Experts demand policy action to strengthen Africa’s smallholder farmer financing
Onome Amuge
Global and African financial leaders have presented the need for financial structures to be realigned with the requirements of smallholder farmers, highlighting the importance of government intervention in fostering a favourable environment for financial institutions to increase lending to smallholder farmers.
Speaking at a two-day conference on financing Africa’s smallholder farmers in Nairobi, Kenya, the experts underscored the crucial role of government intervention in creating an enabling environment for financial institutions to expand agricultural lending.
The Nairobi conference marked a major development in the ongoing endeavour to mobilise the significant financial resources required to support Africa’s smallholder farmers, who constitute an estimated 80 percent of the continent’s farming population but hold only five percent of the available agricultural land.
Akinwumi Adesina, president of the African Development Bank Group (AfDB), addressed the conference with a keynote speech drawing attention to the disparity between agriculture’s crucial role in Africa’s economy and the low level of commercial bank lending to the sector
Adesina noted that while agriculture constitutes 30 percent of Africa’s gross domestic product (GDP), commercial banks lend only six percent of their total lending portfolio to the agricultural sector.
“Smallholder farmers around the world are the same, except those from Africa face difficult odds — poor access to markets, finance, information, infrastructure, and inputs—none of which we can’t address collectively,” the AfDB president stated.
One of the key highlights of the session was a panel discussion featuring Alice Albright, former CEO of the Millennium Challenge Corporation (MCC); Brian Milder, founder and CEO of Aceli Africa; and Jules Ngankam, Group CEO of the African Guarantee Fund. Moderated by former international broadcaster Yvonne Ndege, the panel explored practical designs for sustainable financing mechanisms to bridge the financing gap in agriculture.
Panelists identified several critical barriers to adequate financing. These include risk misperceptions in agricultural lending, high transaction costs for rural financial services, mismatches between standard loan products and agricultural business cycles, lack of formal financial records and collateral, and inequitable value chain structures that limit farmer profitability.
Milder shared a success story from Tanzania, where targeted interventions enabled Tanzania Commercial Bank to increase its agricultural lending share from two percent to much higher levels while simultaneously quadrupling rural bank deposits.
He also highlighted the stark contrast between the 14 percent yield on Kenyan government bonds and the mere 3% average return on agricultural SME lending, illustrating the urgent need for solutions that make agricultural finance more attractive to investors.
“Capital is like water—it runs downhill,” Milder noted. He added that the continent needs solutions that consider the full profitability equation, including transaction costs, risk, and capital costs for financial intermediaries.
Albright drew on her experience developing the International Finance Facility for Immunization, which has raised $9.7 billion, to emphasise the need to clearly define financing challenges, assess risks, and build political will among governments.
“We must articulate the public policy rationale for financing smallholder farmers and address key design challenges, including risk management and cost efficiency.
“With political will, innovative financial instruments, and strategic partnerships, we can establish a robust financing ecosystem that ensures capital flows where it is needed most,” Albright stated.
Ngankam provided insights into how risk mitigation strategies could unlock financing for smallholder farmers. He emphasised the necessity of financial products tailored to different agricultural value chains.
“The repayment schedule for maize cannot be the same as for tea or coffee. Commercial banks need specialized products that align with agricultural business cycles,” ,” he added.
Panelists proposed several strategic recommendations to enhance agricultural financing, including tailoring financing approaches separately for working capital and infrastructure investment, developing risk-sharing mechanisms to attract greater participation from commercial banks, and strengthening digital financial infrastructure to lower transaction costs.
They also emphasised 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.