Meeting the needs of Nigerian agri-SMEs with The Alternative Bank
Small Foundation is pleased to announce a new partnership with The Alternative Bank (‘AltBank’) to explore an alternative approach to agri-SME lending.
Across sub-Saharan Africa, agri-SMEs struggle to access affordable, timely, and appropriate credit from local financial institutions to finance working capital and business expansion needs. This can be attributed to several factors including excessive collateral requirements, high interest rates, and limited financial products that match their business cycles.
In Nigeria, agri-SMEs in particular struggle to access appropriate finance from local banks. In 2023 only about 5% of private sector loans went to agriculture, while the sector constitutes 20% of Nigeria’s GDP. Local banks often deem agri-SMEs too risky and offer standard term loans that don’t fit their needs.
Founded by Sterling Bank in 2023, AltBank is a non-interest bank that is guided by Sharia finance principles, which is guided by the application of Islamic law and within the context of fairness and partnership. Interest and high upfront fees are prohibited. AltBank will offer a new Murabaha financing product (a contract of sale between the bank and its customers for the sale of goods at a price plus an agreed profit margin for the bank), targeting agri-SMEs. With this product, which is different to what exists in the conventional banking market, SMEs will provide a 20% security deposit and repay the financing through sales proceeds plus a markup.
AltBank has become a leading non-interest bank in Nigeria and is committed to growing its portfolio of agri-SMEs. The new loan product will provide AltBank with a deeper understanding of agri-SMEs, enabling refinement of the product offering to lend at scale. Small Foundation is excited to learn alongside AltBank on how to take more risks while maintaining profitability within the agri-SME market segment.
Reflecting on the partnership, Head of Commercial Banking Yetunde Mide-Ogunsanwo said “We are excited to partner with Small Foundation to positively impact the lives of people in rural communities. As a bank, our purpose is to create wealth, and we are committed to ensuring that businesses that financially empower those living in poverty in rural areas receive the financing they need to achieve this. We believe our collaboration with Small Foundation will help address the longstanding challenge of easy access to finance for small businesses, particularly SMEs that work directly with local communities in rural Nigeria.”
Andrew Tarazid-Tarawali, Investment Manager at Small Foundation, said of the announcement “Small Foundation is excited to partner with the AltBank, one of Nigeria’s most innovative financial institutions. The AltBank has displayed strong commitment to the SME sector in Nigeria and flexibility to co-create with Small Foundation a product structure to help rural SMEs overcome key hurdles that prevent them from accessing credit. We believe experimenting with new products that better address the needs of rural and agri-SMEs can help catalyse rural economies and improve livelihoods.”
