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Opportunities and Challenges for Scaling Commodity-Backed Financing for Agri-SMEs in Africa
The agricultural sector is estimated to account for about 23% of Africa’s GDP while employing over 60% of the African workforce. Furthermore, small and medium enterprises (SMEs) produce, aggregate, and deliver roughly 65% of all food consumed in Africa. However, according to recent research, the funding gap for agricultural SMEs (agri-SMEs) in Africa is estimated to be USD 74bn, with local financial institutions accounting for 65% of the USD 16bn currently being supplied to these businesses.
Traditional financing models have generally struggled to meet the needs of most agricultural small and medium enterprises (agri-SMEs) across Sub-Saharan Africa (SSA). This necessitates looking at alternative and innovative financing models such as commodity-based financing that could enable these businesses to unlock financing to support their growth and development.
In 2024, with support from Small Foundation, Samawati Capital Partners undertook a research study to uncover the opportunities and barriers to scaling commodity-backed working capital loans for agri-SMEs in the Sub-Saharan Africa region. The study involved a survey of 23 financial institutions across 9 countries in SSA and provides a detailed analysis of the current state of commodity-backed financing, highlighting the key drivers for expanding this model, while seeking to identify the challenges faced by financial institutions in scaling it to meet the needs of agri-SMEs. The research was limited to working capital financing for agri-SMEs above USD 1 million and complements existing research undertaken by other actors such as Aceli Africa, which focuses on smaller loan sizes ranging from USD 25,000 to USD 250,000.
The study reveals that there is indeed a growing interest in commodity-backed financing among local financial institutions, but more work still needs to be done from a policy, enabling environment, capacity development, and funding perspective to enable them to fully embrace this innovative financing model.
In conclusion, it is clear from the study that commodity-backed financing has the potential to unlock significant working capital for agri-SMEs across Sub-Saharan Africa, driving economic growth and enhancing food security. However, to fully realize this potential, targeted support from Development Finance institutions (DFIs), donors, and financial institutions is required. By addressing the key barriers identified in this report, the ecosystem can scale commodity-backed financing solutions and help close the financing gap for agri-SMEs in the region.
This report provides a roadmap for scaling these innovative financing solutions, highlighting the critical role of collaboration between financial institutions and development partners in achieving sustainable impact for African agri-SMEs.
