Increasing professionalism and access to finance in the Tanzanian agricultural sector

Since 2015, SCOPEinsight has gathered data about Tanzanian agribusinesses. Our partners have used this data to strengthen agribusinesses’ business acumen and facilitate access to finance.

The agricultural sector in Tanzania

The majority of Tanzanian agribusinesses are “maturing,” which means they still require additional support to become professional.

As in many sub-Saharan African countries, the Tanzanian agricultural sector plays a significant role in the country’s overall economy. Agriculture accounts for approximately one-third of Tanzania’s GDP, and the sector employs approximately 75% of the working population. The biggest crop in the country is maize, and other common food crops include wheat, rice, and sweet potatoes. In addition, farmers also often grow coffee, cotton, and tea as cash crops.

Of the nearly 300 Tanzanian agribusinesses we’ve assessed, almost two-thirds are classified as “maturing.” Maturing agribusinesses are often characterized by rudimentary policies and processes, a lack of technology, and low access to finance. As a result, they tend to be vulnerable to external risks and environmentally unsustainable in their practices. In Tanzania, many agribusinesses cannot access formal finance, and the use of modern agricultural practices, such as irrigation, is limited.

Agribusiness professionalism can help strengthen the sector

A proven method of strengthening agribusinesses is through professionalization. A professional agribusiness can manage its resources, which allows it to achieve its goals better. At SCOPEinsight, our service offerings help assess professionalism, benchmark agribusinesses, and pinpoint areas that need improvement.

Agribusinesses that are more professional see many benefits, including increased finance and resilience. They are also more independent and need to rely less on outside forces. This allows the entire agricultural sector to grow stronger.

Professionalism can increase access to finance

Traditional lenders such as banks tend to be hesitant to invest in agriculture because of perceived risks. However, banks also must perform extensive and often expensive due diligence before providing a loan. Because many agribusinesses do not meet the banks’ standards, the due diligence process can often be in vain. Thus, agribusinesses must meet these standards and communicate these to the banks in a way they understand. This is a challenge faced by many agribusinesses in Tanzania.

A professional agribusiness is more likely to meet the standards laid out by most banks. Specifically, we have found that of the dimensions and subdimensions that our assessments measure, the key influences on receiving loans are financial management, marketing strategy, governance, and record keeping. If an agribusiness’s goal is to become creditworthy, these four areas are the most important to strengthen.

As agribusinesses become more professional, their average loan size increases.

Our research has also found that the average loan size an agribusiness can access increases as the level of professionalism increases. Very immature agribusinesses usually can only access small loans, often from donor projects or informal credit groups. However, professional agribusinesses can sometimes access more significant loans from traditional lenders like banks. These larger loans allow the agribusinesses to make larger investments into their business, which leads to more growth. Therefore, if Tanzanian agribusinesses grow more professionally, they can also access greater loans, which will help them invest in their businesses and grow.

Modern agricultural techniques can increase resilience.

Tanzanian agriculture is mostly rainfall-dependent. However, precipitation in Tanzania has been growing more erratic due to climate change. Annual rainfall has been decreasing since 1960, and between 1980 and 2010, there were six major droughts. While some crops may benefit from the changing rainfall, others will not. Decreasing the dependency on rainfall will help all these crops to thrive.

Implementing irrigation is an important step the Tanzanian agriculture sector can take to decrease rainfall dependency. A project by FAO has already had success with this. It is also a significant focus of the Tanzanian government’s Agricultural Sector Development Programme. The professionalization of Tanzanian agribusinesses would complement these efforts. Professional agribusinesses are more capable of making advancements such as integrating modern agricultural practices. As they also have greater access to finance, they can afford to make these changes. Increasing professionalism will also make it easier to increase irrigation.

Proof of concept in Tanzania

Our solution has helped multiple clients increase Tanzanian agribusinesses access to markets and finance. For example:

NCBA CLUSA, as part of their USAID-funded Creating an Environment for Cooperative Expansion (CECE) project, used SCOPEinsight’s assessments to ascertain the project’s cooperatives strengths and weaknesses. From this, they developed a targeted coaching to 25 agricultural cooperatives and savings and credit cooperatives (SACCOs) in six different regions across the country. This has helped these cooperatives build capital and create financial reserves, which in turn helps the cooperatives grow and serve their members and provide them with a safety net if necessary.

For NewForesight Consulting on their project funded by the Bill and Melinda Gates Foundation, we provided crucial data on Tanzanian Agri-food Industry Organizations (AFIOs). This data helped NFC develop a framework for BMGF to support AFIOs in creating inclusive agricultural transformation. This change will then lead to improvements beyond Tanzania.

With the Alliance for a Green Revolution in Africa (AGRA), and a member of our Local Expert Network, Sundy Merchants, we are working with financial institutions to institutionalize a procedure that helps banks optimize their due diligence procedure using bankability metrics (and SCOPEinsight data)when lending to agribusinesses. We envision the codification of these metrics into the targeted banks lending procedure and will hopefully result in an overall increase in access to finance for Tanzanian agribusinesses.

Looking to the future of agribusiness professionalism

This month we are diving even deeper on our data for Tanzania. To receive this country analysis, sign up for our BIIG newsletter.

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