According to the World Bank, global demand for food will increase by 70% by 2050. Also quoted is a need for at least US$80 billion annual investments to meet this demand, most of which is required to come from the private sector. Financial sector institutions in developing countries lend a disproportionately lower share of their loan portfolios to agriculture sectors compared to the sector’s share of GDP.
Financing is a significant constraint to growth in Africa’s agricultural sector, particularly for small and medium scale enterprises (SME). The agricultural sector is predominantly dominated by SMEs, who are only able to access non-Agric specific loans at maximum lending rate of 29.51%2 as at August 2020 in Nigeria. Although the government has initiated concessionary loans to fast track growth in the sector, it is not sufficient to close the gap. Examples of these loans are Commercial Agriculture Credit Scheme (CACs) loan in Nigeria, One district One Factory Initiative in Ghana.
A lack of collaterals from farmers and businesses makes access to the limited number of available agriculture-specific loans restricted. Hence, financing has consistently been an essential impediment to the development of the sector. Other key challenges are the lack of adequate rural infrastructure, lack of access to the range of inputs required by farmers, knowledge gaps, including financial literacy, and the lack of reliable data. Therefore, access to appropriate financial services is strategically vital to realizing Africa’s agricultural potential. With the development of Private Equity firms in emerging markets like Africa, farmers and entrepreneurs now have access to finance combined with technical and operational assistance to enhance growth within the sector.