$106 Billion Finance Gap in Sub-Saharan Africa and Southeast Asia Agricultural Business
The Commercial Agriculture for Smallholders and Agribusiness (CASA) program has published “The state of the agri-SME sector — Bridging the finance gap.”
The report estimates demand for financing, from around 220,000 agribusiness small- and medium-sized enterprises (SMEs) in sub-Saharan Africa and Southeast Asia at $160 billion with banks, impact investors and other financial intermediaries providing only $54 billion. Furthermore, almost all climate funding is targeted at mitigation measures, rather than supporting ways for agriculture to adapt to the climate crisis with less than 2% of global climate finance — or $10 billion — being channeled to small-scale agriculture.
The market is characterized by a small group of high-potential SMEs at the top served by private equity, a much larger set of relatively mature companies in the middle financed by banks and a bottom of the market of lower-performing companies that are reached by highly concessional finance providers, if at all. Most of the market is for sub-commercial capital and, even in the longer term, most agri-SMEs will never be in a position to access fully commercial capital.
The state of the argi-SME sector report from CASA also declared that accepted challenges include high costs to serve agri-SMEs, high perceptions of risk in agricultural markets and low levels of investment readiness amongst potential borrowers, and the high costs for borrowers to service these loans.
CASA’s research and communication program is delivered by a team led by Alvaro Valverde, private sector engagement officer for the Centre for Agriculture and Bioscience International (CABI). Alvaro said, “The report brings a new level of granularity to the market for agri-SME finance in sub-Saharan Africa and Southeast Asia, highlighting the USD 106 billion annual financing gap.”
The report adds that even if funds were made available to build resilient supply chains and support climate adaptation, the infrastructure is not currently available to channel the finance to where it is needed.
To address this issue, four change priority areas are outlined in the report. These are the need to:
- Support both the enabling environment for loans and providing support for agri-SMEs to make them investment-ready
- Support local banks over time to profitably serve smaller, less commercial agri-SMEs with long-term, subsidized capital
- Make better use of impact investment from public and philanthropic sources
- Create suitable investment infrastructure to deliver climate funds at scale
Alvaro concluded, “What’s needed is a more coordinated approach to ensure that whatever sub-commercial finance is available is applied to the best candidates among agri-SMEs. CASA stands ready to work with our partners and other interested parties to help make better use of subsidies, mobilize existing local financial institutions and increase the availability of climate finance for the investment pipeline.”
Additional information
“The state of the agri-SME sector — Bridging the finance gap” report is authored by the Initiative for Smallholder Finance (ISF) Advisors.
About CASA and acknowledgement
The CASA program is a flagship program of the United Kingdom (UK) Foreign, Commonwealth and Development Office (FCDO) and is intended to increase global investment agribusinesses, which trade with smallholders in equitable commercial relationships, increasing smallholders’ incomes and climate resilience.
The program aims to help agribusinesses to scale up and trade in larger commercial markets. As part of its work, CASA generates new evidence and analysis that supports a stronger, fairer and greener agribusiness sector.
This report is made possible by the generous support of the American people through USAID. This paper is also funded with UK aid from the UK government (FCDO).