Developing credit lending facilities can unleash enormous potential in Africa’s food systems. CNBC Africa spoke to Adesuwa Ifedi, SVP, Heifer International on just how best can policies be anchored to drive more private sector capital to Africa’s small-scale farmers.
Developing credit lending facilities can unleash enormous potential in Africa’s food systems. CNBC Africa spoke to Adesuwa Ifedi on just how best can policies be anchored to drive more private sector capital to Africa’s small-scale farmers. I think what is challenging is that whilst we're doing that and allowing that to help us rethink how we see the impact of climate change or through precision agriculture to increase the work we're doing at the farm gates, we're not leveraging this data to connect to accessing finance. Innovation is happening in agriculture. I'm proud to say that I believe that in the last 10 years we're turning the corner. Agtech is no longer a thing that is known to a few people. Agtech and their work and the results that they have shown is known to most of us now, and investors are showing a lot of interest. Yes, the investment that went to Agtech in Africa went down in 2022, but I do believe that it is going to go up in the next couple of years. What I think is the missing link here is how are we taking what we're learning about new ways of assessing risk, collecting data and understanding what's happening at the farm gate to disrupt how we are pricing financing for this market. Agriculture still remains risky, products still are leveraged on the same traditional ways of assessing risk and providing access to finance to the last mile, and we think that the data coming out from this sector has to transform how we think through financing products that we're putting out there for smallholder farmers. So we believe this is what is changing in the world around us and in the space we're in, and we're eager to see how the financial institutions and the lenders and investors can begin to rethink what this new big data coming out of agriculture means to them, and we have to really demystify this risky sector and begin to make financing available to agriculture. When it comes to matters of risk, what role are we seeing the private sector playing in terms of incentivising it, and also the public-private partnerships here, what role are we seeing them playing in terms of transforming the food systems in Africa? The private sector, the innovators, and all of the great innovators in their cultural sector are actually shifting how we perceive agriculture. Now we talk about onward lending, what is onward lending? Many people traditionally called off-takers, who were assumed to always be the middle men who are causing problems for the farmer profitability, have now become the assets to transforming how we see agriculture. These people, off-take from farmers, gather farmer data, have enough aggregated data to be able to know how they can lend to farmer and bypass traditional lending tools and instruments. They now move on to the banks and say, banks, you can lend to us and we will onward lend to the farmers. They are disrupting how risk is perceived and how finance is getting to farmers at a last end. And they are doing this not just at that point, but across many other aspects of the way they do. We've seen in our partnerships with Hello Tractors, one of the innovators we've worked with for the last four years, and how they created alternative data from booking agents that they worked with, leveraged that alternative data to create a system for credit lending and facilities. And even though these were first-time borrowers, their model has shown that those first-time borrowers had less than three percent default in the portfolio. What is that private sector saying to the traditional financial institutions? Wait a minute, we have a very different way now to assess who is risky and who can receive a loan in the last mile. And what have we seen? We've seen commercial capital now coming in through this model to support this system. So I would say that the private sector and the innovators are doing a huge service to smallholder farmers and those rural communities. And the way they are disrupting with fintech is helping the sector learn better. And we see government also leveraging the data. I mean, we have a number of countries in Africa now that are using big data to support the way they work in the agricultural sector, in the livestock where we are in Kenya. We've seen how digital information about farmers and about the dairy sector is helping disease prevention and disease control as well. So there is a lot of connections with data. I think what now is left is for public, private and development institutions and the financial institutions to come together and see how everything connects. Because I think that's where the missing piece still lies. And also now the main aspect, your issue that comes in is the issue of policy and innovation. And I do understand that policies cannot work well when you do not have the right innovation and investment in place. So then how do you navigate this space? Policy can go as far as policy can go. If we cannot show that the investment is not too risky, the financial institutions will not change their behaviour. And so what we've realised is that the constant clamour for policy to go before innovation, I think, shouldn't be the order in which things happen. Innovation should go first. After innovation, however, needs to be patient capital. There is a lot of that going around in the development sector. Many grant-giving organisations have been doing traditional granting and what we really need to do now is to ask ourselves, is our money best spent investing and betting on these innovators who have gone with innovation to prove a use case with our small farmer communities? When that patient capital comes in, and there's a lot of it, by the way, in the form of grants today in the market, that grant behaving like catalytic funding can prepare the way for commercial capital. It's really not, I don't think it's realistic to assume that commercial capital or traditional financing will be the first mover after innovation. But I do believe that if there is enough patient capital and catalytic funding that is willing to take the risk, commercial capital will follow. So where does policy come in? The minute the catalytic funding is going in there to create change, that's the time for policymakers to begin to say, what are we seeing? What is changing? What do we need to do to also secure this sector by bringing in the policies? And we've seen that happen in crowdfunding. Some countries like Ghana are already beginning to think about what kind of crowdfunding policies we need to put in place. Sometimes we throw the baby away with the bathwater, because we assume that because it's not organised and the policies are not there, then it's not working. So there is, in my opinion, a timing for policy to come in, a timing for innovation to go first, and then different kinds of capital that will create the stability that the sector needs.
Theme: Driving Innovation and Financing in African Agriculture
Developing credit lending facilities can unleash enormous potential in Africa's food systems. CNBC Africa recently spoke to Adesuwa Ifedi, Senior Vice President of Heifer International, about the best ways to drive private sector capital to small-scale farmers in Africa. Ifedi highlighted the need for leveraging data to connect farmers with much-needed finance. She emphasized that while innovation in agriculture has been on the rise, the challenge lies in transforming the way risk is assessed and financing is provided to smallholder farmers. She believes that the private sector, along with public-private partnerships, can play a crucial role in revolutionizing the food systems in Africa. Ifedi pointed out that off-takers, who were previously seen as middlemen causing profitability issues for farmers, have now become essential in transforming agricultural financing. These off-takers are now utilizing farmer data to facilitate lending directly to farmers, thereby bypassing traditional lending methods. This innovative approach has shown promising results, with minimal defaults among first-time borrowers. Furthermore, Ifedi emphasized the need for patient capital to follow innovation in order to attract commercial financing. She highlighted the importance of policies that support and regulate these new financing models, citing examples of countries like Kenya and Ghana that are already exploring new policies to facilitate agricultural financing. Ultimately, Ifedi stressed the importance of collaboration between public, private, and development institutions to drive innovation and financial inclusion in African agriculture.
"Innovation should go first. After innovation, however, needs to be patient capital. There is a lot of that going around in the development sector. Many grant-giving organizations have been doing traditional granting and what we really need to do now is to ask ourselves, is our money best spent investing and betting on these innovators who have gone with innovation to prove a use case with our small farmer communities?"
Africa, agriculture, financing, innovation, public-private partnerships, small-scale farmers, Heifer International, risk assessment, data, off-takers, lending, commercial capital, policies, development sector, patient capital, crowdfunding