Description financing model: Direct Farmer Financing (Market)

Direct Farmer Financing (Market) involves pioneering banks providing loans directly to farmers, supported by catalytic capital through de-risking instruments or financial incentives to improve loan affordability and uptake

Applicability: Applicable to broad range of farmers and agri-SMEs that meet defined eligibility criteria

Considerations: Scalability depends on the availability of catalytic capital

Description of de-risking tool(s):

First Loss Coverage: A form of credit enhancement where a party (often public or philanthropic) agrees to absorb initial losses, protecting other investors (private) and encouraging their participation by limiting risk exposure

Impact bonus/ incentives: Results-based payments tied to delivery of sustainability outcomes (e.g., carbon reduction, improved livelihoods), creating financial upside for impact

Case study description:

This model offers financial incentives to lenders, who provide commercial financing to agri-SMEs in Sub-Saharan Africa

1. The design and implementation of Aceli is informed by extensive data collection from financial institutions in the region
2. Drawing upon grant funding from leading bilateral and philanthropic funders, Aceli de-risks lending to agri-SMEs by offering:
   1. (2a) First-loss coverage: 5% first-loss coverage at a portfolio level. Lenders earn money into a reserve account for every loan that meets Aceli’s criteria to absorb the incremental risk of reaching underserved SMEs while still ensuring lenders have substantial “skin in the game”
   2. (2b) Origination incentives: compensate lenders for the lower revenues and higher operating costs of making smaller loans ($15k-500k) to early-stage SMEs that would not otherwise be profitable to serve even if the loan repays at the market rate
   3. (2c) Impact bonus: increased financial incentives for high impact loans that create economic opportunities for women & youth, contribute to food security & nutrition, and/ or meet a higher standard for climate & environment
3. Commercial banks, non-bank financial institutions, and social impact lenders source and finance loans to agri-SMEs
4. Local service providers offer 1) technical assistance to agri-SMEs to prepare them for financing and 2) capacity building to lenders to build agri-finance products and services

$300M capital mobilized via 3.5k loans creating market access and employment for 1.5M smallholder farmers and full-time workers (leverage 9.4x), Aims to unlock $1.6B in lending by 2030