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The articles in this category allow the audience to have a better understanding of different topics related to African entrepreneurship: the economic or political context, social issues, etc.

Insights Perspectives

What Financing for the Private Sector in Africa? The Role of Impact Investing?

The private sector is a driver of growth. However, African firms, regardless their size, suffer from a lack of financing, especially in areas where traditional financing solutions are insufficient. Could…

Companies – large, medium, small – are one of the main sources of economic growth, as they actively participate in job creation, generate income and contribute positively to social and environmental well-being. However, the private sector in Africa faces significant financing gap, especially in areas where traditional financing solutions as banking credit are lacking. This is where impact investing emerges as a promising alternative, particularly for companies having important externalities for their communities.

Impact investing, an unknown financing solution

Impact investing is seen as a recent alternative to finance the private sector, particularly for firms and projects that generate substantial extra-financial benefits for their communities. Impact investing vehicles have grown by double digits (14%) in five years (2017-2022) in Africa, but it still remains a less developed segment compared to other forms of financing. There is a real enthusiasm around this financial innovation, particularly from donors and governments. Despite this interest, this recent financing solution remains largely unknown. In a recent study, the FERDI, through its Impact Investing Chair, aims to improve the understanding of this industry in Africa by publishing an analytical mapping of impact investing on the African continent.

Specificities and role in development financing

Impact investing mobilizes financial traditional tools such as debt or equity. Its specificity lies in directing its funds towards firms and projects that generate high extra-financial impacts, whether economic (e.g., creation of jobs, direct and indirect ones), social (e.g., improvement of healthcare services), or environmental (e.g., providing renewable energy solutions). It also targets investees that cannot qualify for traditional financing channels, such as bank loans, due to their unfavorable risk-return balance.

Impact investors play a crucial role in bridging the financing gap for many companies in Africa. They take the risk of investing in these latter at various stages of their development, despite a potential lower return than market rates. The trade-off for this reduced profitability and increased risk is that the provided investments will generate significant community impacts. This financing helps entrepreneurs launch their projects, develop their products, strengthen their market strategies, and become self-sufficient on a long-term run. A notable example is the Laiterie du Berger (LDB), a Senegalese dairy company that has been supported financially by the impact investor I&P. With over 700,000 euros invested over several years, I&P supported LDB from its early stages, despite modest initial profits – impact investors often use patient capital. Other impact investors subsequently provided financial support for its development. Today, LDB employs more than a thousand people and contributes to improving the agricultural value chain, nutrition, incomes, and Senegal’s GDP – demonstrating the importance of impact investing and its actors in development financing.

Some data on impact investors in Africa

On the African continent, impact generation goals are often based on the ability to achieve the Sustainable Development Goals (SDGs), and contribute to the national development plans of the countries in which they invest, which may not be the case elsewhere. Therefore, investees’ economic activities are often tightly linked to one or most of the seventeen SDGs.

Moreover, given their dual objective – impact and financial return – impact investors seek to finance sectors that allow them to attain scalability and an acceptable financial return. This is why their investments in Africa are concentrated in agriculture, finance, and energy. These three sectors meet this dual constraint. They are among the fastest-growing sectors on the continent and also employ the most workforces.

For instance, the agricultural sector is crucial both economically, by employing more than half of the active population in Africa (51.71% of jobs on the continent are in agriculture, World Development Indicator); socially, due to rural poverty; and environmentally as agriculture is both a recipient and a solution to environmental challenges (climate change, biodiversity, pollution).

Nevertheless, the mapping conducted by the FERDI’s Impact Investing Chair shows that the majority of investment funds operating in Africa are headquartered outside the continent, mainly in North America and Europe. African impact funds represent barely more than 16% of the activity of funds operating on the continent, with a notable concentration in a few english-speaking countries such as Nigeria, Kenya, and South Africa. These countries are also where most of the investees are located.

The landscape of impact investing in Africa is also dominated by medium-sized funds (from 1 to 250 million USD), which constitute 54.5% of identified impact investors on the continent. However, 80% of the assets under management mobilized in Africa, amounting to 108 billion USD, are managed by a few mega-funds (over 1,000 million USD) – representing 7% of investors, with only three out of eighteen headquartered in Africa (in Nigeria and Mauritius), the rest being mostly European.

Impact investing challenges in Africa

Impact investing in Africa faces several challenges.

Firstly, the disconnection between the nationality of the funds and the country and companies they invest in is a source of challenges for investors on the African continent. Investing in the local currency of the investees’ market or in the investors’ currency presents a dilemma, often leading to a “currency mismatch.” Currency market shocks can be a blocking factor for fund allocation and can be an argument for withdrawal by capital providers and local financial institutions.

The difficulty in measuring and demonstrating the real net impact of these investments is also a major challenge for this sector in Africa. Indeed, its economic impacts are higher than what data can show – as in the case of LDB.

However, it is indeed essential for impact investors to demonstrate their community impacts to build their legitimacy and credibility among capital allocators, who are mainly foundations and development finance institutions (DFIs). The lack of qualified personnel and the high cost of evaluation systems partly explain that difficulty to prove their credibility to these entities to support their fundraising efforts. The administrative burden linked to fundraising is also one of the reasons for the decline in the creation of new funds since the beginning of the century. This human resource issue is explained by the competitive labor market. Impact investors face competition from competitors like DFIs and development agencies that offer higher salary ranges, making it challenging for them to meet these standards.

Another challenge is the difficulty of exit due to the limited size of the local impact investing ecosystem. Few investors, whether international or national, are interested in buying their shares. The sale of these shares can thus be prolonged beyond the initially defined maturity, serving as a deterrent for impact investors themselves.

To conclude, in order to fully realize the potential of impact investing, it is essential to increase the financing of local actors by simplifying procedures and innovating to attract institutional investors. Supporting its development by implementing mechanisms to improve the risk-return balance, notably through the development of specific instruments and secondary markets, would leverage the emergence of this sector. Finally, it is important to improve the quality of funds and their impact measurement methodologies by supporting teams, sharing best practices, and implementing dedicated incentives. The FERDI Impact Investment Chair addresses these issues in its current research agenda.

By : Léon Florian and Rabary Sitraka

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Yarani - Afroto, 2024

Insights

Measuring the Impact of Educational Institutions in Higher Education in West Africa: key indicators

Yarani - Afroto, 2024

Since the 2000s, there has been a massive expansion in private higher education provision. This offer is characterized by diversity, ranging from micro-institutions with few resources to large university groups. This rapid growth reinforces the need to measure the social impact of these institutions, in order to guarantee and control the quality of the training on offer.

In partnership with 60_decibels (1), an impact measurement company, I&P Education to Employement (2), a funding program that aims to improve access to quality education, has set up “lean data” surveys to monitor and improve the measurement of the impact of companies funded by the program.

Between 2021 and 2023, 60dB conducted 23 studies with 18 post-secondary institutions. Researchers trained by 60dB conducted 5,448 telephone interviews with alumni of the institutions. These alumni were randomly selected from databases compiled and shared by each institution, with cohorts ranging from 5 years up to their entry into the IP2E program. Where possible, 60dB targeted a sample of 200-250 alumni per institution, to guarantee a 90% confidence level and a 5% margin of error. These data were essential to help companies better understand their role in their alumni’s career paths. They guided the implementation of strategies, supported by IP2E, to improve their impact on their current students.

In a subregional context of data scarcity, this article looks at the main indicators that educational companies should take into account when measuring their impact.

To access the full report : click here

Understanding the demographic profile of your students

Institutions need to understand not only the geographical, but also the socio-economic origins of their students. These segmentations are essential, in order to assess whether all students, whatever their gender, age, socio-economic level or place of residence, have the same chances of finding a job. These parameters can guide companies in setting up specific mechanisms, such as social grants, or relocation to rural areas.

I&P, through the IP2E program, investigates whether students come from disadvantaged backgrounds, by examining key variables: whether they live in rural areas, whether they study in areas where socio-economic development indicators are low, and whether they need social inclusion mechanisms (i.e. scholarships) to pursue their studies. For the purposes of this report, institutions with more than 80% of students from disadvantaged backgrounds are classified as having a “high” level of disadvantage.

Measuring professional integration

The professional integration of graduates is a key indicator of the effectiveness of educational institutions, but its measurement is complex.

For the purposes of this study, the insertion rate refers to the proportion of former students who report being currently employed, and who report having found a job within six months of graduation. Graduates’ insertion rates can be influenced by external factors such as economic conditions, making it difficult to attribute employment directly to the quality of the education received.

At the time of the study, 61% of alumni from IP2E portfolio institutions were employed. 39% found a job within six months of their training.

Institutions also need to understand the reasons why their alumni are not employed. Alumni interviewed cited a lack of job opportunities in a competitive environment, administrative problems with their institutions and career transitions to explain this situation. 10% were still studying at the time of the study.

Identifying the most promising career paths

The study revealed that former students with a vocational training diploma are more likely to enter the job market independently, and therefore have the highest average integration rate, at 46%. Institutions also need to determine whether the skills imparted are being used by students in their work.

Knowing how to find a job

Establishments can measure their contribution to students’ job search. To do this, they need to identify through which intermediaries students have found their jobs. In our study, nearly 3 out of 10 former students relied on friends or family to find a job. 15% also rely on external networks. Only 12% find their jobs through the career guidance services offered by the schools. Yet this is one of the main reasons why students recommend their school. Companies therefore need to strengthen their career services.

Find out about graduated satisfaction

Alumni’s employment status influences their level of satisfaction with the school. The Net Promoter Score (NPS) is a common indicator of customer satisfaction and loyalty. The study reveals that it is higher among employed students than among unemployed ones. Former students take into account the quality of training, the relevance of training, the learning environment and the support given to students in their job search.

Integrating the multi-dimensionality of impact measurement

60 dB has created an impact index specific to I&P: the I&P Education Impact, which includes the factors most cited by alumni in defining their quality of life. It was measured through a deliberately open-ended question, to find out how alumni perceive their well-being. The most important parameters that emerged were :

- - Employment conditions: the most fundamental factor is having a job, whether formally or informally, or through self-employment or an advisory role.
  - First job: getting your first job within six months of graduating is also a key factor in effective professional integration.
  - Retirement benefits: the retirement pension is the first social benefit declared and serves as an indicator of formal employment. It is a sign of access to a basic and essential benefit.
  - Job satisfaction: the type of job (formal, informal, internship, self-employment) also plays a key role.
  - Satisfaction with salary: similarly, in addition to satisfaction with the job itself, satisfaction with salary is also important, as it covers the financial aspects.
  - Quality of Life: the improvement in general well-being, as perceived by alumni themselves, is a key impact indicator.

By 2030, 30 million young people will be entering the African job market every year. Universities and vocational training centers play a vital role in enabling students to develop their skills to the full and make an effective contribution to the job market. The impact of higher education institutions in West Africa is multidimensional, encompassing professional insertion, social inclusion and improved quality of life for students. Measuring this impact presents significant but essential challenges for informing educational policies and institutional practices.

(1) 60_decibels is an impact measurement company that brings speed and scalability to social impact measurement and customer insight.

(2) The I&P Education to Employment Initiative (IP2E), an impact financing program launched in 2021 that aims to improve access to quality education and strengthen the training-employment match in Africa, in order to guarantee better employment opportunities. IP2E finances and supports private companies in the post-secondary education ecosystem.

By : Manuela Boma-Atta and Louis Tran Van Lieu

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Insights Perspectives

African SMEs have potential to be at the forefront of tomorrow’s digital world

For over 15 years I’ve been helping companies on the continent with their digital strategies, and I firmly believe in the potential of African SMEs to be at the…

For over 15 years I’ve been helping companies on the continent with their digital strategies, and I firmly believe in the potential of African SMEs to be at the cutting edge of tomorrow’s digital world.

And here is why

First, because there is a technology gap

When it comes to digital in Africa, the reality today is that usage is still limited. Only 36% of the African population was connected in January 2023. Technological progress is held back by structural constraints (lack of infrastructure, poor Internet connectivity, weak electricity networks), as well as societal issues (limited purchasing power, populations far removed from the written word, etc.).

But this technological gap is, in many ways, an opportunity.

In fact, we’re seeing that the latest adopters tend to go straight to the most advanced uses. Newcomers to the Internet, for example, will immediately start using artificial intelligence – already via voice recognition on their smartphones – and this will seem normal to them.

This is what we call the Frogleap: a jump that enables African companies to go straight from the craft to the Web 4.0 industry!

Secondly, because these companies operate in difficult environments

Political, economic, social, regulatory, environmental: the context is often difficult for African companies – more difficult than elsewhere.

Here again, it’s an opportunity! Because innovation is born of constraint.

After all, why change something that works? Yes, we could do better, but by nature nobody likes change…

This is the main reason why transformation projects in French companies, for example, come up against so many obstacles.

We all know how difficult it is to change established habits. But when faced with a problem or a stumbling block, we’ll do anything to find a solution.

The most obvious example is mobile money, which accounts for over 36 billion transactions in sub-Saharan Africa – compared with just 300 million in Europe and Central Asia (source: GSMA 2021).

Why are these uses struggling to take off in Europe and Central Asia? Because the market is already equipped with bankcards, and while mobile payment brings a plus, it doesn’t respond to a real need.

It’s interesting to see here how these innovations impact the way we measure a country’s level of development – with mobile money, for example, the rate of bank penetration is no longer necessarily as representative …

Finally, African SMEs are often young structures with limited resources.

Surprising as it may seem, this can also be an opportunity for digital.

Indeed, digitalization is no longer so much a question of budget, but more a question of culture.

The rise of “no-code” has democratized access to digitalization for businesses.

Applications such as Notion have enabled companies like Sayna, in Madagascar, to digitize their entire processes without the need for special technical expertise or large budgets.

Social media make it easy to reach a local and international audience.

What’s more, it’s easier for younger and smaller structures to take advantage of digital.

More agile than large groups with established practices, they can evolve their tools and practices to implement new, more appropriate working methods.

This ability to adapt is a real strength in a context of great uncertainty, particularly when it comes to energy and climate issues.

So many reasons for African SMEs to confidently embrace a digital transformation that can be a real lever for development.

However, it’s important to keep in mind:

The human element: Digital must not replace, but rather “augment” the human element. Digital should not be designed for digital’s sake, but to add value. This means improving, simplifying, and streamlining relationships that are first and foremost human, whether within companies or with their customers and partners. In this respect, it’s interesting to see the growing importance of conversational uses in digital interfaces, which are those closest to human interaction (e.g. WhatsApp or ChatGPT).

African specificities: On the one hand, it’s a question of ensuring a better representation of the continent’s realities in the various digital tools. Indeed, the realities proposed online in Google results, on social media, or in image or text productions generated by Artificial Intelligences mirror the content available online – content that is above all American, Asian, European… The aim is to encourage the production of African content so that the continent’s specificities are also taken into account in the future.

On the other hand, while the main digital players today are American or Chinese, we need to ensure that digitalization does not create over-dependent relationships for individual countries. An issue that Africa shares with many other geographies!

By : Marie-Alice Boyé

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Insights

The Health of Young People in Sub-Saharan Africa: A Significant Challenge in the Framework of the Sustainable Development Goals.

Profile of University of Lomé Students in Togo: Significant Health Requirements, But Challenges for Healthcare Access

Profile of University of Lomé Students in Togo: Significant Health Requirements, But Challenges for Healthcare Access

By : PELISSIER Aurore, ATAKE Esso-Hanam and ALOWOU Amèvi Patrice

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Insights

An IFC/World Bank Group experiment in mustering the private sector for development

Private financial flows to Emerging Markets and Developing Economies (EMDEs) today are lower than in 2015, when both the UN’s Addis Ababa Agenda for Action and the Paris Agreement were…

Private financial flows to Emerging Markets and Developing Economies (EMDEs) today are lower than in 2015, when both the UN’s Addis Ababa Agenda for Action and the Paris Agreement were adopted—committing the world to financing the SDGs and reducing carbon emissions. Were the expectations simply unrealistic? How can we hope to measure up to the challenge of our generation?

By : LE HOUÉROU Philippe and Hans Peter LANKES

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©, copyright Mali Shi

Insights Perspectives Testimonials

In Mali, a company specializing in shea butter sets an example for the continent

©, copyright Mali Shi

Jérémie Malbrancke and Simbala Sylla look back at the story of Mali Shi, a Malian company founded in 2019 and the first industrial shea processor in the country. The story…

Jérémie Malbrancke and Simbala Sylla look back at the story of Mali Shi, a Malian company founded in 2019 and the first industrial shea processor in the country. The story of a committed and determined company, which allows the development of a sector creating thousands of jobs and enhancing local resources.

Mali is slowly regaining its commercial and financial standing in West Africa since the lifting of ECOWAS sanctions in July. Following the seizure of power by Assimi Goïta’s junta, the organization of West African states had imposed, along with its members, the closure of borders, the suspension of commercial and financial exchanges and the freezing of assets at the Central Bank.

In this favorable context, the Mali Shi factory, the first industrial shea nut processing unit in Mali, can resume its development trajectory. Before the installation of this plant, Mali, the world’s second largest producer of shea nuts with 250,000 tons per year, behind Nigeria, was in the absurd situation of having all of its production shipped in raw form to Côte d’Ivoire, Senegal, and Ghana, which in turn export almonds and butter to Europe.

In total, the world market drains between 400,000 and 500,000 tons of butter per year, representing about twice as many raw nuts. More than 85% of shea butter is used in the food industry, mainly to replace part of the cheaper cocoa butter in the manufacture of chocolate. This is a growing market and a real boon for Mali for a number of reasons.

First, because this activity relies primarily on women. In southern Mali, they are the ones who harvest the shea nuts at the end of the rainy season. After two years of activity, Mali Shi is working with about sixty cooperatives and already 26,000 women in the regions of Kayes, Koulikoro, Ségou and Sikasso. The goal is to eventually work with 120,000 women at full capacity. The factory, which employs 97 people, has purchased 1,600 tons of nuts in 2020, and 7,700 tons in 2021, and is targeting 30,000 tons within two years.

A windfall also because Mali Shi’s activities have resulted in a large number of positive social impacts. The factory has financed the establishment of unions, in partnership with the World Bank, UN Women and the Global Shea Alliance. These bodies have made it possible to organize the constitutive assemblies of the cooperatives in the villages, to accompany the organizations in the procedures of legal formalization with the authorities, to disseminate good practices of collection, production and storage… but also to train leaders in accounting management, marketing and commercial negotiation. In some areas, this support has enabled a seven-fold increase in the volume of nuts harvested from one year to the next.

For Mali Shi, the challenge now is to ensure the continuity of supply in quantity and quality, in close cooperation with the communities. Mali Shi has a dedicated supply team, consisting of area managers and field agents who work closely with the women and their organizations. To secure the supply chain, contracts are signed with all partner production organizations, agreeing on fixed quantities and prices. This is often the only sustainable source of income for the women partners of the factory. Finally, Mali Shi maintains links with its suppliers even outside of purchasing campaigns, through training on good practices for collecting and preserving the nuts, for example, or awareness-raising activities on the maintenance of the shea tree park.

The positive effects are also due to the recycling of production waste. In the transformation process, the nuts are heated and pressed. On the one hand, vegetable oil – commonly known as shea butter because it is solid at room temperature – is obtained. On the other side, the residues of the nuts, the oil cakes, are obtained. This useful “waste” is reused in the factory’s boiler and distributed to the women as fuel for post-collection processing. Nothing is lost, everything is transformed!

The story of Mali Shi demonstrates the emergence of a new economic reality in Africa: determined local entrepreneurs can overcome huge obstacles to develop industries that contribute to creating thousands of jobs by valorizing locally available resources. The funding required, in the order of a few million euros – compared to the budget of certain programs run by international development institutions – proves that small amounts of money, well invested, can have a considerable impact over the long term.

There is no shortage of opportunities in Africa, including in landlocked countries with a reputation for instability like Mali. As everywhere else, to succeed it is necessary to be pragmatic in the approach and vision of the projects undertaken and to surround oneself with the right skills. Let’s hope that Mali Shi inspires other entrepreneurial success stories elsewhere on the continent!

By : Simballa Sylla and Jérémie Malbrancke

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Les déchets plastiques en Afrique : de la fatalité aux opportunités ?

Insights Perspectives

Plastic waste in Africa: from fatality to opportunities?

Les déchets plastiques en Afrique : de la fatalité aux opportunités ?

While the regulatory battle against plastic bags has seen notable successes in Africa, where 34 out of 54 countries have banned their use, these victories should not be the tree…

While the regulatory battle against plastic bags has seen notable successes in Africa, where 34 out of 54 countries have banned their use, these victories should not be the tree that hides the forest. Plastic bags are certainly the most visible form of plastic pollution, but they are far from being the only source. It is also important to be realistic: plastic use is not about to decrease, nor is its production. Indeed, the production of plastic could triple by 2050, at a time when their harmful effects on health and the environment are the subject of increased vigilance.

The issue is particularly sensitive in Africa, which is becoming one of the outlets for the rest of the world’s plastic waste, not to mention locally generated waste. The difficulty of recycling and recovering plastic waste that accumulates in open dumps should be a priority for policy makers and industry.

As the UN lays the groundwork for a treaty to address the issue of plastic waste, it is urgent for Africa to find solutions that do not only aim at the total disappearance of plastic packaging but also at developing alternative ways of producing 100% biodegradable or recyclable plastics, as well as collection and recycling services.

Let’s recall that plastic does not only have negative effects. For example, we must distinguish between polluting and recyclable plastics… Among the most obvious advantages, plastic packaging has made it possible to considerably increase the shelf life of fresh food. Without adequate packaging, it would not be possible to transport meat, liquids, and many preparations to the cities and the most remote areas of the continent. Plastic is lighter and stronger than glass, and more malleable than metal. It is an excellent insulator, waterproof, and can be shaped into an infinite number of sizes, thicknesses, and shapes. If this material is so ubiquitous today, it is because it has demonstrated benefits that no other material has.

The question is not so much how to get rid of plastics as how to reason about their use, transform their production and management in order to make them recyclable and, as much as possible, find new sources (other than oil…) to produce them.

Already, many initiatives are emerging on the African continent to recover the plastic waste that can be recycled: reuse of waste to make building bricks or public garbage cans, or individual collection of recyclable waste to sell to factories specializing in their transformation.

But these initiatives will not trigger a mass movement on the scale of African national economies if real circuits of production of 100% recyclable plastics, collection and recycling are not put in place. These circuits exist for glass, nothing prevents us from imagining that the plastic value chain could be inspired by them.

As with metals and glass, the recycling of plastic waste has an economic justification, and technical solutions already exist (PET plastics) or are under development (bioplastics based on algae, fungi, or synthesized by bacteria). The success of each of these methods will depend in particular on their ability to be integrated into a wider cycle of reuse: either to produce biogas, or as an agricultural input, or as a recyclable product in the same form.

The turnaround can be made by bringing together researchers, engineers, public decision-makers, industrialists, users, and all those who, today informally, tomorrow perhaps as employees, make a living from the recovery of plastic waste and have therefore developed expertise in their sorting, collection, marketing, and recovery.

The Moringa Fund is working with its portfolio companies on this project, through the Moringa/ATAF project and the consulting firm The Right Packaging*. The avenues of reflection currently being developed focus on controlling the collection of water bottles and their recycling, and the use of high-pressure decontamination processes in tanks rather than in fruit juice packaging – which makes it possible to use materials other than plastic (cardboard, glass, cans). For dried fruit, the aim is to favor bulk sales as well as the use of single-material flexible packaging allowing for recycling. These avenues are being explored in particular by the Moringa portfolio companies in Mali and Benin.

The market for plastic waste treatment holds huge potential profits, even outside the continent’s borders. Plastic production in Europe is already running out of materials to recycle, and a waste reprocessing industry in Africa could find a secondary market to finance its development. Eventually, plastic could become a coveted raw material…

Bringing together environmental, economic and commercial interests with scientific innovation could finally be the happy and unexpected consequence of solutions to the plastic waste issue in Africa.

By : Jocelyne Ehret

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Insights Perspectives

Financing African agriculture: how to break the deadlock?

Agriculture is at the heart of the issues of economic growth, political stability, and the fight against climate change in Africa, is an observation which is widely recognized. However, even…

Agriculture is at the heart of the issues of economic growth, political stability, and the fight against climate change in Africa, is an observation which is widely recognized. However, even today, the funds mobilized by African governments for food and agriculture fall short of the targets set. While the FAO estimates that 10% of African national budgets should be dedicated to these sectors in order to achieve economic and social development, in reality these sectors’ budgets are generally too low, poorly spent, and inefficient (FAO, 2021). The fact that such an essential sector remains a victim of chronic under-investment demonstrates the extreme complexity of the challenge facing Africa. The urgency of improving financing for African agriculture is widely recognized, but implementation has been stubbornly lacking.

So, the sector is still marked by the failure of the various state banks created in many African countries to finance the development of the agricultural sector. As for traditional banks, they are often reluctant to direct their financing products towards agricultural actors which are perceived as too risky, too informal, and too fragmented.

Yet, banks have an essential role to play in the future of African agriculture. How can we learn from the mistakes of the past and propose solutions adapted to the financing of African agriculture?

Participating in a learning and exchange process

The analysis of agricultural value chains makes it possible to understand the sectors in their entirety. Each flow can be analyzed at the different stages of the chain: production, collection, processing, transport, distribution, equipment, supply, etc, thus breaking the misconception that financing the agricultural sector means financing only the producers.

This value chain analysis approach is linked to necessary on-site visits to meet agricultural entrepreneurs, and deconstruct preconceived ideas. For example, one of the commonly accepted assumptions was that the main criterion for choosing a loan was its cost (price sensitivity of agricultural entrepreneurs). In interviews with entrepreneurs in the agricultural sector in Senegal, it was found that the main criterion for them was the responsiveness of the banking institution, rather than the interest rate, mainly because of seasonality constraints.

The importance of proximity and dedicated human resources

The first risk management lever is the training of human resources (business managers and credit managers): this involves putting the credit manager at the heart of the process of identifying the risks related to a sector or an actor.

In addition to this training, there must be closer geographic proximity to the agricultural production areas. A commercial presence in direct contact with the ecosystem of a sector allows a better assessment of the risks. For example, Cofina decided to open a branch in the Niayes region of Senegal in order to be close to the market gardening area: this allows both a better marketing approach and a better knowledge of the risks linked to the crops in the area.

Targeting actors better to “secure” funding

In order to manage risk, a financing institution may favor actors with the best quality image in the value chain. These are generally larger and more formal players: aggregators, traders, processors, etc. A bank can also “move down or up” the value chain towards actors perceived as riskier (less risky ??).

The bank can also identify financing instruments where the quality image of a dominant player acts as a security for the bank’ in order to finance the downstream or upstream part of the chain: for example via an advance on an invoice. In this “entry point approach,” risk management is embedded in different time phases: my customer’s business partners today are my customers tomorrow.

Finally, the mobilization of African banks towards the financing of local agriculture will be possible as long as they have access to long-term liquidity. In this context, international donors or impact funds have a key role to play in giving local banks the means to effectively finance agricultural sectors via “earmarked funds” for agriculture.

In addition to this catalytic role, donors can partly address the risks posed by weak collateral and poor-quality assets that characterize some actors in the agricultural value chains. This is made possible by mobilizing risk-sharing funds, concessional financing, or guarantee funds.

Through targeted grants, development agencies can also facilitate the process of analyzing value chains, identifying potential targets, and creating attractive pipelines.

Learning, proximity, and risk management

The hundreds of billions missing for the financing of African agriculture can be seen in two different ways: either it is a symptom of a sector that cannot be financed by banks, leaving this function to public programs, international donors or a few microfinance institutions… or it is a sign that there is a huge field of unexplored opportunities.

As committed supporters of the growth of African SMEs, Cofina and classM fully subscribe to the second option. We are convinced that an approach based on learning from past mistakes, proximity to the actors, and better risk management will allow the development of the potential of African agriculture.

By : Serge Massamba Ndombele and Jérémie Malbrancke

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