Leasing sectors in sub-Saharan Africa (SSA) are active, but rarely offer products to farmers or small and medium enterprises involved in agriculture, according to a new report published today by Financial Sector Deepening Africa (FSD Africa) in partnership with Nathan Associates. To promote leasing for agriculture, the report recommends addressing market failures at the core of the market (supply and demand) and linking this core with supporting market functions, predominantly through partnerships with relevant market actors.
The report identifies constraints at different levels in the market system contributing to the slow development of leasing for agriculture in SSA. It highlights why leasing can help improve agricultural productivity and income across the continent. Investigation across eight SSA countries finds Ghana, Kenya and Zambia in particular offer good potential for targeted intervention to support agricultural leasing. In most of the countries explored, current technology initiatives do not seem to be working well, leasing regulatory environments are still weak and farmers and SMEs lack financing options as financiers continue to see agriculture as a risky sector.
Commenting on the report, Juliet Munro, Director of Inclusive Finance at FSD Africa says:
Agriculture is at the core of many African economies, yet, in order for the sector to improve livelihoods, financial services need to support it much better.
Ashley Olson Onyango, Agricultural Finance Programme Manager at FSD Africa adds: “Credit is an important tool for any business that wants to grow and this is certainly true for many farmers across Africa. However, credit remains a challenge and limits the opportunities farmers have to grow their businesses, further restricting their potential and creating an ongoing cycle of poverty and food insecurity.”
To overcome market failures within the agricultural leasing sector, the report proposes mutually reinforcing interventions, which include providing technical advice to financial institutions, introducing schemes that increase awareness of financial leasing among farmers, supporting technological innovation to make leasing operations more efficient and creating financing facilities that help decrease the down payment requirements for farmers.
As a strategic response, FSD Africa has identified commercial agriculture as an area of interest for its future development capital work and will be exploring potential collaboration with interested partners in this space.