Africa’s agricultural sector is the backbone of many economies on the continent, contributing significantly to GDP and providing livelihoods for millions of people. Despite its immense potential, businesses across the agri-value-chain in Africa face significant hurdles.
Most importantly a lack of access to financing and mentorship tools to aid their growth. The financing gap in particular hinders the growth of agribusinesses, which are essential for the continent’s economic development.
Africa is also a key supplier of a range of food products to the EU, US with data from Trade Map reporting a record $13,2-billion agricultural exports from South Africa alone in 2023, rising 3% from the previous year. For the African continent, trade share in already processed products for intra-African trade increased by 46,3% in the 2019 – 2021 period, with the African Continental Free Trade agreement expected to increase the current numbers.
In 2025, South Africa will be holding the G20 conference of global leaders and agricultural reform will be a key topic in terms of sustainability and the world’s food security agenda.
Challenges faced by African SMEs along the agri-value chain
According to Jerome van Innis, Co-founder of African fintech, Pumpkn.io, “while recognising the need for capacitation of SMEs on the continent and despite the sector’s importance for global food security, traditional lenders, such as commercial banks, often view SMEs across the food value chain as high-risk borrowers due to factors like price fluctuations, unpredictable weather patterns, and limited financial, marketplace, technical and formal business literacy.”
This perception restricts agri-SMEs’ access to essential financing, hindering their ability to grow and innovate. Many African SMEs, particularly those in rural areas might lack a formal credit history making it difficult for lenders to access their credit worthiness. Some still do not have the traditional forms of collateral such as land or buildings which lenders typically require for large loans.
Furthermore, poor infrastructure in some rural areas can make it difficult and expensive for lenders to reach and serve agri-SMEs across the continent’s vast areas.
Bridging the gap through close partnerships
“What this has brought about is the need for these challenges to be addressed by providing innovative financial solutions while fostering close partnerships with these SMEs in order to provide the financial support, repeatedly, in order for them to grow,” adds van Innis.
Because of the world’s move towards digital-driven business practices, fintech’s must take a technology-led approach to working with SMEs using tools such as data-driven credit assessments.
“Today this can be done with multiple data sources in ways that are frictionless for the entrepreneur. This approach helps to identify creditworthy borrowers who may have been overlooked by traditional lenders,” says van Innis.
Further solutions to form closer partnerships with SMEs in order to address their specific challenges and make the process for applications easier include making applications completely paperless. These could also be the offer of lending products tailored specifically to their needs which might consist of working capital loans, invoice financing or other tools that aid financial resourcing to help purchase equipment, expand businesses and cover operational costs.
What is important is looking at African SMEs with a unique lens, and using a partnership based lending approach to build great and growing businesses. This approach fosters trust and ultimately helps to ensure the success of the capital injected.
The Impact of a technology led approach
Fintech has significantly changed the way agri-financing can work and is making such a positive impact on the lives of African farmers and food entrepreneurs. And while there are great strides being made in using technology to make it easier for these SMEs to have access to financing, more is to be done.
“For example,” adds van Innis, “more of the world’s development agencies, the public sector and lenders need to work with teams who understand how these businesses work and understand how to assess their risk profile. Working with fintech’s will help to close the gaps to ensure that SMEs get the capital they need to both survive and thrive. This is incredibly important for an industry accounting for one-third of the continent’s GDP.”
Such approaches will not only help to grow businesses, but create jobs, and improve livelihoods. “The success that we are seeing with this approach demonstrates the potential of technology and innovative partnerships to bridge the financing gap in African agriculture. As more fintech’s enter the market and governments implement policies to support agri-financing, the future of African agriculture looks bright,” he concludes.
The future success of agri-financing in Africa
By working together, stakeholders can create a more inclusive financial system that empowers African agri-SMEs to thrive and contribute to the continent’s economic development.
Such an approach to agri-financing, which leverages technology, data-driven credit assessment, and close partnerships with SMEs, is a positive step towards addressing the financing gap that hinders the growth of African agriculture. As more stakeholders adopt similar approaches, the future of African agriculture looks promising.