Agriculture is a risky economic activity.

A large range of uncontrollable elemen ts can affect output, production and price resulting in highly variable economic returns to farm households. In developing countries, farmers also lack access t o modern instruments of risk management such as insurance, future contracts and guarantee funds as well as ex poste emergency government assistance. One consequ ence of inadequate overall financial risk management is that farmers, in general , face constrained access to formal finance. The smaller the net worth of the fa rm household, the greater the degree of exclusion. Formal lenders avoid financing agriculture for a host of reasons: High cost of s ervice delivered, information asymmetries, lack of branch networks, perception o f low profitability in agriculture, lack of collateral, high levels of rural pov erty or low levels of farmer education and financial literacy. But predominantl y, Bank Managers around the world say that they would not finance agriculture be cause of the high degree of uncontrolled production and price risk that can infl uence the sector. The farmer can be an able and diligent manager with an excell ent reputation for the repayment, guaranteed access to a market and high quality technical assistance but an unexpected drought or flood can force him / her to involuntarily defau