- within Finance and Banking, International Law and Environment topic(s)
Projects in Africa (notably in the Agri-space) struggle to reach financial close and scale not because of a lack of demand or technical promise, but because the risk‑return equation is misaligned for purely commercial capital. Development finance institutions ("DFIs) are uniquely positioned to bridge this gap. In a G20 context that prioritises food security, DFI capital, deployed intelligently alongside private finance, can accelerate progress towards securing food security.
Sustainable agriculture requires long-term capital across entire value chains. Upstream, farmers and aggregators need working capital and input financing that matches seasonal cash flows. Midstream players require investment in storage, cold chain, processing and logistics to reduce post‑harvest losses and improve quality. Downstream, off‑takers need liquidity to honour purchase commitments and to introduce traceability, certification and data systems demanded by export markets. Layered on top are adaptation and mitigation investments - soil health, water stewardship, regenerative practices, energy on farms and climate risk analytics - that do not always fit neatly into conventional working capital lines. This is where DFIs can make a material difference.
The first contribution DFIs may bring is de‑risking private capital. Guarantees, first‑loss tranches and risk‑sharing facilities allow commercial banks to extend credit to thinly capitalised counterparties without breaching internal risk appetites. When well-structured, these instruments can be catalytic, phasing-out as markets mature while guiding borrowers toward stronger corporate and ESG governance and reporting practices. In practice, blended facilities combine senior commercial tranches with concessional layers, often targeted at adaptation or inclusion outcomes, particularly for smallholders and/or women‑owned enterprises.
The second contribution is tenor and currency. Sustainable Agri infrastructure, irrigation, storage, land preparation and farm acquisition, infrastructure financing (e.g., packing facilities), renewable energy generation and precision agriculture often requires financing beyond the comfort of local banks' shorter-term maturities. DFIs can extend longer tenors, with generous capital grace periods. Local currency is equally important. Where foreign exchange risk cannot be feasibly hedged at project level, DFI local‑currency lending or synthetic structures using cross‑currency swaps reduce the volatility that has undermined many promising Agri ventures. We have advised on a plethora of local currency loans across the continent, from XOF to Birr, supporting everything from onion farming in Senegal to chicken rearing in Ethiopia.
Third is standards and technical assistance. DFI involvement typically brings environmental and social safeguards, climate resilience assessments and corporate governance enhancements aligned to international benchmarks. Rather than a compliance burden, these uplift bankability: better land‑use due diligence, community engagement, labour practices and biodiversity and water protections reduce dispute risk and local community tensions, improve yield stability and unlock premium markets. Embedded technical assistance can fund agronomy support, MRV systems for climate outcomes and product traceability systems for export markets (e.g., cacoa beans) - investments that can struggle to fit within commercial bank debt requirements.
Structuring choices matter. We have advised on sustainability‑linked loans in the agricultural sector, creating a direct line between pricing and measurable outcomes such as yield stability, water‑use efficiency, soil organic carbon or deforestation‑free sourcing - as well as on the calibration of key performance indicators and verification protocols, all of which are critical for long-term sustainable growth.
In short, the DFI capital in many senses sets up the farm, which in turn anchor the value chains in which it participates both directly and indirectly. This leads to working capital financing solutions (which may be provided by the DFI at inception or indeed by commercial banks through self-liquidating trade finance structures where balance sheet strength of the borrower is still lacking), by way of warehouse receipt finance and collateral management facility solutions -anchored by credible operators and possibly even supported by partial guarantees. Receivables financing and factoring solutions may then come in at the back end of the value chain, further freeing up working capital, at competitive pricing.
Concerning smallholders, credit programmes that rely on traditional collateral alone will miss the majority of producers. Africa experiences challenges in terms of the underlying proprietary rights of land ownership (often traditional or customary law applies), which presents challenges in this legal respect but also inhibits traditional economies of scale achieved on larger-scale commercial farms. DFI, often supported by blended finance, can align to inclusive business models - outgrower schemes, input advances digital credit scoring using agronomic and mobile data, and shared asset platforms - offers a pathway to scale.
Execution risk remains a challenge. Delays to financial close are experienced in the implementation of an Environmental, Social, and Governance-linked action plan steps and remediation measures, refinancing existing creditors that came before, and in taking and perfecting collateral (the costs and expenses in implementing transactions can also be significant). In some jurisdictions, collateral registries have been established but remain inoperative, causing uncertainty as to security status and priority.
The opportunities are great: Africa's food demand is rising, climate pressures are intensifying and global buyers ever more stringent on sustainability requirements.
Our hope is that South Africa's presidency of the G20 will place a strong emphasis on these opportunities in the African Agri-space with a view to encouraging and catalysing the implementation of effective policies in the real economies of Africa to attract DFI capital where it is needed most, and to aid domestic food security and open export markets.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
