- Sustainable finance can make a difference by improving land use for African food systems and creating green value chains for commodities like cattle, cocoa, soy, palm oil, fruit, and vegetables. These benefits also have positive knock-on effects on climate change, biodiversity, water use, rural poverty, and gender inequality.
- Africa currently receives only 3% of climate finance even though it is one of the continents most affected by climate change. The financing gap for agricultural small and medium-sized enterprises in sub-Saharan Africa is estimated to be over USD 100 billion a year.
- Smallholder farmers, who contribute at least 70% of Africa’s food supply, face several obstacles that hamper livelihoods, undermine nutritional diets, and diminish the incentive to adopt sustainable farming practices. These impediments include poor access to markets, policy inaction, and technology deficits that limit productivity gains and profitability.
4 ways the private sector can help scale sustainable agriculture in Africa
Finance needs to flow toward land-use models that are sustainable, equitable, inclusive, and profitable, supporting Nature-based Solutions (NbS) and catalyzing private-sector engagement in Africa’s agricultural sector. For this to happen, sustainable finance must become more attractive to private investors. This can be achieved in various ways if the parties listed below agree to absorb much of the risk associated with a green project:
- Banks and other local financial institutions, such as microfinance institutions, can provide financial products that are most suitable for farmers, for example, with repayments following harvesting seasons.
- International financial institutions and green funds can place themselves at the bottom of the hierarchy of shareholders and debtors. This means they are repaid last in the event that a project goes bankrupt or is liquidated, while private investors are at the top of the list for repayment.
- Guaranteed loans are a method of green financing that involves a third-party guarantor, which agrees to repay investors if a green project is unable to pay off its debts. This can be provided by central banks, international organizations like the World Bank, development organizations, and donors.
- Development organizations, impact investors, and donors can provide technical assistance in addition to financing to strengthen the capacity of management to scale the business and thereby reduce the risks of green projects.
Document developed in the context of the Luxembourg-GLF Finance for Nature Platform
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