By Sharon Atieno
Despite smallholder farmers contributing the majority (about 70%) of the food consumed in Africa, accessing finance to increase their production remains challenging.
Access to credit is a key factor in the adoption of agricultural technologies and innovations yet only six percent of smallholder farmers have this benefit.
Speaking during the High-level Conference on Scaling Finance for Smallholder Farmers in Africa, co-hosted by the Government of Kenya, the African Development Bank, and the Pan African Farmers Organization (PAFO), experts reiterated the need to bridge this financing gap.
“Africa’s smallholder farmers face a staggering $75 billion financing gap per year – meaning that’s the amount of investment needed for equipment, tools, inputs and services…the basics they need to be productive and resilient,” said Dr. Beth Dunford, Vice President, Agriculture, Human and Social Development, African Development Bank.
“Providing smallholder farmers with access to credit is essential to unlocking long-term gains in farmer productivity and incomes.”
She noted that Africa cannot feed itself without smallholder farmers, hence, there is a need to pursue innovative financing models to de-risk agriculture through risk-sharing facilities, blended finance and other services.
Additionally, Dr. Dunford called for the need for governments to create enabling environments for public-private partnerships while encouraging the use of technology among Africa’s smallholder farmers to boost their incomes and marketing of services among others.
Mutahi Kagwe, Kenya’s Cabinet Secretary for agriculture and livestock development, said building a resilient and sustainable Africa, includes recalibrating agricultural financing to directly address the core farmer challenges.
Kagwe noted that investing in soil analysis and infrastructure and capacity required for it, will enable farmers to understand their soil nutrients, composition, pH levels, and potential disease risks. Thus, they will be capacitated to apply the right soil treatments to improve crop yields, increase long-term soil health and sustainability and improve resilience to pests and climate-related challenges.
Similarly, investment in fertilizer access, fertilizer companies and fertilizer blenders, among others, for African farmers not just as a strategic economic opportunity will realize far-reaching benefits that developed economies have achieved.
He also called for investment in cold chain facilities, noting that it would not only reduce food waste but extend the shelf life of perishable goods, open new markets for farmers and increase overall food supply stability.
“With the focus on these basic thematic areas, we will promote industrialization such as agro business, agro-processing industries, and create therein new markets and new jobs that our youthful population so desperately needs,” Kagwe urged.
On the financing models, he noted that African banks can develop tailor-made financial products by innovating beyond traditional loan structures and creating flexible low-interest credit products designed for smallholder farmers. With little effort, they can create input financing, warehouse receipt systems, and various financing models.
Besides, banks can also expand risk mitigation tools by encouraging agriculture-specific insurance schemes and guarantee funds that reduce lending risks for both banks and farmers ensuring that adverse climate conditions or price fluctuations do not lead to financial ruin.
The keynote speaker, Equity Bank Group’s Chief Executive Officer, James Mwangi, noted that small-scale farmers must be made profitable by increasing their productivity so that they do not become a financial risk.
To achieve this, he said, the government needs to address weak advisory and extension systems to elevate the capacity of the small-scale farmer. If this is done, it will increase their capacity and competency.
Also, it should put in place policies that provide public infrastructure to small-scale farmers such as markets and irrigation programmes. The policies should also address price volatility and post-harvest losses.
Mwangi also advocated for blended finance for donor and development partners’ finances, noting that the blended finance would de-risk the rest of the finances and support the government in fulfilling its mandate.
Financial institutions must address inadequate financing mechanisms, he said. Collaboration, including with blended finance providers and other stakeholders, is needed to co-create adequate mechanisms to finance small-scale farmers.
“Financial institutions must design innovative lending models, tailor-made small-scale farmers, leverage fintech, mobile banking, and alternative credit scoring systems,” Mwangi urged.
