Getting hundreds of thousands of agribusinesses banked: What are the components of a true systems approach?

by Lucas Simons, CEO, SCOPEinsight

Each year, we have a $65 billion financing gap for agribusinesses in sub-Saharan Africa^[1]. In other emerging economies, agribusinesses also cannot get loans. Finance is fundamental for agribusinesses to be more productive, more sustainable, more resilient, and produce the food we need to feed our growing population.

But, if this challenge is so significant and urgent, then why haven’t we solved it by now?

Recently we asked during a webinar organized by AGRA the following question: “Is access to finance THE main barrier to agricultural enterprise growth?” A whopping 79% of them responded, “Yes”^[2]. So, it is not a lack of awareness that stops us.

Lack of funding can also not be the main problem. We have spent billions of dollars on agricultural development projects throughout the world in the last decades. Total ODA (overseas development assistance) disbursements for agriculture have risen over 156% since 2002, standing at USD 10.2 billion in 2018^[3].

So what really stops us from solving this issue? Are we still clueless about what is needed to get agribusiness banked? Do we need more awareness, more pilots, more projects, more funding? Or can it be that our way of working is actually part of the problem that keeps us spinning our wheels while not moving forward?

We cannot project ourselves out of this; we need a different way of working!

You cannot solve a complex problem like access to finance for hundreds of thousands of agribusinesses with fragmented pilots, projects, and programs. Complex problems have never been solved by this type of approach. What we need is an opposite way of thinking and working. If you want to solve a problem, then, and as Stephen Covey writes in ‘The 7 Habits of Highly Effective People’,^[4] “We need to start with the end in mind.” We must have a vision of what is needed to solve the problem and get the results we want. To do this, we need to ask ourselves three powerful questions: 1) If we want to solve this challenge, what would a systemic solution look like?, 2) What are the components or elements of this functioning systemic solution?, and 3) How do we get there, and who needs to do what? We can then start working towards that solution and stop with well-intended, fragmented, unrelated projects that do not contribute to that vision. That is how we build systems that will enable scalable solutions.

The four essential components of a successful systemic solution

To build a lasting, systemic solution, four principles need to be in place.

Mission and strategy agreement: We must be sure we are all pulling in the same direction, and for this, we need a clear and agreed idea between actors what we are trying to accomplish, what success looks like, how to get there and what needs to be in place to be successful.
Standardization of approaches and metrics: Agreement on what needs to be done, how we do those things, and how we measure performance and progress. Standardization creates efficiency and scalability, and it ensures interoperability and effortless communication between the different actors.
Separation of functions, roles, and responsibilities: Or in other words, who does what? Within the system, different actors do what they are best at doing. It is not one organization that tries to do it all in its own way.
Continuous improvement: The system manages continuous improvement of both the individual actors and the system as a whole. Without agreed-upon performance measurements and metrics, this is not possible.

If we look around, we see these four operating principles functioning in all kinds of (relative) successful and scalable systems like the Health care system, the Airline and Aviation system, the Educational System, the Banking system, the Insurance system, The Army, and many more. In fact, a systemic solution cannot function without these as we would be doomed to continue to work in a fragmented way, move from projects to projects, only focused on what you do and not what others need, operate in trial and error mode, and create sub-optimization.

How do we apply these four principles to unlock financing for agribusinesses at scale?

Let’s apply the same logic to the challenge of enabling hundreds of thousands of agribusinesses access to finance. What is already in place to build that systemic solution? What needs to be done to make this systemic solution operational.

At SCOPEinsight (est 2010), we see it as our mission to help build this systemic solution to enable access to finance for thousands of agribusinesses. Over the past 11 years, we have worked on these four core principles with partners. Now it’s time to move beyond the project phase and start putting the different components together, igniting the interoperability between the different actors and building a scalable, effective, and efficient systemic solution.

What are we doing, what is there, and what are the next steps? Mission and strategy agreement: In the last years, there has been a realization that a bankable agribusiness is first and foremost a professionally managed business. This is helpful because now the main strategy comes down to two main questions 1)- How can we professionalize Agribusiness efficiently and at scale, and 2) how can we link the professional ones to Financial institutions. To answer these two questions, the other principles come in.

Standardization of approaches and metrics: With our partners, these are the questions we’ve been able to answer:
- What is a professional agribusiness? The Agribusiness Market Ecosystem Alliance (AMEA) partnered with the Dutch Standards Body (NEN) to develop the ‘Professional Farmer Organization Global Guidelines’ (known as IWA29). NEN officially adopted IWA 29 following its publication by ISO in February 2019. Let’s use and build on this definition rather than start afresh.
- How to measure performance?: SCOPEinsight has developed standardized assessment tools (aligned to the IWA29) to measure the level of professionalism of agribusinesses. These tools have been used by dozens of partners in more than 45 countries and over 5,000 times. The data helps determine the strengths and weaknesses and segment agribusinesses, guide capacity building, monitor performance, build track records, provide business intelligence, and set benchmarks. Let us use and build on these assessment tools and data sets and not start afresh.
- How to help Agribusinesses professionalize?: For the past several years, IFC and SCOPEinsight have a unique partnership to advance the level of agribusiness professionalism. In this partnership, IFC built a very effective curriculum to help agribusinesses become more professional and made it available through the AMEA membership. This curriculum is based on the SCOPE assessments and reports. But there are other capacity-building curricula as well, and they are being peer-reviewed and accredited by AMEA. These are the better tools. Let’s use and build on these tools and not start afresh.
- How to link to financial institutions? With AGRA, CFI, and over 100 financial institutions, SCOPEinsight recently developed bankability metrics that helps lenders assess risk and make more informed investment decisions. Let’s use and build on these common bankability metrics and not start afresh. The next step we want to take is creating an online portal to link the assessed agribusiness to the financial institutions using the bankability metrics.

Separation of roles and responsibilities: This is a crucial part, and frankly, this is also the biggest challenge in our sector. Working together like a team where it is clear who does what – who plays offense and who plays defense, and who is the goalkeeper – is still not easy and is contrary to the interests of many of the actors. Driven by donor money, we see most organizations trying to solve and do things by themselves, slightly different than others, reinventing the wheel and starting afresh, going for short-term results, and working in a project-driven way. It has been SCOPEinsight’s founding vision not to follow that path. We know we have a unique role in developing the ecosystem, but we are not the whole solution! In fact, we cannot be successful if we do not collaborate with others. We work with dozens of donors, capacity builders, multilaterals, businesses, platforms, value chain builders, financial institutions that all are responsible for their part of the solution^[5]. Our unique role and added value is to be the best in developing assessment tools to measure the level of professionalism of agribusiness and manage the data and business intelligence that comes out of these assessments.

Continuous improvement: Improvement of both the individual actors’ performance and the system is only possible when common metrics and performance data are used. SCOPEinsight has the benchmarks to track and compare the performance of individual agribusinesses and compare sectors and countries to each other. When different actors start using this data and benchmarking, we can collectively manage the systemic solutions and collectively adjust our course when needed.

What are the implications for you when you work more systemically?

Why you need to work more in a systemic way to address the access to finance problem is the 10.2 billion dollar question. It will eventually determine if we can solve the complex access to finance challenge and create incredible, synergetic, market-based benefits or continue to work in a fragmented and project-driven way.

Here is how the above systemic solution can benefit you:

Donors can maximize the impact of their investments by determining the effectiveness of the different approaches, work in a market-driven way, and having natural exit moments for their programs.
Capacity Builders can better target their support using fewer resources. They can measure their impact and compare their performance with others.
Lenders can see their pipeline increase because of the increased transparency, lower transaction costs, decreased risks, and make lending decisions in agriculture in a more informed way.
Companies benefit from having more reliable business partners with higher quantity and quality produce. Furthermore, the transparency into the supply chain reduces risks.
National governments are helped by ecosystem solutions like this to assess the cooperative landscape, align efforts of scalable and efficient graduation programs, compare performance and progress, and build roadmaps towards modernized rural economies.
Agribusinesses are the most important stakeholder of all. They finally get the ecosystem support structure they need to advance their businesses, become resilient, more reliable business partners, self-sufficient, and have access to finance and markets.

Are you also convinced that the next project will not solve the issue? Are you interested in joining a growing systemic solution? Are you interested in seizing the benefits and synergies of working together?

We are looking for counterparts to join us in building a systemic solution to accessing finance for agribusiness. Contact us to find out more at marise.blom@scopeinsight.com. Let’s build a systemic solution together!

[1] Aceli, 2020. https://aceliafrica.org/bridging-the-financing-gap-unlocking-the-impact-potential-of-agricultural-smes-in-africa/

[2] Response from attendees of “Secret to Mobilizing Funds for Agri-SMEs” webinar hosted by AGRA, May 4^th, 2021

[3] The International Institute for Sustainable Development, 2020. Ending Hunger Sustainably: Trends in official development assistance (ODA) spending for agriculture

[4] Covey, Stephen R. The 7 Habits of Highly Effective People: Restoring the Character Ethic. New York: Free Press, 2004.

[5] Some of our partners include: AGRA, Agriterra, AMEA, Cargill, CNFA, Fairtrade Africa, IDH, IFC, Nuru International, Rikolto International and TechnoServe

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