Framework for SME finance to support agriculture value chain in Africa

Project name:
Business operations for Agri-SME lenders

Service:
Business and operating models
Market systems development

Sector:
Agriculture and Agribusiness
Financial services

Area of Expertise:
Operating model design
Business model advisory
Cost allocation models
Capabilities mapping

Client:
Donor organisation

Date:
2019 - 2020

Country:
Belgium
Kenya
Netherlands
Tanzania
Uganda
United Kingdom (UK)
United States of America (USA)


The global population will expand considerably over the coming decades, with the world’s human population growing to 9.8 billion people by 2050, up from 7.8 billion at present.

A substantial portion of this growth will come from Africa, with 40 percent of all new births occurring on the continent by 2050. Using Africa’s arable land as efficiently as possible will be crucial if this expanded African and global population is to receive the required nutrition.

If this is to occur, African agricultural value-chain players will need financial support to scale their operations. However, these players often lack formal financial records, making it challenging for them to acquire this support from traditional financial institutions.

Due to challenges these players face, agricultural lenders have stepped in to fill the gap by extending the necessary financing to drive the expansion of agriculture in Africa.

Against this backdrop, Genesis partnered with an international donor organisation to compare the operational processes of a group of agri-SME lenders. The aim of this partnership was to identify ways of improving the operational efficiency of agri-SME financing to allow the lenders to serve the agricultural value chain more effectively.

The Genesis team developed a framework to assess the operational efficiency of the lender sample across the agricultural loan lifecycle, from customer identification through to loan repayment. At each stage, the team explored the challenges faced by the lenders and the impact of these challenges on turnaround times, cost structures and risk management.

The team also assessed the mitigation strategies that the lenders used to counter these challenges, specifically through the effective use of automation, decentralisation and outsourcing. The team dovetailed this analysis with an assessment of the lenders’ financial performance at each stage of the loan lifecycle, in order to draw linkages between their use of automation, decentralisation and outsourcing at various points and their financial sustainability.

Based on the findings of the analysis, the team developed a set of best practices for each stage of the agricultural lending process, split across automation, decentralisation and outsourcing interventions.

These best practices and the analysis pertaining to the lenders’ financial and operational performance were anonymised and collated into a report aiming to set out the most common challenges faced by agri-SME lenders and how best to address them. The insights from this report will be publicly shared across the lender group, thus aiding them in moving towards greater financial sustainability and profitability within their own operations while continuing to drive impact across agricultural value chains.

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