Overview: Convergence awarded a proof of concept grant in Q4 2018 for Aceli Africa, which seeks to address the $65 billion financing gap for agricultural small- and medium-enterprises (SMEs) in Africa, through a financing facility that uses targeted incentives to increase lending from local financial institutions and international lenders to these SMEs. The Convergence grant has been awarded to Global Development Incubator (GDI), which is partnering with the Council of Smallholder Agricultural Finance to design Aceli Africa.
Aceli Africa takes a unique approach to incentivize local banks, as well as international lenders, to lend to segments that they don’t traditionally serve in order to grow the local agricultural sector. Therefore, blended finance is used to create a vibrant ecosystem to increase access to finance.
From bilateral and philanthropic donors, Aceli Africa aims to raise $40 million for financial incentives paired with $10 million for technical assistance for agricultural SMEs. These funds will mobilize an expected $700 million in private sector lending with each donor dollar generating at least three dollars of incremental income for farmers in addition to job creation, food security and nutrition, and economic growth. Aceli Africa will initially focus in Kenya, Rwanda, Tanzania, and Uganda with the possibility of expanding to other countries in a second phase.
Design question and learning potential for the market:
How can a data-driven approach be used to catalyze a competitive marketplace for agricultural SME finance in Africa?
Aceli Africa leverages data to create a marketplace where lenders receive financial incentives when they provide loans to inclusive agricultural SMEs. To inform the design of these incentives, Aceli Africa captured lending data from 28 financial institutions, including local banks and global social lenders that are members of CSAF, on thousands of transactions totalling more than $3 billion in lending.
Based on this data, Aceli Africa will offer two instruments to financial institutions: 1) cash incentive payments to defray the higher loan underwriting and management costs associated with what high impact borrowers can offer to pay; and 2) a first-loss risk-sharing mechanism to reduce lenders’ exposure when serving high-impact segments that are higher risk, such as SMEs working in less formal food crop value chains. Further, Aceli Africa will also have a technical assistance facility to provide additional support and capacity building for lenders. In this manner, Aceli Africa aims to use data to deploy multi-pronged solutions to build the agri-SME finance market.