African Development Bank considers a R9bn facility to unlock R182bn finance for smallholder farmers

By Maile Matsimela

Currently, only 6% of African smallholder farmers have access to credit, and less than 20% use improved seeds.

It is for this reason that the African Development Bank Group President Dr Akinwumi Adesina has announced plans to launch a $500 million (R9 billion) facility designed to unlock $10 billion (R182 billion) in financing for smallholder farmers and small agribusiness enterprises across Africa.

It is said that financial institutions often perceive smallholder farmers as high-risk borrowers due to climate variability and lack of collateral.

Statistics shows bank lending to agriculture remains low, accounting for less than 5% of total loan portfolios in many African countries, despite the sector being a major economic driver.

Speaking at the High-Level Conference in Nairobi on Scaling Finance for Smallholder Farmers, Adesina revealed that African Development Bank management is currently consulting with its Board of Directors on establishing this ground-breaking facility.

The facility is set to deploy multiple financial instruments, including trade credit guarantees, first-loss coverage, blended finance mechanisms, and origination incentives to reduce the high transaction costs of serving enterprises, complemented by technical assistance.

“We stand on the threshold of making history by pushing the boundaries of innovation and building extensive collaborative alliances to bridge the financing gap faced by smallholder farmers and agribusinesses,” said Adesina in his keynote address.

Organised in partnership with the Pan African Farmers’ Organisation (PAFO), the conference sought to address Africa’s critical $75 billion (R1 trillion) annual financing gap for farmers and agricultural enterprises.

Adesina hopes to unleash the potential of agriculture in Africa and turn it into a breadbasket of the world.

PAFO President Ibrahima Coulibaly urged stakeholders to take bold action.

 “If we want to save our continent from hunger, malnutrition and poverty, we must create jobs in the agricultural sector. There is no other sector capable of doing this,” he said.

Dr Beth Dunford, Vice President for Agriculture, Human and Social Development at the Bank said, “For some of you, these numbers may sound familiar; for the rest of us, they should be frustrating to hear. We must act now to change this reality.”

Kenyan Cabinet Secretary for Agriculture and Livestock Development, Senator Mutahi Kagwe, called for urgent implementation.

 “If we prioritise innovative and practical measures, we will transform agriculture into a thriving business. Let’s commit to ensure no farmers are left behind due to lack of finance.”

On Tuesday, a panel of leading global and African financial experts also issued a resounding call to align financial structures with the needs of smallholder farmers. They underscored the crucial role of government in creating an enabling environment for financial institutions to expand agricultural lending.

Progress since Dakar 2 Feed Africa Summit

Adesina highlighted substantial progress since the 2023 Dakar 2 Feed Africa Summit, where 34 African heads of state committed to ensuring food security and sovereignty.

Financial commitments from development partners have surged from an initial $30 billion to $72 billion in less than a year, with the African Development Bank pledging $10 billion. The Bank has approved 77 projects valued at $3.9 billion to support the implementation of Country Food and Agriculture Delivery Compacts across 32 countries, with an additional $1.72 billion in planned approvals this year.

Key initiatives supporting smallholder farmers

The Bank has launched several major initiatives to strengthen smallholder farmers:

• The Technologies for African Agricultural Transformation (TAAT) initiative has reached 25 million farmers with high-yield, climate-resilient crops, boosting Africa’s food production by 120 million tons.
• The African Emergency Food Production Facility, a $1.5 billion programme, has delivered 459 000 tons of seed and 2.8 million tons of fertiliser to 12.3 million farmers, producing 37.6 million metric tons of food.
• The Special Agro-Industrial Processing Zones initiative has invested $934.51 million, with $938.27 million in co-financing, supporting 27 projects in 11 countries.
• The Affirmative Finance Action for Women in Africa (AFAWA) programme has approved $2.52 billion in funding for 24 000 women-led businesses.
• The African Fertiliser Financing Mechanism has implemented trade credit guarantees in nine countries, distributing 125 193 metric tons of fertiliser worth $62.8 million to 776 971 smallholder farmers.
• The Inputs Supplier Risk Sharing Program, a $600 million initiative, is working to de-risk input supply chains in Uganda, Kenya, Tanzania, Ghana and Zambia.
• The Mobilising Access to the Digital Economy (MADE) Alliance Africa, in partnership with Mastercard, has seen the Bank commit $300 million to integrate 3 million farmers in Kenya, Tanzania and Nigeria into the digital economy.

Source: African Development Bank