What is the secret to mobilizing funds for agri-SMEs?

Summary of the March 4 webinar with AGRA, CFI, and SCOPEinsight

Nearly 400 development practitioners from members of agri-SMEs themselves to financial institutions, social lenders, capacity builders, and donors – attended a webinar to find out what is the secret is to solve the lending gap in agriculture.  An astonishing 79% of attendees responded that access to finance is the main barrier to agricultural enterprise growth when queried. It is no wonder why, then, this webinar was one of the most widely attended webinars that AGRA has held in the recent past. 

A graphic showing that 79% of attendees to the "Secret of Mobilizing Funds for Agri-SMEs" webinar hosted by AGRA think that access to finance is the main barrier to agricultural enterprise growth.
Response from attendees of “Secret to Mobilizing Funds for Agri-SMEs” webinar hosted by AGRA

The paradoxical relationship of agricultures economic prominence vs. loan receipt

In sub-Saharan Africa, agriculture accounts for 32% of most countries’ GDP and employs most of the population.  Micro, Small, and Medium Enterprises are key in delivering better seeds, blended fertilizer, post-harvest technology, and market access to small-scale producers. If we cannot make these Micro, Small, and Medium Enterprises (MSMEs) more competitive we will fail to reach farmers with affordable products and services.  Making MSMEs more competitive means they need access to finance. However, the financing gap for MSMEs is a staggering $65B annually. So why do MSMEs not get access to finance?

Developing a common language to bridge the lending gap

Presenters from AGRA, CFI, and SI explained the results of their research with over 100 industry players including lenders (all types) and capacity builders.  The research also included data mining and analysis of SCOPEinsight’s assessment data. The purpose of this research was to develop a common language that would act as a bridge between lenders and MSMEs.

A graphic showing the three steps of developing a common language. First, the problem is identified: there is information asymmetry between agri-SMEs and banks on what they consider bankable. Next, metrics must be developed that indicate the bankability of agri-SMEs, and these metrics must be validated by lenders and industry experts. Finally, these common bankability metrics must be adopted by financiers.

The drivers that block access to finance

The team revealed the three most important drivers that impede access to finance. These are: 1. Risk perception, 2. Cost of data collection, and 3. Lack of standards/common language.

A graphic showing the barriers to access to finance. They are: first, that it's risky. Agri-SMEs must operate as robust businesses and must meet market requirements. Second, that it's costly. It is costly to collect data, and many lenders are reluctant due to bad experiences. Third, that there's a lack of standards or common language. Agri-SMEs are not aware of the requirements and lenders struggle to assess the risks.
These three are to top reasons agri-SMEs can’t access finance

The secret is out!

 During the webinar, the researchers unveiled the secret to mobilizing funds for agri-SMEs: bankability metrics.  So what are “bankability metrics”?  These are a set of straightforward data points for agri-SMEs to report to lenders is organized to align to a lender’s typical deal flow: from sourcing and pre-screening, through their initial assessment to full due diligence.

A graphic showing the loan origination deal flow. In the pre-due diligence stage, lenders can use the bankability metrics. This will make due diligence easier.
Source: CFI

A call to action

A shared understanding will help agri-SMEs be successful businesses and banks lend to agricultural businesses, helping to break the agri-SME finance deadlock. From this shared understanding, there are clear benefits for all stakeholders.

A graphic showing how all stakeholders can benefit from the bankability metrics. Donors can maximize their leverage by prescribing the use of these metrics in the work they support. Lenders request these metrics and use them during pre-due diligence to save time. Agri-SMEs prepare to report these metrics and get support where required. TA and BDS providers can target their support. This leads to lower transaction costs, which is one less barrier for agri-SMEs to access finance.
These metrics can lower transactions costs and remove a major obstacle impeding access to finance

Lenders should request these metrics from prospective agri-SMEs during the pre-screening process, saving time and making a pre-due diligence decision more confidently. They can also clarify their lending expectations by sharing the metrics with the agri-SME support providers they work with.

Agri-SMEs should prepare to report these metrics and seek support if required.

Technical assistance and business development providers should use the metrics to identify an agri-SME’s pain points and build their capacity accordingly. They can also seek minimum lending requirements from the lenders in their network, establishing a clear eligibility baseline for each lender.

Donors should maximize their leverage by prescribing the use of these metrics in the work they support.

Looking forward

We are confident that widespread adoption could also improve the efficiency of matchmaking platforms, including the AGRF Deal Room, and the hundreds of other investment services and information solutions.

Watch the webinar.

Access the bankability report.

To find out how you can get involved, contact us today.

Back to news

We use cookies, just to track visits to our website, we store no personal details. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you agree to these institutions.

Sluiten