When we asked lenders about the biggest barriers to serving agricultural SMEs, we weren’t surprised that higher risk was the top response. But a close and often-overlooked second was the higher operating costs of serving agri-SMEs. Our data on the economics of agri-SME lending suggests that higher transaction costs (e.g., the additional time for travel and risk analysis) may account for as much as half of the 4-5% return gap between agri-SME lending and lending to other sectors in East Africa.
In our latest article for NextBillion, we share perspectives from lenders in the region and discuss why we believe solving for high transaction costs in agri-SME lending is critical and under-addressed in most blended finance approaches to stimulate lending for SMEs.
