<p>Eda has 10 years of experience in financial services with a focus on inclusive finance for agricultural SMEs and digital financial services. Her current work at CFI includes providing data insights and analysis, advanced analytics, and product development services across various projects.</p>
<p>Eda previously worked as an internal auditor and as an SME account manager at commercial banks in Albania. Passionate about academia, she has also served as an assistant professor on the University of Tirana’s economics faculty.</p>
<p>She holds a master’s degree in economics and finance from the Institute of Economic Studies at Charles University in Prague and a bachelor’s degree in economics and international relations from the American University in Bulgaria (AUBG).</p>


Senior Research Specialist

Eda Dokle

Andrea Zinn

Reflections on CSAF's 2022 State of the Sector report, highlighting 4 takeaways particularly relevant to the future of agriculture finance.

Blog Post

SMEs in agriculture play a critical role in developing the sector by creating employment, facilitating market access for farmers, and providing inputs, credit, and training for smallholder farmers. However, the <a href="https://isfadvisors.org/wp-content/uploads/2022/04/ISF_AgriSME-Finance-state-of-the-sector-report.pdf" target="_blank" rel="noopener noreferrer">gap in financing to agricultural SMEs</a> is estimated to be billions of dollars and no single actor can bridge this massive gap alone. To help address this, ten years ago a group of seven impact lenders -- Alterfin, Oikocredit, Rabobank’s Rabo Rural Fund, responsAbility Investment AG, Root Capital, Shared Interest Society, and Triodos Investment Management – formed the <a href="https://csaf.org/" target="_blank" rel="noopener noreferrer">Council on Smallholder Agricultural Finance (CSAF)</a> with the goal to expand finance to agriculture businesses that operate in developing countries by creating a platform for like-minded lenders to convene on a regular basis to share data, learning, and experiences on agriculture finance.
<blockquote class="pullquote--right">CSAF aims to improve the livelihood of smallholder farmers and promote environmentally sustainable practices by financing agricultural SMEs.</blockquote>
Today, the CSAF alliance includes 17 lending institution members and affiliates. Since 2013, they have collectively lent over <a href="https://csaf.org/wp-content/uploads/2022/07/CSAF_State_of_Sector_2022.pdf" target="_blank" rel="noopener noreferrer">$5.5B to 1,546 enterprises</a>, reaching 6 million farmers across 81 countries. Aiming to improve the livelihoods of smallholder farmers and promote environmentally sustainable practices by financing agricultural SMEs, CSAF members are impact-driven lenders that prioritize social and environmental impact over financial return by investing in higher-risk, high-impact enterprises.  As CSAF members’ lending meets only a small share of the overall financing demand of agri-SMEs, CSAF’s role in promoting industry standards and best practices aims to engage a wider set of stakeholders to build a more inclusive and impactful finance market that can help bridge the finance gap for agri-SMEs.

In 2014, CSAF members and affiliates began reporting portfolio and client data. CFI has partnered with CSAF since 2020 to collect and analyze data, in an effort to present insights on the landscape of agricultural SME finance. The results from the annual survey are shared in a published <a href="https://csaf.org/csaf-publications/" target="_blank" rel="noopener noreferrer">report</a> and data is made publicly available in the <a href="https://data.csaf.org/" target="_blank" rel="noopener noreferrer">CSAF Data Portal</a>.

Of the takeaways from the <a href="https://csaf.org/publications/2022-state-of-the-sector/" target="_blank" rel="noopener noreferrer">2022 State of the Sector report,</a> CFI found the following four to be particularly relevant as we look to the future of agriculture finance. While focusing on overall trends, the insights zoom in on developments in Sub-Saharan Africa.
<h3><strong>1. Sub-Saharan Africa represented a growing share of lending, as CSAF annual disbursements to agricultural SMEs reached peak levels in 2021. </strong></h3>
Lending to agricultural SMEs in 2021 grew by 35 percent from 2020 – perhaps unsurprising given that CSAF lenders contracted their disbursements in 2020 due to COVID-19 restrictions, marking a growth in disbursements by 18 percent from 2019 pre-pandemic levels. Since 2013 (the year when CSAF members began to report data), annual disbursements have more than doubled, but the increase has not been gradual.

Sub-Saharan Africa saw the greatest increase in disbursements between 2013 and 2021 (+$199M), followed by Central America (+$105M), South America (+$69M), and South &amp; East Asia (+$45M). In 2021, following a five-year trend, Sub-Saharan Africa received the majority of annual disbursements (36 percent), with Cote d'Ivoire accounting for 40 percent of regional disbursements, followed by Kenya, Uganda and Rwanda.

<img class="wp-image-44977 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/08/CSAF-Blog-Post-Graphs-01-e1660328284507.png" alt="" width="776" height="550" />
<h3><strong>2. Lenders focused on serving existing borrowers and faced challenges finding new investment-ready borrowers. </strong></h3>
In 2021, the number of total borrowers declined from 654 agricultural SMEs in 2020 to 641 in 2021, marking an increase of only 13 percent from 2013 to 2021. New client origination remained low in past years, indicating that lenders have focused their attention on existing borrowers, which accounted for 90 percent of total borrowers. CSAF members face challenges in serving first-time borrowers, who are often riskier and require smaller, less-profitable loans that do not allow lenders to operate within their risk-return models.

<img class="wp-image-44978 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/08/CSAF-Blog-Post-Graphs-02-e1660328485632.png" alt="" width="826" height="525" />While experiencing a slight decline in 2021 from 2020, Sub-Saharan Africa reported the most borrowers (47 percent of all CSAF member borrowers), spread across 21 countries. In the past 4 years, Sub-Saharan Africa also experienced the highest borrower turnover – with almost the same number of exiting borrowers as entering, but also the highest number of new borrowers.
<h3><strong>3. Financing to cash-crop value chains (coffee and cocoa) accounted for over 70 percent of disbursements, despite prior attempts to diversify into other crops. </strong></h3>
In 2021, CSAF lenders increased coffee disbursements by 40 percent, in response to increased demand for financing associated with rising coffee prices. Since 2013, coffee has been the most financed commodity by CSAF members, with a high concentration in South and Central America. Attempts to diversify away from coffee and cocoa between 2013 and 2017 were met with increased portfolio-at-risk and lenders returned to expanding financing growth in less-risky coffee and cocoa sectors.

Disbursements to cocoa, the second most financed crop, increased by 36 percent in 2021, driven primarily by growth in Cote d’Ivoire and Ghana. Sub-Saharan Africa is the most diverse region in terms of crops financed, as only 62 percent of 2021 regional disbursements went to coffee and cocoa, compared to 83 percent and 94 percent in South America and Central America, respectively. However, there is still concentration in the region; the increase in cocoa disbursements in Cote d'Ivoire accounted for 45 percent of the regional increase and came primarily because of a few borrowers receiving larger loans.

<img class="wp-image-44979 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/08/CSAF-Blog-Post-Graphs-03-e1660328543415.png" alt="" width="824" height="522" />
<h3><strong>4. Normalized portfolio quality improved as write-offs and restructured loans remained high.</strong></h3>
In 2021, portfolio-at-risk greater than 30 days (PAR30) dropped to 7.4 percent, from 8.1 percent in 2020 value. However, trends differ by loan size and region. PAR30 doubled for loans less than $250K and fell for loans larger than $2M+, with PAR30 for loans less than $250k increasing mostly in Sub-Saharan Africa.

While PAR30 declined, the overall share of outstanding write-offs was 6 percent, with the largest share of write-offs coming from Sub-Saharan Africa. This is an indication of old loans being written off from the data set and a possibility that risk associated with COVID-19 challenges or other events is not yet reflected in the data.

When we asked CSAF members to indicate the reasons for loan delinquency, they tend to highlight factors specific to the enterprises, such as management capacity. However, they also emphasize that these challenges are amplified by uncertainty and volatility in the operating environment, particularly related to climate, market, and political factors.

<img class="wp-image-44980 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/08/CSAF-Blog-Post-Graphs-04-e1660328587658.png" alt="" width="816" height="463" />
<h1>Joining Forces to Contribute to the Sector</h1>
After a few years of data collection, CSAF members realized that while market demand was high, it was difficult to meet. The data confirmed that despite the intentions of the group to meet the finance demand of many agricultural SMEs in developing markets, CSAF lenders increasingly served existing borrowers active in cash-crop value chains through short-term trade finance products at larger loan sizes ($500K+), to ensure impact while maintaining lenders’ financial sustainability.

After several discussions on challenges to serve earlier-stage agricultural businesses with lower loan-size requirements and working in less-developed value chains, CSAF members recognized that they were facing similar constraints. After conducting a <a href="https://www.agrilinks.org/sites/default/files/usaid_-_csaf_financial_benchmarking_final_learning_report.pdf" target="_blank" rel="noopener noreferrer">CSAF financial benchmarking study</a> that demonstrated the elevated risks and lower returns of serving this “missing middle” agricultural SME segment, <a href="https://aceliafrica.org/" target="_blank" rel="noopener noreferrer">Aceli Africa</a> was created as an innovative approach aiming to bridge the finance gap for agri-SMEs in East Africa by incentivizing lenders to serve higher-risk market segments while amplifying impact. This is a clear testimony of CSAF's aim to facilitate dialogue and shift lending behavior among lending practitioners, mobilize stakeholders to develop new solutions that serve excluded agri-SMEs, and engage the broader industry in bringing these solutions to scale.
<blockquote>This is a clear testimony of CSAF’s aim to facilitate dialogue among lending practitioners, mobilize stakeholders to develop new solutions that serve excluded agri-SMEs, and engage the broader industry in bringing these solutions to scale.</blockquote>
In addition to finding new approaches to serve agri-SMEs, CSAF lenders have made progress in tracking impact through aligning on standardized social and environmental impact metrics focused on farm- and enterprise-level practices. However, given the impact of climate change on the livelihoods of smallholder farmers and the importance of climate finance, lenders recognize the urgency for the development of new climate-focused solutions to advance green finance initiatives.

A Decade of Shared Learnings on Agriculture Finance: What Does the Data Tell Us?

Find them in the recent publication, "Mobilizing Agricultural Finance: Toward a Common Language Between Lenders and Agri-SMEs in Sub-Saharan Africa"

<h2>Putting the Metrics Into Practice</h2>
<p>After adopting the bankability metrics, ABC Finance’s loan officer is now able to provide Saida with clear lending requirements and request her to submit the information required. Alternatively, lenders can use a service provider to adopt the metrics if working directly with agri-SMEs is not an option. Once Saida submits the information, ABC Finance can quickly assess her business’ bankability and decide whether to move on to due diligence or not.</p>
<p>Though Saida is a fictitious character, the challenges faced by agri-SMEs like hers are very real. Clear and consistent information requirements by lenders can increase the flow of capital to agri-SMEs, which will have a direct impact not only on Saida’s business but the smallholder farmers and other businesses in her network. Adopting the bankability metrics will allow lenders to improve agri-SMEs’ access to finance.</p>
<p><em>Want to know more? Read the February 2021 publication, </em><a href="https://bit.ly/agriSMEmetrics" target="_blank" rel="noopener">Mobilizing Agricultural Finance: Toward a Common Language Between Lenders and Agri-SMEs in Sub-Saharan Africa</a>.<em><br />
</em></p>


New “bankability” metrics, which incorporate robust sector data and research, aim to further understand how to close the estimated $65 billion financing gap in Sub-Saharan Africa.  

Saida, a founder of an agricultural enterprise, started as a farmer in central Uganda growing sorghum, millet, and rice. A few years ago, she decided to buy equipment to process her crops. Demand increased, and she began buying raw materials from others and processing them as well, slowly growing her business year after year. Saida is now ready to grow even more: her plans include hiring more laborers, renting more storage units, and possibly buying a small plot of land from a neighbor.

Things are looking up for Saida and her family, but there is one challenge she has not yet overcome: financing for business growth. She is struggling to find a financial service provider that lends to small agricultural businesses and understands the opportunities that agriculture brings.

Agriculture plays a significant role in the GDP of Uganda, and ABC Finance, a lender operating in the country, sees broad investment potential. However, ABC Finance finds it challenging to lend to small, agricultural businesses because they cannot confidently measure the risks involved. They request a lot of information upfront to better understand these businesses, but oftentimes these small business owners are not able to provide sufficient documentation to move forward. As a result, ABC Finance continues to finance its existing pool of agricultural businesses, primarily those working with cash crops and in formal markets that request large loan amounts. Moreover, as a result of COVID-19, ABC Finance is focused on renewing loans for existing partners and only financing a limited number of new agri-SMEs because ABC are not able to conduct thorough, on-site due diligence.
<blockquote class="blockquote">A $65 billion financing gap for agri-SMEs means three out of four agri-SMEs don't have the necessary finance to grow.</blockquote>
Businesses like Saida’s are not alone in their struggles to secure loans. There is an estimated USD $65 billion financing gap for agri-SMEs, which means three out of four agri-SMEs don't have the necessary finance to grow. For those agri-SMEs that make it to a lender's radar, CFI and <a href="https://scopeinsight.com/">SCOPEinsight</a> research found that lenders spend an inordinate amount of time and resources sourcing businesses and assessing their bankability, making the process of pre-screening and assessment expensive and leaving out the opportunity for many agri-SMEs to receive lending.

Given some of these limitations, how can ABC Finance easily determine if Saida runs a “bankable” agri-SME?
<h2>The Challenges of Determining an Agri-SME’s Bankability</h2>
In 2020, CFI and SCOPEinsight, as part of our partnership with <a href="https://agra.org/" target="_blank" rel="noopener noreferrer">AGRA</a>, researched over 90 lenders and industry actors and mapped SCOPEinsight and <a href="https://csaf.org/">CSAF</a> data to understand the driving factors behind the significant financing gap. Our research pointed to information – the information requested by lenders and the ability of agri-SMEs to provide information to lenders – as one of the most important obstacles to assessing the creditworthiness of agri-SMEs.
<blockquote class="pullquote--right">Lenders tend to gravitate toward larger businesses and stick with lending to businesses they already know.</blockquote>
Lenders typically collect a long list of information during the pre-due diligence (i.e. screening) phase of a deal. That information often includes generic business metrics and other metrics related to the agriculture sector or social and environmental impact. Many agri-SME’s, particularly smaller enterprises and those that operate in informal markets, struggle to provide formal documentation of their business activities. This is further complicated by the fact that the type of information requested varies significantly from lender to lender, making it difficult for agri-SMEs to prioritize what they should be documenting. As a result, lenders tend to gravitate toward larger businesses operating in formal markets and stick with lending to the businesses they already know.
<h2>Bankability Metrics Address the Information Obstacle</h2>
To address this information challenge, we developed a set of standardized bankability metrics that can serve as a common language between lenders and agri-SMEs. The metrics are intended to be used during pre-due diligence, providing lenders with an overview of the agri-SME's activity that is enough for them to decide whether to continue with due diligence or not. At the same time, standardized metrics will provide agri-SMEs with clear expectations about lenders’ requirements and help them prepare for an assessment more quickly and efficiently. The metrics will reduce the time needed to conduct pre-due diligence and open opportunities to expand lending to the many high-potential agri-SMEs that currently struggle to secure financing.

The bankability metrics focus on business activity, financial performance, management capacity, and governance. The team analyzed the wide variety of metrics used by lenders to identify metrics with the greatest common ground and those that are most effective in screening for creditworthiness. Each lender has a unique risk appetite, so the metrics do not identify benchmarks for bankability, but rather provide a common set of metrics whereby each lender can apply their own assessment to determine creditworthiness.

The Challenge of Bringing Agri-SMEs and Lenders Closer Together

Agri-SMEs play a critical role in food security, and COVID-19 is presenting them with a new set of challenges beyond those they were already facing. However, there are various ways in which lenders can support agri-SMEs in not only overcoming the immediate effects of the pandemic, but also in becoming more resilient to those that will come in the future. The solutions developed and lessons learned in this current crisis may serve to strengthen food security in the long run.

Prior to the onset of COVID-19, very few of us would have foreseen a pandemic spreading so rapidly across the world, forcing governments to take actions like lockdowns and border closures. We have observed how these events found many essential services unprepared and resulted in businesses focusing on “response” and “recovery.” In many countries, the pandemic started as a health crisis, while in Sub-Saharan Africa it started as an <a href="https://www.worldbank.org/en/news/video/2020/04/21/africas-pulse-covid-19-coronavirus-causes-first-recession-in-25-years" target="_blank" rel="noopener noreferrer">economic one</a>, as closures happened quicker than the virus spread.

Despite the fact that many agricultural value chains are considered an essential service, agri-SMEs in Sub-Saharan Africa are still facing a <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">decline in demand</a> (particularly those providing farm inputs), <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_Summary_FINAL.pdf" target="_blank" rel="noopener noreferrer">liquidity shortfalls</a>, harvesting and production problems due to labor shortages, <a href="https://csaf.org/wp-content/uploads/2020/07/CSAF_State_of_Sector_2020_FINAL.pdf" target="_blank" rel="noopener noreferrer">export and transportation delays due to lockdowns</a>, and cancelled international contracts. All these challenges are exacerbated by ongoing climate change-related shocks, like droughts, floods and <a href="https://www.nationalgeographic.com/science/2020/02/locust-plague-climate-science-east-africa/" target="_blank" rel="noopener noreferrer">locust plagues</a>. The resilience of agri-SMEs (small and medium-sized businesses that are formal and registered entities engaged in agricultural production) is being tested with these events.

While it is too early to estimate the full economic impact of COVID-19 on agri-SMEs, most lenders are taking steps to address the most pressing challenges faced by these agri-SMEs. Though it is prudent to move quickly to overcome these challenges, agri-SMEs would be better supported in the long run if lenders approach these problems through a systemic lens to understand the root of the challenges instead of focusing only on the symptoms of the overall shock.

Aside from the lack of infrastructure, agri-SMEs’ biggest challenge to growth is their limited access to finance and the regulatory burdens constraining this access. As will be discussed below, these challenges are deeper and more structurally embedded, and therefore require a long-term coordinated commitment to provide agri-SMEs access to capital.

This post highlights steps lenders are currently taking to help agri-SMEs weather the storm and suggests areas where they can expand their focus to support these businesses in being better prepared for future economic shocks.
<h2>Explore new options to mitigate risk and increase capital flow to agri-SMEs</h2>
Since the outbreak of the pandemic, most lenders have focused on serving existing clients by increasing their financing, restructuring loans, or deferring payments to meet their clients’ liquidity challenges. By doing so, lenders are also making sure their current portfolio is not at immediate risk.
<blockquote>It’s essential that lenders offer non-traditional options to mitigate risks and increase the flow of capital to agri-SMEs.</blockquote>
While lenders may be tempted to take a more conservative stance, those with sufficient capacity should be initiating even more new deals in order for agri-SMEs to keep goods and services flowing through the highly interdependent agricultural value chain. For instance, <a href="https://datastudio.google.com/u/0/reporting/0f453d56-7fef-4823-8cd2-b2bd02773603/page/TP9WB" target="_blank" rel="noopener noreferrer">72% of MSEs in Zambia</a> need working capital to continue and grow their business, and <a href="https://datastudio.google.com/u/0/reporting/0f453d56-7fef-4823-8cd2-b2bd02773603/page/TP9WB" target="_blank" rel="noopener noreferrer">61% are running on their savings</a>. COVID-19 is exacerbating the financing gap, and it’s essential that lenders offer non-traditional options to mitigate risks and increase the flow of capital to agri-SMEs.

Luckily, lenders have successful examples which they can use to build new and more innovative risk mitigation options. Credit guarantees, such as non-bank financial instruments that mitigate default risk for lenders in Sub-Saharan Africa, are a known practice. Between 2008 and 2015, AGRA worked with several partners to offer several guarantees to extend credit to many agriculture value chain actors in Africa, demonstrating the bankability and feasibility of investing in perceived risky agricultural businesses. Additionally, <a href="https://aceliafrica.org/" target="_blank" rel="noopener noreferrer">Aceli Africa</a> has developed a new market platform that aims to incentivize financial service providers to lend to agri-SMEs while also providing technical assistance to them.
<h2>Create new strategies to find and support agri-SMEs</h2>
Many agricultural lenders are reporting that servicing new clients has either stopped or dropped to low levels, not just because of risk concerns, but also because it is almost impossible to conduct thorough due diligence without on-site visits. Given that on-site visits may not be feasible in the near-future, lenders will want to design creative strategies and leverage data to support remote discovery of new agri-SMEs.
<blockquote>Promising agri-SMEs will become more visible to lenders by providing a common set of standard bankability metrics.</blockquote>
To this end, in early 2020, MIX and SCOPEinsight formed a partnership with the support of AGRA to help address the financing gap agri-SMEs face. Through this partnership, they are <a href="https://www.themix.org/news-blog/mix-and-scopeinsight-launch-partnership-with-agra" target="_blank" rel="noopener noreferrer">building bankability metrics</a> so that agricultural lenders can identify and pre-screen agri-SMEs. These metrics play an even more important role now due to COVID-19 disruptions, and they will feed into a portal which will bridge the information gap between agri-SMEs and lenders. As a result, promising agri-SMEs will become more visible to lenders by providing a common set of standard bankability metrics that lenders can use to reduce their costs to serve SMEs. By employing bankability metrics, lenders will be able to assess the potential for growth of agri-SMEs, which currently handle <a href="https://agrf.org/dealroom/wp-content/uploads/2020/07/AGRA-AGRF-Deal-Room-talk-by-Tom-Reardon-july20-2020-final-sent.pptx" target="_blank" rel="noopener noreferrer">680 million tons of food in Africa</a>.
<h2>Offer appropriate technical assistance to agri-SMEs</h2>
<blockquote>The key to this kind of support is that it offers business development assistance that is based on a high knowledge of the value chains and challenges.</blockquote>
Several of the lenders we spoke with are increasingly providing technical assistance to agri-SMEs, recognizing that in these extraordinary times, agri-SMEs are looking for direction. Lenders are offering guidance and training on financial management, crisis management, and operating a business with limited resources. After conducting a <a href="https://rootcapital.org/wp-content/uploads/2020/06/COVID-19-client-survey-report_JUNE-2020.pdf" target="_blank" rel="noopener noreferrer">survey on COVID-19's impact on 134 of its clients</a>, Root Capital decided to offer virtual technical support through its advisory team in four areas: crisis management, emergency operations, financial management and analysis, and digital data collection and analysis.

While technical assistance is not new and is already being offered to SMEs by many organizations, the key to this kind of support is that it offers business development assistance that is based on a high knowledge of the value chains and challenges, with the main goal to support agri-SMEs to grow and become bankable organizations. Helping agri-SMEs become more bankable, and thus more professionalized and visible to other lenders, can assist them to overcome barriers to financing and become more resilient and better equipped to face future risks and shocks.

Going forward, the uncertainty of this pandemic makes it unclear how the next season or harvest will affect agri-SMEs, who are <a href="https://www.raflearning.org/post/covid-19-emergency-briefing-agri-smes-operating-uncertain-financial-operational-and-supply" target="_blank" rel="noopener noreferrer">highly interdependent actors in an agricultural value chain</a> where one simple disruption in the flow of goods and services creates challenges for other actors. Along with prioritizing their existing clients, as they are currently doing, lenders could consider the crisis an opportunity to employ long-term strategies that can help agri-SMEs grow into resilient institutions. Coordinated responses and actions by lenders and other actors will play a critical role in ensuring that these businesses are strong enough to continue to feed the world in the face of new pandemics and other global challenges to come.

&nbsp;

Eda Dokle

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