The authors of this paper address: (1) the environment that financial institutions in East and Southern Africa (ESA) face when lending to agricultural micro-, small and medium-sized enterprises (MSMEs); and (2) how this lending can be increased via agricultural technology (agritech) and financial technology (fintech) firms. The challenges include low market density, limited infrastructure, and the financial risk of lending to agricultural SMEs and smallholder farmers. The resulting lack of interest in agricultural finance makes it difficult for agritechs and fintechs to acquire funding. Regulatory barriers also hinder the growth of these firms in many countries.
The authors argue that, while the main investors in agritechs and fintechs are governments and development finance institutions (DFIs), they need private investment to help manage financial risks, including those caused by climate change. In an effort to facilitate private investment, the paper offers a set of investability criteria to help “evaluate business models within the agritech and fintech landscape.” The authors recommend private investors focus on companies that sell both agricultural and financial products, e-commerce firms that connect agriculture-related suppliers and buyers, and data and analytics companies that help farmers boost profits. As for DFIs, the authors recommend supporting high-growth agritechs and fintechs with grants, technical assistance, loans and first-loss capital.
The paper also includes a comparison of countries in ESA – on criteria such as literacy, mobile phone ownership and access to electricity in rural areas – as well as profiles of agritech and fintech companies, including information on the sizes and sources of the investments in each.
This is summary of a paper by Palladium; published by the International Fund for Agricultural Development (IFAD) and the Smallholder and Agri-SME Finance and Investment Network (SAFIN); May 2023; 93 pages; available at https://safinetwork.org/wp-content/uploads/2023/05/Digital-Landscape-Assessment-ESA_Full-Report_IFAD_SAFIN.pdf.
By Rohit Dayanand, Research Associate
Additional Resources
IFAD homepage
https://www.ifad.org
SAFIN homepage
https://safinetwork.org
Palladium homepage
https://thepalladiumgroup.com
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