Enabling Policies
Aceli works with industry experts and governments to promote policy reforms that facilitate agri-SME lending and nurture a more competitive financial market for the agriculture sector.
Role of government in rural & agri-finance
Aceli partnered with ISF Advisors to conduct research on the role of government and enabling policies in agri-finance at a global level. Drawing on these findings and our experience as lending practitioners, we advocate for agri-finance that is distinct, pluralistic, market based.
Guiding principles for agri-finance enabling policies
A one-size-fits-all approach that lumps agriculture into the financial system underestimates both sector-specific risk factors like seasonality and weather and strategic considerations like job creation, the cost of food, and the not-yet-realized potential for agriculture to drive economic growth. Because responsibility for agri-finance has typically been fragmented between ministries of agriculture, finance, infrastructure, and trade, among others—there is no single owner; as a result, agri-finance often becomes a policy orphan. Without a clear lead to coordinate agri-finance strategy and implementation, it’s challenging to harmonize these efforts.
The diverse funding needs of agricultural actors requires a range of financial service providers. Commercial banks have the largest pool of assets and physical presence through their branch network so policymakers should prioritize reviewing the regulations that are constraining their agri-lending. At the same time, other financial service providers are also needed to offer specialized products like equipment leasing, input finance, warehouse receipts, and crop insurance. By refining existing policies and filling in the gaps as needed, policymakers can promote a diversity of actors that can collectively serve the full range of financing needs across the sector.
The government has a vital role to play in creating the enabling conditions for agri-finance, but its strength usually is not in direct lending. A global review indicates that governments often get involved as a direct lender when their agri-finance market is nascent. This may be necessary early on, but it becomes a limitation over time: the public sector simply does not have enough capital to meet the full demand and its continued involvement in direct lending can distort the finance market. There are numerous cases from around the world where farmers default en masse on their loans to the government or where government lending is channeled to the elite while the majority of farmers and agri-SMEs struggle to access finance. Through smart regulation and well-designed incentives, governments can mobilize much larger pools of private capital and ensure it is distributed across the sector.
Policy partners
Data & learning
Role of Government in Rural & Agri-Finance: Building a Market-Based System to Support Sustainable Growth
Presents recommendations for how governments can play a more effective role in developing a competitive agri-finance market that supports a robust food system and thriving agricultural economy.
Learning Brief: The Effect of Central Bank Policies on Lending to Agricultural SMEs in East Africa
Draws upon our review of the literature, conversations with more than 70 practitioners in East Africa, and the experiences of our team from the perspective of both lending and borrowing.
