Agricultural financing – from a broader perspective

A large proportion of agricultural production in sub-Saharan Africa is produced by smallholder farmers in rural areas. These farmers are threatened by extreme poverty in 70 per cent of cases. One way to combat poverty and hunger is to endeavour to integrate agri-based entrepreneurs more closely into the formal financial system.

However, financial institutions (FIs) are still largely focused on urban centres and often view the integration of rural areas in terms of high costs and risks. Digitalisation offers an effective solution to enable FI to focus more on the inclusion of the agricultural sector and smallholder farmers. Processes can, for example, be organised more efficiently, less cost-intensively and with fewer risks.

FIs around the world are looking for ways to digitise their operations. While some have been successful, others have found this to be a complex, costly endeavour where success is far from guaranteed. The pan-African Community of Practice (CoP) has the potential to be a valuable tool to enable cross-country learning in a cost-effective way through exchange among like-minded financial service providers.

"The added value of a pan-African community to digitalise agricultural finance is that it provides a broader perspective of ideas, knowledge, best practices, etc. that can be leveraged," says Mayamiko Kalizang'oma, Head of Retail and SME Banking, Centenary Bank Limited, Malawi.

The BMZ-commissioned global project "Promotion of agricultural finance for agri-based enterprises in rural areas" (GP AgFin), commissioned by the German Federal Ministry for international cooperation and Development (BMZ) is working with more than 80 FIs from nine African countries to develop sustainable business models and customised financial services to enable agricultural enterprises and agri-based middle and small enterprises (MSME) to access agricultural financing. During the project's regional conference on the topic of "Digitalising Agricultural Finance", which took place in Lusaka in 2022, 80 FI representatives decided to set up an exchange platform.

"The CoP founded there was born out of the FIs' desire to stay in touch and create a framework for sharing experiences," reports Hien Isidore, Head of Development and Innovation at BAOBAB BURKINA SA., Burkina Faso. Virtual formats were set up to structure this process, and webinars provided trainings and knowledge exchange. 

Financial institutions of nine African countries share experiences in agricultural finance
 

The CoP connects FIs from nine African countries that share the common goal of driving forward the digitalisation of agricultural finance. Their aim is to learn from each other how they can improve this process. It is an advantage that some countries are already somewhat further advanced and can share experiences of challenges and failures. Mistakes that have already been made can thus be avoided by others.

The community also makes it possible to develop certain strategies together, for example how customers can be better integrated. Through this form of cooperation and exchange among like-minded FI, digitalisation at participating institutions can be implemented faster, more cost-efficiently and in a more targeted manner.

In order to further expand and institutionalise the community, 20 representatives of the CoP met in Lomé in October 2023. As a result, the Lomé Declaration was signed, which defines the vision and mission of the group. "By signing the declaration, the participants, including their institutions, commit themselves to fulfilling the mission of the community," explains Fatima Aouba, Head of the Credit Department, FCPB, from Burkina Faso. "This is the compass of the CoP and the roadmap for digitalisation in my institution," adds Alassane Soulemane Moussa, Head of Digital Finance, FECECAM-Benin, proudly.

Today, the CoP consists of more than 90 representatives of financial institutions from nine African countries. The pan-African community is thus becoming a valuable and intrinsically motivated instrument on the path to digital transformation and the inclusion of rural areas in agricultural financing in the fight against poverty and hunger.

(giz/wi)

This article was taken from the Food4Transformation website.