Home Agribusiness The need for bridging financial gap in The Agriculture sector

The need for bridging financial gap in The Agriculture sector

female farmer planting manioc in Malawi, Africa

‘The state of the agri-SME sector – Bridging the financial gap,’ according to the Commercial Agriculture for Smallholders and Agribusiness (CASA) program.

The need for funding from roughly 220,000 agribusiness SMEs in Sub-Saharan Africa and Southeast Asia is estimated to be $160 billion, with banks, impact investors, and other financial intermediaries supplying only $54 billion, according to the report. Furthermore, practically all climate financing is directed toward mitigation measures rather than helping strategies for agriculture to adapt to the climate issue, with small-scale agriculture receiving less than 2% of global climate finance, or USD $10 billion.

The market is divided into three segments: a small group of high-potential SMEs at the top served by private equity, a much larger group of relatively mature companies in the middle financed by banks, and a bottom segment of lower-performing companies reached only by highly concessional finance providers. The majority of the market is for sub-commercial capital, and most agri-SMEs will never be able to access fully commercial finance in the long run.

Accepted problems, according to CASA’s state of the argic-SME sector study, include high costs to serve agri-SMEs, high-risk perceptions in agricultural markets, low levels of investment readiness among potential borrowers, and high costs for borrowers to repay these loans.

A team managed by Alvaro Valverde, CABI’s Private Sector Engagement Officer, is in charge of CASA’s research and communication program. “The analysis provides a new level of granularity to the market for agri-SME finance in Sub-Saharan Africa and Southeast Asia, exposing the USD 106 billion annual financing shortfall,” Alvaro explained.

Even if finances were made available to develop resilient supply chains and promote climate adaptation, the infrastructure to channel the money to where they are required is currently unavailable, according to the research.

The report outlines four change priority areas to solve this issue. These are the requirements:

• Encourage a loan-friendly atmosphere while also assisting agri-SMEs in becoming investment-ready.

• Make better use of impact investment from public and philanthropic sources

• Create acceptable investment infrastructure to distribute climate money at scale

• Support local banks over time to financially serve smaller, less commercial agri-SMEs with long-term, subsidized funding

“What’s needed is a more coordinated strategy to ensure that whatever sub-commercial credit is available is deployed to the best candidates among agricultural SMEs,” Alvaro concluded. CASA is ready to collaborate with our partners and other interested parties to improve the utilization of subsidies, mobilize existing local financial institutions, and expand the availability of climate finance for the investment pipeline.”