By George Munene

The African Guarantee Fund and responsAbility Investments have partnered to create a Sh607 million ($5M) fund to finance Small and Medium Enterprises (SMEs) in the agricultural value chain with a focus on businesses engaged in activities related to crops and farming products or commodities.

Most lenders have stayed away from Africa’s farming sector as it is perceived as high risk.

This has led to numerous challenges that hinder Africa’s agri-SMEs from achieving their full potential.

These include access to finance that is appropriate and accessible for different stages of growth; access to talent and the ability to attract and retain qualified employees; an ecosystem of support and collaboration between public, private, and financial players; access to knowledge that strategically supports development; and access to markets, including information, connections with suppliers and clients, and physical infrastructure. 

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This partnership will play a critical role in bridging the estimated Sh8.984 trillion ($74 billion) annual financing gap facing agri-SMEs in sub-Saharan Africa.

“African agriculture lending is perceived as risky but across the world, other farmers can still access financing.”

This is despite the sector contributing to 43.8 per cent of total employment in the continent-- the highest in the world

We should look to increase the volume of lending going into agriculture from the finance sector,” noted Jules Ngankam CEO African Guarantee Fund.

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“At the core, we are looking at businesses that are very volatile and whose cash flow is not easy to predict. We are looking to the African Guarantee Fund to both educate and help international investors and creditors understand the risk better and narrow the gap between effective risk or risk on the ground and perceived risk while also mitigating the remaining marginal risk that the sector does bear,” said Michael Fabbroni, Country Director, Kenya, and Head of Financial Institutions Debt Africa, responsAbility.