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Our latest financial benchmarking on the economics of agri-SME lending draws on 32k loans totaling $2B from 41 Aceli lending partners across Kenya, Rwanda, Tanzania, Uganda, and Zambia. Conducted in partnership with Dalberg, the key findings include:

• Market growth. Agri-SME loan volume grew 83% from $295M in 2020 to $541M in 2023 while the total number of loans more than doubled.
• Banks driving volume. Banks comprise 63% of the 41 lenders in the dataset and account for 94% of the loans (note: value chain credit is an important source of finance for agri-SMEs and smallholder farmers but is not captured in this data).
• Shift downmarket. The average loan size fell by 20% largely driven by Tanzanian lenders that ramped up activity for underserved market segments in response to favorable enabling policies from the Tanzanian government.
• Risk remains elevated but is declining. Higher volume lenders are improving their risk management but non-performing loans (NPLs) for agri-SME lending remains 40% above NPLs for bank lending overall; with most agri-SMEs in the region still struggling to access finance from formal sources, we believe the systemic risk of agri-SME lending is even higher than this data on outstanding loans indicates.
• Profitability is gradually improving. Banks generated a 3.5% return on their agri-SME lending overall but profitability varies by loan size from a healthy 8.4% margin on loans $500k-$2M compared to just 1.6% on loans $25-50k and -2.2% on loans $10-25k.
• Opportunity cost. However, there is a significant opportunity cost for agri-SME lending, particularly smaller loans, relative to the 16.2% average yield on government bonds across the five countries and the 28.3% overall profitability for commercial banks.
• Aceli’s incentives improve loan economics. Aceli’s portfolio first loss cover and origination incentives improve agri-SME loan profitability by ~3%; while this is not enough to bridge the full opportunity cost, it is a meaningful nudge that reinforces lenders’ growing interest in serving this market.
• Shift in lender outlook and behavior. Lenders report an increase in outreach to new borrowers segments and improved loan terms. See the full report for more detail on these trends.

This learning brief builds upon initial findings published in 2022 highlighting Aceli’s approach to partnering with a marketplace of 40 financial institutions to promote economic opportunities for women by increasing lending for small- and medium-enterprises (SMEs) in the agriculture sector in East Africa.

The brief presents:

• Data & learning on trends across 2,306 Aceli-supported loans totaling $204M (up from 467 loans totaling $62M in the 2022 brief)
• Insights from capacity building for financial institutions on economic opportunities for women and pre-investment technical assistance for women-owned agri-SMEs
• Learning questions that are guiding the design and iterations of Aceli’s offering
• The partnerships & enabling policies required to advance women’s economic opportunities across the agri-SME market and beyond

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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. 

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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.

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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.

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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.

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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.

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