Impact Profile: Cluster of Cassava SMEs, Tanzania

Published 17 March 2023

Author: Meredith Husar

By John Robert Okware

 

I grew up near the slopes of Mount Elgon in Eastern Uganda. The fertile soils there are favorable for agriculture and our family earned a precarious living from farming. Right from the age of five, I was oriented into agriculture as a source of not only food but also school fees for my education. Every season presented challenges. 

I remember vividly one season when we had a bad harvest because of drought, we got only four bags of cotton out of the projected 20 bags. Worse still, the school term was due to begin, so we needed to sell off the cotton to raise fees. When I delivered the cotton to our cooperative society store, the price had dropped to less than $10 per bag and the money was to be paid to us after two weeks – most likely because the cooperative had liquidity challenges. With this being the only income source at that time, and there being no one to borrow from, we had to wait. So I reported to school two weeks late. This might sound familiar to some of you reading this. 

Later, while at high school and even when I went to university, I grew maize to pay for my tuition. The experience was no different; each year was a struggle with lots of uncertainty depending on the weather and the prices. These experiences inspired me to pursue studies in economics where I could contribute towards making the agricultural sector more efficient and rewarding, especially to smallholder farmers and small and medium enterprises (SMEs).

I began my career as a loan officer with Centenary Bank in the Luwero Triangle where agriculture was the core economic activity. I used to ride a motorcycle 50-100km several times a week to appraise livestock, coffee, and pineapple farmers for financing. I developed a close connection with the farmers and the economics of their farms, and this enabled me to assess the risks and grow a quality loan portfolio. As I progressed in different roles, I started to see how building the capacity of the foot soldiers, providing the right incentives, and putting the right support structures in place was critical for growing a quality agriculture portfolio.

When I later joined Opportunity Bank and moved into more senior management roles, I realized that the bank could not build a healthy portfolio in agri-SME lending alone. The agriculture loan portfolio was significantly loss-making, largely because the bank had a high ratio of non-performing agri loans and the cost of originating these loans was high since most of the SMEs were involved in the production node of the value chains and were located in far and hard-to-reach areas. There was also a high turnover of loan officers going to other banks that paid a bit more, which affected the loan portfolio management and required continuous capacity building. The bank needed partners to give a hand to change the situation and make the portfolio profitable through capacity building at different levels, risk-sharing instruments, digitization of operations, and especially in providing grants for expanding the footprint to the rural and hard-to-reach areas. 

I know that the private sector does not always speak the same language as governments, donors, or NGOs, but I have also seen what is possible when these actors work together. At Opportunity Bank, partnerships with the likes of USAID Development Credit Authority (DCA), the Agricultural Credit Facility (ACF) of the Ugandan government, and other risk-sharing guarantees enabled us to grow a quality agriculture loan book from 15% to 28% of the total loan portfolio. 

When this position with Aceli opened up a few years ago, I saw an opportunity to apply all of my experience and learning – as a farmer, loan officer, branch manager, and in senior management at a commercial bank – to the entire market system. In Aceli’s partnership with the Uganda Bankers Association and dialogue with the Bank of Uganda, I see an opportunity to strengthen the regulatory environment for lenders across the country. When I go to meet with banks, I see how they are using Aceli’s incentives to enter new regions and value chains. When I visit branches in Mbale and Lira and accompany loan officers visiting their SME clients who are getting a first-time loan, and their farmer suppliers who are now getting paid on time, I see real change in action. And when I visit SMEs that have graduated from our technical assistance program, I see them better understanding their businesses and being able to attract more capital. Looking at all of these changes across the sector, I see a brighter future for SMEs in agriculture.

I am energized to see Aceli’s partners working together to build a stronger and more inclusive agriculture sector that creates opportunities for families like my own. My heart is full. 

John Robert Okware is the Aceli Country Director for Uganda, leading engagements with a range of stakeholders from commercial banks and other lenders serving agricultural SMEs, to technical assistance providers, data and learning partners, government officials, and donors.

In March, more than 200 attendees came together in Entebbe, Uganda for Aceli’s stakeholder convening on agri-SME finance. Participants included senior leaders, agribusiness managers, and frontline loan officers from 50 lenders as well as technical assistance providers, industry associations, donors, and policymakers from across the region. 

Designed as a dialogue in the spirit of “coming together to do hard and important things,” the goals of the convening were to share learning and orient to solutions across three areas:

 1)  Translating strategic commitments by lenders into operational practices to increase agri-SME lending;

2)  Expanding reach to underserved populations and deepening impact related to women and youth, food security and nutrition, and climate and environment; and

3)  Facilitating collaboration between actors working to unlock the growth and impact of agri-SMEs across capital supply, capital demand, and enabling environment.

Read a summary of key discussions & takeaways from the convening

The Aceli team at the March 2024 Aceli Africa Stakeholder Convening in Uganda.

Global Affairs Canada (GAC) and Norway are Aceli Africa’s newest funding partners, bringing total donor commitments to $93M. They join IKEA Foundation, the Ministry of Foreign Affairs of the Netherlands, the Swiss Agency for Development and Cooperation, UK International Development, and USAID’s Feed the Future initiative as anchor funders.

Launched in September 2020, Aceli Africa is a market incentive facility working to mobilize $1.5 billion in private sector lending to small and medium enterprises (SMEs) in the East African agriculture sector by 2030. As of March 2024, 38 leading commercial banks and impact investors have signed on to Aceli Africa’s financial incentives program, which mitigates the risk and improves the returns of lending to high-impact agricultural SMEs.

In its first three and a half years of operations, Aceli supported its lending partners in issuing 1,867 loans totaling $173M. Nearly two-thirds of loans have been made to first-time borrowers, and SMEs receiving Aceli-supported loans have created market access for 990,000 smallholder farmers and employed 33,000 full-time workers. Aceli’s financial incentives are tiered to reward loans to businesses that create economic opportunities for women and youth, contribute to food security and nutrition in Africa, and promote practices that sustain the environment and improve climate resiliency.

“Small and medium agricultural businesses are the backbone of local communities and have the potential to drive inclusive economic growth,” said Ahmed Hussen, Canada’s Minister of International Development. “Canada’s support will help Aceli to scale-up its operations in Eastern Africa and on-board new lenders to its innovative program, further boosting local businesses, particularly those led by women and youth.”

“Financing plays such a big part in unlocking the potential of local production and distribution of food,” said Anne Beathe Tvinnereim, Norway’s Minister of International Development. “It is of crucial importance for a small business in the food sector to have access to capital to expand the business and help increase local food security. Norway is committed to using public funds to reduce risks and make banks more keen to invest in agri-SMEs.”

More information on Aceli Africa’s approach and progress to date can be found in its Year 3 Learning Report.

 

 

 

Our Year 3 Learning Report shares data and case studies drawn from 1,567 agriculture loans totaling $152M, more than double the volume captured in our Y2 report. We present high-level metrics from Aceli’s financial incentives program, data trends in agri-SME lending across East Africa, and ingredients for sustained lender behavior change. We also explore emerging data on the additionality and impact of loans across different size segments.

The Year 3 Learning Report centers on three themes:

  1. Loan size: Our pre-launch projections anticipated that most of the addressable market would be in the $200k-$1M range, but our latest data is showing far greater unmet but still addressable demand down-market. Aceli has pivoted to meet the market where it is by lowering our loan size minimum to $15k for certain high-impact market segments, increasing access to finance for unserved SMEs, particularly those owned by women and youth.
  2. Lender behavior: Data from Aceli-supported loans and feedback from lenders indicate a material shift in lenders’ collective reach to new geographic areas, value chains, and enterprise profiles, particularly women- and youth-owned SMEs, since joining the incentives program. 
  3. Evidence-based policies: At each decreasing loan size segment within Aceli’s range ($15k-$1.75M), there is a correspondingly higher volume of SMEs that are either completely unserved or significantly underserved by the financial markets. Our data points to an emerging case for African governments and international donors to boost inclusive economic growth by strengthening enabling environments for agri-SMEs, particularly those requiring finance under $200k. 

View the report

 

The 2024 Financial Benchmarking Report presents an analysis of key Agri-SME lending trends in East Africa, drawing insights from a dataset of 20k agriculture loans valued at $1.2B disbursed between 2019 and 2022. This data was sourced from 35 lenders, including commercial banks, non-banking financial institutions (NBFIs), and multi-country social lenders operating across Kenya, Rwanda, Tanzania, and Uganda.

Key takeaways:

  • Agri-SME lending by these lenders has experienced remarkable growth, with the value of the loan book tripling between 2019 and 2022 from $154M to $497M.
  • Notably, Tanzania leads this growth trajectory, propelled by supportive central bank policies initiated in 2021.
  • Commercial banks make up 90% of the loans in the dataset and their lending is increasing at an impressive compounded annual growth rate of 50% from 2019 to 2022.
  • The vast majority of the growth is concentrated at smaller ticket sizes below $200k, with the $10k-25k segment substantially outpacing growth in the other loan size segments.
  • 20-35% of loans are consistently allocated to new borrowers across most countries and lender types, signaling steady and sustainable growth.
  • Bank lending to agriculture has more than tripled in volume and doubled as a total share of their loan portfolios (from 2.0% in 2019 to 4.1% in 2022); but Agri-SME lending still constitutes a modest proportion of their overall lending.
  • Lenders continue to highlight high risks and origination costs as primary impediments to Agri-SME lending.

View the report

 

Aceli Africa believes that environmental, social, and governance (ESG) standards can have a positive impact on the performance of both lenders and their agricultural SME borrowers and should therefore be integrated into the policies and practices of these actors. We require our partner lending institutions to commit to and practice ESG standards that meet or exceed Aceli Africa’s ESG standard outlined in our policy.

This ESG policy applies to all lenders seeking to participate in Aceli Africa’s financial incentive program. The policy is complementary with the governing laws and regulations for environmental and social practices in each country. Lenders participating in the Aceli financial incentive program are expected first and foremost to comply with laws in each country where the lender is operating and, secondarily, to comply with Aceli’s ESG policy by meeting or exceeding the ESG due diligence criteria related to underwriting and managing any loans that are submitted to Aceli for financial incentives.

Read Aceli’s ESG & impact policy summary

 

Aceli began its partnership with 60 Decibels (60dB) in 2021 to understand the impact of the loans it supports on small and medium enterprises (SMEs), farmers, and employees. Aceli believes that access to finance at the SME level will support improved operations that generate benefits for both farmers and workers.

This October 2023 Aggregate Impact Snapshot presents insights from surveys conducted by 60dB with 63 SME representatives working with 6 financial institutions in Kenya and Tanzania. Key insights include:

  • With support from Aceli’s incentives, lenders are serving SMEs that had not borrowed from financial institutions before, or that lack access to alternative financing of a similar caliber
  • SME representatives are overall satisfied with their loan and likely to recommend it to other SMEs
  • Financing is helping SMEs improve operations, increase revenue, better serve more farmers, and improve their range of services offered

The next publication (to be released mid-2024) will explore Aceli’s impact in greater detail. It will share findings from farmer and employee experience surveys conducted pre-financing (baseline) and post-financing levels.

Read the aggregate impact snapshot

 

Aceli’s 2023 Financial Benchmarking Report covers data gathered for an additional 13.2k loans totaling $749M issued by 31 lenders to agri-SMEs in East Africa during the period 2019-2021.

Key takeaways:

  • Aceli’s partner lenders increased their lending (largely independent of our incentives, which took effect towards the end of this period) despite the challenging macro environment.
  • Nevertheless, recent growth in agri-SME lending is from a low base and still represents <5% of the overall portfolios for commercial banks in the region.
  • Lending data and interview responses underscore the need to address the top two barriers identified by lenders: i) high risk and ii) high transaction costs of agri-SME lending.
  • Aceli’s incentives reduce the return gap of agri-SME lending relative to other sectors and are beginning to shift lender practices in promising directions: smaller ticket sizes, new value chains (see impact profile of loans to cassava SMEs in Tanzania), more remote geographies, and businesses that meet Aceli’s impact criteria, particularly for women and the environment. 

Read our Year 2 Learning Report for reflections on Aceli’s engagement with lenders in support of loans to agri-SMEs across Kenya, Rwanda, Tanzania, and Uganda.

View the Report

 

Our Year 2 Learning Report reflects on Aceli’s engagement with lenders in support of 713 loans totaling $85M to agri-SMEs across Kenya, Rwanda, Tanzania, and Uganda.

Key takeaways:

  • Relative to Aceli’s pre-launch projections, we have shifted our approach to smaller loan sizes – this translates into lower capital mobilized on the one hand, but higher capital additionality and, we believe, higher impact than envisioned.
  • There is a need for increased evidence across the sector about what works in terms of both mobilizing finance for agricultural SMEs and how to steer capital to where it can have the greatest impact. Aceli and our learning partners are undertaking several studies to fill these knowledge gaps.
  • Our initial experience suggests that shifting lending behavior among commercial banks (which collectively are the highest volume lenders to agri-SMEs but by no means the only ones) requires: i) senior-level commitment; ii) defined agriculture strategy; iii) empowered middle manager; iv) awareness and internal alignment across departments; and v) dissemination of the model and engagement at the branch level as well as headquarters.
  • The response from lenders is palpable. In the words of Sabasaba Moshingi, CEO for Tanzania Commercial Bank, “Your vision helped us develop the appetite for ag. Previously, we would have been thinking twice before doing agri-lending. You guys are giving us courage.”

See our 2023 Financial Benchmarking Report to review data gathered for 13.2k loans totaling $749M issued by 31 lenders to agri-SMEs in East Africa during the period 2019-21.

View the Report

 

Cassava is one of the most important food crops in Tanzania and across East Africa. It is also an important source of food and income for an estimated 1.9M smallholder farmer households in Tanzania, including roughly half of farm households in the Kigoma region.

We profiled a cluster of 9 small and medium enterprises (SMEs) in Northwestern Tanzania that are accessing their first loans to purchase cassava from 1,980 smallholder farmers. These SMEs received loans from Tanzania Commercial Bank (TCB), who were originally deterred from lending to cassava enterprises in this region due to the far proximity from its closest branch and limited fixed assets for collateral. Aceli’s financial incentives helped TCB overcome these barriers to lending to this market segment, and the bank is now preparing for a second round of loans in June 2023.

Read the impact profile to learn more