Access to capital is a serious problem
Up to 60% of the population is employed in agriculture, and it accounts for 25% of Africa’s Economy. Yet, smallholder farmers in Africa still struggle because of a lack of available credit. One of the main obstacles to the expansion of agriculture in Africa is a shortage of available financial resources. African agriculture needs finance to being to live up to the promise of providing food security and transforming the continent.
A report from the African Development Bank says that only 3% of bank loans in Africa go to agriculture, even though this is where most people work. In affluent nations, agriculture receives a large share of funding. For Africa’s majority smallholder farmers, access to capital is a serious problem. These farmers have a hard time gaining access to banking services because of their low levels of financial knowledge and the lack of collateral they often use to acquire loans.
The absence of financial resources has serious consequences for Africa’s agricultural output and food security. Financing is necessary for farmers to acquire inputs like fertilisers, seeds, and machinery, all of which are vital to maximising crop production. Due to a lack of capital, farmers are unable to increase their operations’ efficiency and productivity, which in turn reduces their crop output. When farmers’ harvests are small, there is less food on the market and the price of food rises. Almost 239 million people in sub-Saharan Africa are hungry or malnourished, making this an especially severe problem in that region.
Financing constraints also slow down research and development for new agricultural technologies in Africa. Research and development need funding since it can lead to the development of new crops, disease-resistant seeds, and farming techniques. Since farmers don’t have access to capital, they can’t afford to invest in modern farming methods, which in turn reduces productivity and crop yields.
Another serious problem is that many farmers just don’t have the financial resources to keep their businesses afloat in the face of natural disasters, volatile markets, and pests and illnesses. Farmers are particularly vulnerable to these dangers, which can have a domino effect on their incomes and ultimately cause them to go hungry or fall into poverty.
Notwithstanding the obstacles, some people are working to make it easier for African farmers to get loans. Loans are made available to smallholder farmers, cooperatives, and other agricultural businesses through the Agricultural Finance Corporation (AFC) in Kenya. In a similar vein, banking institutions and the Alliance for a Green Revolution in Africa (AGRA) have teamed up to serve the needs of smallholder farmers. While these efforts have been successful in expanding farmers’ access to credit, more work remains to be done.
A possible answer would be for the government to invest more money in farming. Farmers’ access to markets and the ability to transport their commodities are both facilitated by government investments in rural infrastructure like roads, irrigation systems, and storage facilities. Credit guarantees, subsidies, and tax incentives for financial institutions that lend to the agriculture sector are all possible measures that governments can enact.
Technology could be used to expand people’s access to financial services. Smallholder farmers in Africa now have easier access to banking services and capital thanks to mobile banking. In Kenya, for instance, farmers can now accept mobile payments through the M-PESA mobile banking service. FarmDrive and Hello Tractor are just two examples of platforms that are using technology to make finance available to smallholder farmers.
It is clear that monetary constraints are hampering agricultural development in Africa. Farmers are unable to make necessary investments, incorporate cutting-edge technologies, or prudently hedge against risk without access to capital. As a result, output drops, harvests are inadequate, and hunger spreads. For African farmers to have better access to credit, governments, banks, and other organisations must collaborate. This calls for funding of rural infrastructure, policies that encourage economic growth, and creative answers like mobile banking. Providing more people with access to credit will help the agricultural sector in Africa reach its full potential and aid the continent’s economic growth and development.