Adapting Financial Products to Better Serve Agri-SMEs

Agricultural small- and medium-enterprises (SMEs) operate with a different rhythm than other businesses: their revenues are seasonal, their assets are often movable rather than fixed, and their growth cycles are measured in harvests, not quarters. Yet commercial lenders in East Africa generally offer the same standardized loan products to agri-SMEs as they do to others. They do this because the modest returns do not justify the investment required to defray high transaction costs and mitigate risks (both real and perceived) of serving agri-SMEs. The resulting one-size-fits-all approach is ill-suited for the realities of lending to agri-SMEs.

By defraying costs and sharing risk, Aceli’s financial incentives improve the business case for agri-SME finance and generate a positive lender activation cycle: lenders move from cautious, ad-hoc participation to strategic investment in the sector, building their capacity to serve more of the market and to serve it better. In line with this progression, many Aceli partner lenders have shifted their approaches to agricultural SME product design in meaningful ways.

The examples in this piece include both adjustments in direct response to Aceli incentives as well as adaptations aligned with lenders’ broader agricultural portfolio growth strategies.