Preliminary case study: effect of Aceli financial incentives on lending by SME Impact Fund

SME Impact Fund (SIF) is a non-bank financial institution based in Tanzania that targets agricultural SMEs with significant growth and impact potential. Given the high operating costs of serving agri-SMEs in remote parts of Tanzania, SIF had historically focused on loans ranging from TZS 100M – 1B (~USD 43k-430k). Since joining Aceli’s financial incentives program, SIF has made 12 loans to first-time borrowers, including four loans under TZS 100M (~USD 43k).


Map of SMEs in Tanzania receiving loans or technical assistance supported by Aceli as of June 30, 2021. Image: Aceli Africa.

This preliminary case study focuses on five loans by SIF totaling $249k. Four of these five loans are to first-time borrowers, and three are under $43k. SIF’s leaders report that it is not likely that it would have made any of the three loans under $43k without Aceli’s incentives, and none of these SMEs had a prior history of borrowing $25k or more from any other lender. While these loans are smaller than the average loan supported by Aceli to date, they provide an unusual opportunity for longitudinal learning from a baseline lack of access to finance.

Follow-on assessments with these SMEs as well as with a larger sample of lenders, SMEs, farmers, and employees across a wider range of countries and crops will evaluate the effectiveness of Aceli’s incentives in:

  • Shifting lender behavior;

  • Mobilizing incremental lending to under-served SMEs; and

  • Generating impact on farmer and employee livelihoods relative to the cost of developing and implementing the program.

Background

Founded in 2013, SIF is a non-bank financial institution based in Tanzania that serves agricultural SMEs. Prior to partnering with Aceli, SIF had made loans ranging from TZS 100M-1B (~USD 43k-430k) with a focus on value-added processing in crops such as maize and rice. From September 2020, when SIF joined Aceli’s financial incentives program, thru June 2021, SIF made 21 loans with support of Aceli’s incentives. Twelve of these loans went to first-time borrowers and four loans were under $43k (i.e., below the level SIF had previously been serving).


This case study focuses on five loans by SIF totaling $249k. Four of the five loans are to first-time borrowers operating in the rice sector and three of the loans are under $43k. One of the five SMEs is 100% owned by a woman entrepreneur and another is 50% woman-owned. SIF’s leaders report that it is not likely that it would have made any of the three loans under $43k without Aceli’s incentives and none of these SMEs had a prior history of borrowing $25k or more from any other lender.[1] As noted above, we plan to track these and a much broader set of SMEs over time to assess if/how financial incentives affect: lender behavior (step 1 in the diagram below), the addressable market of SMEs that lenders serve (step 2), enterprise growth and resilience (step 3), and livelihoods for farmers (step 4a; e.g., better access to markets) and employees (step 4b; e.g. formal, salaried jobs).


This logic model is a simplified version of how Aceli’s financial incentives link to a set of outputs (in this case, loans made by SIF), outcomes (revenue growth and other benefits reported by the SMEs, farmers, and employees), and impact (to be evaluated at the level of SMEs farmers, and employees over time using both statistical and qualitative methods). Note: this simplified logic flow does not attempt to capture all of Aceli’s interventions (e.g., technical assistance for SMEs) or expected benefits (e.g., increased economic opportunities for women, more climate-smart and resilient agricultural practices by farmers); these will be assessed through complementary studies.


Simplified logic flow of Aceli’s financial incentives


Aceli offers financial incentives to lenders (step 1) and lenders make loans to SMEs with limited access to finance (step 2)

SIF’s objective (prior to signing up for Aceli’s financial incentives program) has been to identify high-potential agri-SMEs that are not being served by commercial banks and offer more flexible terms and a streamlined process. Prior to joining Aceli’s financial incentives program, SIF was reaching many SMEs that struggled to access financing from commercial banks. However, the high costs of serving agri-SMEs located in remote parts of Tanzania – a country almost as large as France and Germany combined – has meant that servicing loans below TZS 100M was not viable.

Allert Mentink, the CEO of SIF, recently noted how Aceli’s incentives have expanded the pool of SMEs that SIF is able to serve:

By covering a portion of our operating costs and sharing in the risk, Aceli’s financial incentives have helped us serve many new borrowers, including four loans under TZS 100M. These are the first formal loans for each of these businesses and we expect they’ll be able to increase their sourcing, employ