As we gear up for the 10th Agrifin Learning Event (ALE) on 27 October, it is worth looking back at a conversation that surfaced one of the most persistent questions in agricultural finance: if capital exists, why does it still fail to reach the farmers and agricultural enterprises that need it most?
That question was at the heart of a side event at the Africa Food Systems Forum, hosted by Mercy Corps Agrifin.
The session was moderated by Wairimu (Nimo) Muthike, Associate Vice President at 𝗕𝘂𝘀𝗮𝗿𝗮, alongside:
– Sieka Gatabaki – Program Director, Mercy Corps AgriFin
-𝗗𝗮𝘂𝗱 𝗝𝗶𝗿𝗮𝗻 – Prosper Global Somalia
– Abrhame Endrias– Founder, Lersha
– Jerry OCHE– Founder Zowasel
– Matt Leonard IFC – International Finance Corporation
Together, they examined why finance remains out of reach for many smallholders, what can make farmers more bankable, and what it will take to move promising solutions from pilot projects to a meaningful scale.
The discussion did not point to a single missing product or one institution that needs to act. Instead, it revealed a system-wide gap between available capital and accessible capital.
The money is there. The fit is not.
The panel began with a difficult reality. In Somalia, banks lend less than one percent of their portfolios to agricultural small and medium-sized enterprises. This is not necessarily because financial institutions have no money to lend. It reflects the risks, costs, and information gaps that make agricultural lending difficult to structure and manage.
Across Africa, Europe and the United States, financial systems have generally not been designed around the realities of smallholder farming. Agriculture is exposed to weather shocks, fluctuating prices, pests, disease, weak infrastructure, and uncertain markets. Many of these risks are beyond the farmer’s control. As a result, lenders often see agriculture as expensive and unpredictable.
The challenge is intensified by the fact that banks and other financial institutions may not have a detailed understanding of agricultural production systems or the value chains in which farmers operate. At the same time, farmers and rural enterprises may not fully understand the documentation, compliance requirements and financial information that lenders need before approving a loan.
This creates a mutual knowledge gap. Financial institutions struggle to assess the borrower and the business. Farmers struggle to navigate the institution. In the middle, a financing opportunity can disappear.
Why does finance fail to reach smallholders?
One of the session’s central questions was direct: what prevents existing financing from reaching last-mile farmers and agricultural enterprises?
Several barriers emerged.
- First, the data that lenders need is often missing, inconsistent, or difficult to verify. Yet the panel also made an important distinction: not all data is equally useful. Financial institutions are not simply looking for more information. They need relevant information that helps them assess repayment capacity, cash flows, production risks and the conditions surrounding a farmer’s market.
- Second, the cost of serving smallholders can be too high. Loan administration and transaction costs may exceed the value of the loan itself. From a lender’s perspective, this makes small loans unattractive even when the borrowers are hardworking, and their businesses are viable.
- Third, conventional financial products often do not match agricultural cycles. A farmer may need financing before planting and only generate income after harvest. A standard repayment schedule may therefore create pressure at exactly the wrong time. In many cases, farmers also prioritize timely access to inputs over receiving cash directly.
This is why the form of finance matters. The panel noted that in-kind input financing can produce higher repayment rates than cash-based lending, in some cases approaching full repayment. When financing is linked to the inputs farmers need and the market they will sell into, it can address several risks at once.
Can better understanding unlock capital?
The panel’s answer was yes but only if understanding is translated into better structures.
- Banks are more willing to lend when agricultural risks can be understood and managed. This requires a clearer picture of the borrower, but it also requires financial products that reflect the realities of farming. Better borrower information alone will not solve the problem if the loan remains too expensive, too short-term or poorly timed.
- Abraham from Lersha explored how farmer data can be transformed into a bankable credit profile that financial institutions can confidently use in lending decisions. This is a critical shift. Data should not be collected simply because it is available. It should help answer practical questions: What does the farmer produce? What markets do they access? What are their historic transactions? What risks do they face? What evidence exists in their ability to repay?
- Cooperative lending models may also help bridge the gap. In one example discussed during the session, banks lend to cooperatives while organizations such as Zowasel provide guarantees. Such models can reduce the cost of reaching individual farmers while creating a structure through which lenders can better understand and manage risk.
The broader lesson is that bankability is not an inherent quality that farmers either possess or lack. It can be built through records, relationships, market access, appropriate products, guarantees and systems that make agricultural performance visible to lenders.
What sits between available capital and accessible capital?
Between a financial institution that has capital and a farmer who needs it sits an entire ecosystem.
- Farmers need access to the right inputs at the right time. They need reliable buyers and predictable markets. Financial institutions need information that supports sound lending decisions. Agribusiness needs confidence that their suppliers can produce and repay. Insurers need products that respond to climate and production risks. Governments need policies that support investment rather than adding unnecessary friction.
- The panel described agents as more than distribution channels. In rural areas, agent networks can function as essential infrastructure. They can help farmers access financial services, information, and other forms of support that would otherwise be too far away or too costly to reach.
- Documentation and compliance requirements remain another significant obstacle. These requirements are important, but the way they are designed and implemented can unintentionally exclude smallholder farmers and informal enterprises. Making finance more inclusive will require institutions to maintain appropriate safeguards while finding practical ways to recognize the realities of rural businesses.
- A market-first approach also emerged as an important principle. Financing farmers before understanding how their produce will reach a viable market can increase default risk. By contrast, connecting finance to confirmed demand, reliable off-takers or market guarantees can make the entire transaction more predictable.
What can realistically be designed?
The conversation moved beyond diagnosing the problem to consider solutions that different actors can build together.
- One option is to create shared-risk mechanisms involving farmers, off-takers, financiers, insurers, and input providers. Rather than placing the full burden of agricultural risk on the lender or the farmer, each actor can take responsibility for the part of the value chain they understand and influence.
- Base-price arrangements and market guarantees can provide farmers and lenders with greater certainty. Insurance, including climate and crop insurance enabled by InsurTech, can help protect against shocks that would otherwise undermine repayment. Reliable and timely input delivery can ensure that financing translates into production rather than delays, shortages, or losses.
- None of these interventions work in isolation. Their value increases when they are coordinated. A farmer may have a loan, but still fail if inputs arrive late. An insurer may offer cover, but it will have limited impact if farmers cannot afford it or do not trust the claims process. A buyer may commit to purchasing produce, but the arrangement may not help if finance arrives after the planting window.The solution therefore lies in stronger coordination across the value chain.
When participants were asked what they would change immediately, three priorities stood out.
1. Build risk assessment frameworks that reflect agriculture
Agricultural lending needs models that account for the realities of smallholder farming and emerging markets. Conventional risk assessment tools may not capture seasonal income, informal transactions, collective production, climate exposure, or the role of value-chain relationships.
Better frameworks would help lenders distinguish between risks that can be managed and risks that can be shared, insured or reduced through stronger market arrangements.
2. Create information-sharing ecosystems
The sector needs trusted systems through which farmers, financiers, agribusinesses, and other stakeholders can share relevant information. This is not a call for indiscriminate data collection. It is a call for transparent, accessible, and responsible data systems that help the right actors make better decisions.
When information moves more effectively, lenders can assess borrowers with greater confidence, farmers can build a financial history, and value-chain actors can coordinate around actual production and market conditions.
3. Strengthen farmers’ financial readiness
- Farmers also need support to become ready for finance. This includes agricultural risk registers, credit histories, savings, and stronger financial discipline.
- Financial readiness should not be understood as shifting responsibility onto farmers alone. It must be accompanied by products and institutions that are prepared to serve them. But where farmers can demonstrate consistent records, savings behavior and repayment histories, they are more likely to be recognized as credible financial partners.
What does it take to move from pilot to scale?
- A solution that works in one location may need to change when it enters a different market, ecosystem or policy environment. Farmers do not operate in identical conditions. Scaling is therefore not only about replication. It is about adaptation.
- Technology can support this process by improving efficiency, reducing transaction costs, and expanding reach. Digital tools can help collect and manage data, connect farmers to services, reduce the cost of transactions and improve communication across the value chain. But technology is an enabler, not a substitute for local understanding, trusted relationships or appropriate financial design.
For solutions to scale sustainably, they must be commercially workable and relevant to the people they are intended to serve.
How should impact be measured?
- Impact measurement must look beyond financial returns. It should consider whether farmers’ incomes increase, whether productivity improves, whether households become more resilient to shocks and whether overall wellbeing changes.
- This requires robust metrics that can demonstrate both business and development outcomes. Financial institutions need to understand the performance of their investments. Development actors need to understand whether their interventions are improving livelihoods. Farmers should remain at the centre of both assessments.
- Measuring these outcomes well can also strengthen the case for investment. When stakeholders can show that appropriate finance improves both enterprise performance and household resilience, the conversation shifts from whether agricultural finance is possible to how it can be expanded responsibly.
From de-risking to shared risk
The panel also encouraged a move beyond traditional approaches to de-risking.
De-risking often suggests that one actor frequently, a donor, government or development organization must absorb enough risk to make a market attractive to others. While such support can be valuable, it is not a complete long-term strategy.
A more sustainable approach is shared risk, in which responsibilities are distributed across the value chain. Farmers, off-takers, financiers, insurers, input providers and public institutions each have a role to play. The objective is not to eliminate risk. Agriculture will always involve uncertainty. The objective is to understand it, distribute it fairly and create mechanisms that make it manageable.
What enables long-term scaling?
Long-term scale requires more than individual projects. It requires an enabling environment.
A shared national vision for agricultural transformation can align stakeholders and investment priorities. Initiatives such as AgriConnect demonstrate the value of creating a common direction around which public and private actors can organise.
Supportive government policy is equally important. Policies that facilitate agricultural finance, recognize a wider range of acceptable collateral and reduce unnecessary fragmentation can make a meaningful difference to farmers and agri-SMEs.
Participants also emphasized the importance of a “one-government” approach. Ministries and agencies need to coordinate more closely rather than addressing agricultural finance through disconnected programmes. A unified agricultural finance strategy can provide greater clarity, reduce duplication, and create a more predictable environment for investment.
The conversation continues at the 10th ALE
The side event at the Africa Food Systems Forum left us with a question that is both simple and demanding: how do we turn capital that exists in the system into finance that farmers can actually use?
As we look toward the 10th Agrifin Learning Event on 27 October, the discussion offers a useful starting point. The question is no longer only whether capital can reach agriculture. It is whether we are prepared to redesign the systems around it so that finance becomes timely, relevant, affordable, and resilient. That is the conversation the ALE will carry forward. Register to be part of the conversation.