Global and African Financial Experts Urge Action to Enhance Smallholder Farmer Financing
Leading financial experts in the world and Africa have issued a loud call to align the financial structure with the needs of small farmers.
At a two-day meeting on financing for small African farmers, experts highlighted the key role of government intervention in expanding the enabling environment for agricultural lending for financial institutions.
The conference is a key step in mobilizing the billions of dollars needed to support small farmers in Africa every year, who make up about 80% of the continent’s agricultural population but control less than 5% of agricultural land.
Dr. Akinwumi Adesina, Chairman of the African Development Bank Group, delivered a keynote speech highlighting a clear disconnect: While agriculture contributes 30% to Africa’s GDP, it accounts for only 6% of commercial bank loans.
“Unless African farmers face difficult opportunities, we cannot collectively solve this problem except when encountering markets, finance, information, infrastructure and investments,” Adesina said.
A key highlight of Tuesday’s meeting was the panel discussion, which included Alice Albright, former CEO of Millennium Challenge Corporation (MCC); Brian Mitder, founder and CEO of Aceli Africa; and Jules Ngankam, CEO of African Guarantee Fund Group. The group, chaired by former international broadcaster Yvonne Ndege, explores practical designs of sustainable financing mechanisms to bridge the financing gap in agriculture.
The team members identified several key obstacles to adequate financing. These include misunderstandings of risk in agricultural loans, high transaction costs for rural financial services, mismatch between standard loan products and agricultural business cycles, lack of formal financial records and collateral, and inequality in value chain structures that limit farmers’ profitability.
Mitder shared a success story from Tanzania, with targeted interventions enabling Tanzanian commercial banks to increase their agricultural loan share from 2% to higher levels, while also increasing four-quadruple rural bank deposits.
He also highlighted the sharp contrast between the 14% yield on Kenya government bonds and the average yield on agricultural SME loans of 3%, which illustrates the urgent need for solutions that make agricultural finance more attractive to investors.
“Capital is like water, it runs downhill,” Mitt noted. “We need to consider solutions to the complete profitability equation, including transaction costs, risks and capital costs for financial intermediaries.”
Albright draws on her experience in developing an international immunization financial institution, which has raised $9.7 billion to highlight the need to clearly define financing challenges, assess risks, and build political will.
“We must articulate the fundamentals of public policy to fund smallholders and address key design challenges, including risk management and cost efficiency,” Albright said. “With political will, innovative financial tools and strategic partnerships, we can build a strong financing ecosystem to ensure the flow of capital that is most needed.”
Ngankam provides insights on how risk mitigation strategies provide financing for small farmers. He stressed the need for financial products tailored to chains of different agricultural value.
“The repayment schedule for corn cannot be the same as tea or coffee,” he explained. “Commercial banks need specialized products that are consistent with the agricultural business cycle.”
Panel members made some strategic recommendations to enhance agricultural financing, including tailoring financing methods for working capital and infrastructure investments, developing risk sharing mechanisms to attract more participation from commercial banks and strengthening digital financial infrastructure to reduce transaction costs.
They also stressed the need for targeted subsidies to stimulate private capital investment and called for enhanced market access to help farmers capture more value from agricultural production.
Distributed by Apo Group on behalf of the African Development Bank Group (AFDB).
