New research on scaling commodity-backed financing for African agri-SMEs
With an estimated annual funding gap of USD 74bn, traditional financing models are struggling to meet the needs of agri-SMEs across sub-Saharan Africa. Innovative models such as commodity-backed financing have potential to unlock significant working capital for these businesses, driving economic growth and enhancing food security.
In 2024, with support from Small Foundation, Samawati Capital Partners undertook research on scaling commodity-backed working capital loans for agri-SMEs in sub-Saharan Africa. Through a survey of 23 financial institutions across nine countries, the study provides a detailed analysis of the current state of commodity-backed financing, highlighting key drivers and challenges for financial institutions to expanding the model. Focused on working capital financing for agri-SMEs above USD 1 million, this study complements existing research by Aceli Africa focused on smaller loan sizes ranging from USD 25,000 to 250,000.
The study reveals there is growing interest in commodity-backed financing among local financial institutions, but more work needs to be done across policy, enabling environment, capacity development, and funding perspectives to enable uptake of the approach. To help realise its potential, targeted support from development finance institutions, donors, and financial institutions is required.
The report provides a roadmap, highlighting the critical role of collaboration between financial institutions and development partners in achieving sustainable impact for African agri-SMEs. By addressing the key barriers identified, the ecosystem can scale commodity-backed financing solutions and help close the financing gap for agri-SMEs in the region.
“By leveraging commodities as collateral, local financial institutions have the opportunity to enable agri-businesses to access vital funding for their operations, enhancing productivity and growth. These institutions will, however, need to overcome challenges such as regulatory barriers and capacity gaps to scale this financing model.”
– Samuel Ndonga, co-founder and Managing Director at Samawati Capital Providers
“Small Foundation was keen to support Samawati Capital Partners on this research to gather insights and recommendations on agri-SME lending to be made available to financial institutions across the continent. The adoption of these recommendations as a part of credit assessment and management processes could lead to a significant increase in working capital financing for African agri-SMEs.”
– Andrew Tarazid-Tarawali, Investment Manager at Small Foundation
Access the full report.
