A framework for incentivizing lending to high-impact agricultural SMEs in East Africa

African agriculture has long been neglected by the capital markets – and understandably so: agriculture is much riskier and costlier to serve than other sectors. While agriculture employs the majority of the population in East Africa and is a leading contributor to GDP, lenders have historically gravitated to easier alternatives, including the stable returns of government bonds without the hard work of navigating dusty roads in remote regions. However, increasing competition is pushing East African lenders into underserved markets. Many have opened branches in rural areas and are now graduating from collecting deposits to lending to customers. Agricultural small and medium enterprises (SMEs) are a large if not well-understood market.


Photo credit: Alterfin

Aceli is a market incentive facility that aims to unlock financing for high-impact agri-SMEs (see more background on Aceli’s approach). Aceli’s financial incentives aim to bring two things into alignment:

  1. Improve the risk-return profile of agricultural SME lending in East Africa; and

  2. Incentivize lenders to seek out and serve the highest-impact agri-SMEs.

Aceli’s multi-year data collection on loan-level and portfolio-level economics across the region formed the basis for addressing the first objective. Our task around impact was more challenging given the inherent challenges of objectively quantifying impact and the multiple layers of impact we seek to generate: increased incomes for smallholder farmers and enterprise employees, particularly women and youth; higher production of nutritious food at the regional level; and a more sustainable and climate-friendly food system.


Aceli’s recent learning report noted that capital mobilization (i.e., the total loan volume supported by Aceli’s incentives) is a relevant but limited measure of whether our incentives have been successful. At least as important are:

  • capital additionality (i.e., whether Aceli’s incentives have shifted lender behavior and agri-SMEs are gaining improved access to finance);

  • the impact profile of the SMEs being served (i.e., whether the businesses gaining improved access are aligned with Aceli’s livelihoods and environmental objectives); and

  • whether capital that is both additional and directed to high-impact agri-SMEs contributes to increased impact (e.g., by enabling improved market access for farmers, creating more jobs, or allowing the business to manage through market downturns).

This post summarizes Aceli’s approach to incentivizing lending that is (1) additional and (2) targeted to high-impact SMEs. Follow-on posts will go into more depth on Aceli’s incentive design and initial learning related to improved farmer and worker livelihoods and our four thematic impact areas: gender inclusion, food security & nutrition, climate & environment, and youth inclusion. To learn more, please see Aceli’s Environmental, Social & Governance (ESG) and Impact Policy.


In Q4 2022, our annual learning report will share results from Aceli’s upcoming round of data collection from lenders and two years of implementing the incentives program. We will also delve into how Aceli is working with our data and learning partners – Dalberg Advisors, International Growth Centre, and 60 Decibels – to evaluate (3) the effectiveness of Aceli’s incentives and complementary technical assistance in advancing our impact objectives.


Capital additionality

Aceli defines capital additionality as:

  • Loans to “new” borrowers (defined as a business receiving its first loan of $25k or more from any source in the past three years)

  • To date, 49% of the loans supported by Aceli’s incentives programs go to new borrowers (compared to a target of 35%).


  • Improved access to finance for returning borrowers based on loan amount, financial product, and terms such as collateral requirements and pricing

  • One promising indicator, albeit with a small sample size, is that for the 17 SMEs that are entering the second round of loans supported by Aceli, there has been an average increase in loan size of 37% from Y1 to Y2 (and a corresponding increase in enterprise revenue of 62%). Aceli’s targets for average increase in loan size and revenue are 10%.

  • Several lenders have indicated anecdotally that they are reducing their collateral requirements, lowering their interest rates, and/or more proactively searching for new agri-SME customers that are woman-owned. We will be tracking these changes systematically through structured interviews with lenders during Q2-Q3 and through annual revi