The Role of Banks and Investment Funds in Agri SME Finance: A Conversation with Two Practitioners
Channel: Marketlinks
Date: 19/12/2023

In the developing world, banks and private sector investment funds are two of the largest sources of capital for agricultural small and midsize enterprises (agri-SMEs). Banks are by far the farthest reaching, serving a large portion of the market through their branch networks. While having the potential to transform both local economies and food systems through agricultural financing, they often take too conservative of an approach to lending, have demanding collateral requirements, and tend to be focused on short loan tenors. Investment funds, as another option, can provide debt without requiring security and can also invest equity, but typically support larger transaction sizes, which can be problematic for SMEs that need smaller loans.

On December 19, 2023, Marketlinks and the USAID Bureau for Resilience, Environment, and Food Security (REFS) hosted a discussion about how donor capital can be used to mobilize capital in agriculture through funds and banks. Moderator Songbae Lee from REFS led the discussion with Brian Milder, CEO of Aceli Africa, and Chris Isaac, CIO of AgDevCo, to examine the different impacts from supporting funds vs banks, e.g. supporting a higher volume of smaller transactions versus a lower volume of medium- to large-transactions and capital mobilization / leverage relative to impact and capital additionality.