be helpful in terms of incentivising FSPs to participate, but also in ensuring all parties have a vested interest in the tripartite financing agreement working effectively
How to complement your Tripartite Financing Agreement?
The successful implementation of Tripartite Financing Agreements can often be supported by other innovations being implemented simultaneously. From our experiences, the following innovations work well alongside Tripartite Financing Agreements:
- Service Coalitions. Tripartite Financing Agreements can be much easier to set up when there is a broader formalised collaboration between the different actors in a service coalition. In a service coalition, the ambitions of different organisations tend to be better aligned and coordinated, and the provision of access to finance to smallholders tends to benefit multiple parties
- Farm Management Information Systems. Detailed data on farmers and farmer organisations that have been collected by an FMIS system reduces the operational burden of Tripartite Financing Agreements by making it easier for FSPs to conduct their credit checks and monitor loan performance
- Farmer Organisation Segmentation. Different farmer organisations have different creditworthiness, financing needs and abilities to absorb finance. By aligning FO Segmentation criteria with key eligibility criteria used by FSPs, organisations can better ensure that FO’s put forward for loans under Tripartite Financing Agreements are more likely to be accepted for credit
- Minimum Pricing in Off-take Contracts. Guaranteed off-take is essentially a pre-requisite for Tripartite Financing Agreements. Putting in price floors into such contracts tend to reduce the chance of side-selling and therefore increase the chances of the agreement functioning as intended
What is the impact of a Tripartite Financing Agreement?
Comprehensive evidence across the sector of tripartite financing agreements remains relatively limited. From our own evidence, we have identified areas of impact but the scale of implementation of tripartite financing agreements is too low to make conclusive judgements. Below we highlight a few ways in which employing Tripartite Financing Agreements can impact outcomes:
Business level outcomes
Business level outcomes
The scale of implementation of tripartite financing agreements has been relatively low across the portfolio of companies where it was tested, often facilitating finance to a relatively small proportion of an off-taker’s farmer base. Multiple seasons were often required for tripartite financing agreements to begin to scale. This highlights the time taken in coordinating different partners in initial years. Coordination costs when establishing a tripartite financing agreement can be considerable for all parties, but they progressively fall over time as familiarity between parties and the associated processes grow.
Our evidence highlights several examples how costs are reduced for different parties. For off-takers, setting up a tripartite financing agreement can help reduce loan administration costs and lower credit risks that they face. Off-takers who have managed to establish a tripartite financing agreement have generally been positive about it once in operation to both reduce the dependency on off-takers to provide input credit, but also the impact on farm-level production. A key benefit which has been reported by FSPs has been that they have been provided with access to more smallholder farmers, without having to do so much outreach and at a lower level of risk. Many FSPs do not reduce interest rates when engaging in tripartite financing agreements, which ultimately results in higher returns given the lower costs and risks. Furthermore, input and equipment providers have benefitted from tripartite financing agreements, which have resulted in a low risk boost to sales.
Farm-level outcomes
Farm-level outcomes
Tripartite financing agreements have generally led to an increase in the number of farmers accessing financial services. Tripartite financing has been seen to support groups who may not have land title, especially women and youth. Evidence from one agreement in Tanzania showed women accessing finance at proportionally higher rates.
Farmers involved in tripartite financing arrangements often report increased production levels. This combined with the market assurance improves both the capacity and willingness of smallholder farmers to invest in their farms. For instance, in another project in Tanzania, only a few farmer groups were able to access credit through the tripartite financing agreement due the requirements of the FSP. However, the farmer groups who did access credit, reported considerable improvement at farm level
On the other hand, considerable challenges remain in the instances we’ve observed. Some projects have reported lower-than-expected access to finance due to bureaucratic delays and high interest rates. Additionally, the reliance on FSPs can create dependency. For instance, farmers are unable to access services on time, if loans cannot be processed within the appropriate timeframes.
External Evidence
External Evidence
A study that was completed on the implementation of tripartite financing agreements with risk sharing in Burkina Faso and Ghana with the support of AGRA reported several benefits at farm and business level Some of these benefits included the reduction of farm-level production costs (through lower input costs and lower interest rates), increases in the quality and quantity of produce, and lower operating costs for off-takers. However, the study also highlighted coordination challenges between parties to the agreement. Another study conducted by FAO and AFRACA explores the case of SOCAPALM, ADAF and Afriland First Bank in Cameroon, assessing the outcomes of a longer-term tripartite financing agreement that was established to improve productivity and support replanting. In this study, farmers reported increased income, whereas the banks benefitted from lower risk. Furthermore, Lutheran World Relief reported that loan repayment across 20 tripartite financing agreements was 98%, relatively high when compared to agricultural loan portfolios of FSPs. In addition to high repayment rates, LWR reported increased production and incomes of participating farmers.
Where to find more inspiration?
Case Studies
Case Studies
External Resources
External Resources
- AMEA & AGRA (2023) – Financing Farm Inputs Through a Risk Sharing Consortium: Lessons from AGRA’s Input Finance Model in Ghana and Burkina Faso
- FAO & AFRACA (2020). Agricultural value chain finance innovations and lessons – Case studies in Africa. Second edition. Rome.
- 2Scale (2018) - Access to finance for inclusive agri-business development
- Lutheran World Relief (2018) – Bridging the Rural Financing Gap. LWR’’s Tripartite Model
- ISF Advisors (2025) – Beyond the Frontier: Decoding viability in smallholder finance
In this article
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What is this document and why does it matter?
-
What is a Tripartite Financing Agreement?
-
Why implement it?
-
Context matters: what are enabling conditions for Tripartite Financing Agreements?
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Why not? Key limitations, risks and unintended consequences
-
How to design a Tripartite Financing Agreements?
-
What is the impact of a Tripartite Financing Agreement?
-
Where to find more inspiration?
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In this article
-
What is this document and why does it matter?
-
What is a Tripartite Financing Agreement?
-
Why implement it?
-
Context matters: what are enabling conditions for Tripartite Financing Agreements?
-
Why not? Key limitations, risks and unintended consequences
-
How to design a Tripartite Financing Agreements?
-
What is the impact of a Tripartite Financing Agreement?
-
Where to find more inspiration?
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