How to bridge the ‘missing middle’ in agri-finance

Many African agripreneurs struggle to access finance despite growing operations. Dr Langa Simela, business development manager at Absa AgriBusiness, examines structural gaps, advocating staged funding to build skills, track records, and inclusive access to commercial credit.

It is often argued that the main barrier to inclusive agricultural financing in Africa is collateral requirements. In practice, that means land titles, fixed assets, formal contracts, or consistent income flows – all the tangible markers that give lenders security and help assess repayment ability. But for many emerging agripreneurs, the real challenge comes much earlier: it is not what they own; it is what they can prove.

At a conference in Kenya earlier this year, African Development Bank Group former president Dr Akinwumi Adesina highlighted the imbalance in agricultural financing, noting that while the sector contributes 30% to Africa’s GDP, it receives only 6% of commercial bank lending. Alongside an estimated $100 billion gap in unmet financing demand, this is sometimes regarded as evidence of neglect – but the issue is far more structural.

Estimates by the World Economic Forum suggest that three out of four agri-SMEs on the continent cannot access formal credit, yet at the same time are too large for microfinance.

Many emerging agripreneurs, therefore, sit just below the commercial threshold.

They supply formal markets and operate at growing scale, but often lack the verified records and accounts, documented input costs, or structured cash flow histories that lenders use to assess creditworthiness – stifling access to finance.

The broader agricultural finance ecosystem does not support emerging farmers to become eligible for financing; it filters them out for not already meeting formal financial requirements. This is the missing middle.

If inclusive finance is to unlock the sector’s full potential, it must address the funding gap between donor-driven development support and commercial bank lending by establishing tiered capital pathways that build credit readiness. These capital pathways can be understood as a progression, much like advancing through the stages of formal education.

Capital without repayment

In the early stages of enterprise development, the farmer is still learning to manage input costs, navigate production cycles, and organise day-to-day operations. Like foundational education, this is a phase of experimentation and foundational skill-building.

Capital, then, should not be structured around repayment obligations. Grants and self-funding are more appropriate, as they create space for operational learning without imposing premature financial risk.

Typical sources include donor-funded programmes, government stimulus initiatives, philanthropic allocations, and early-stage catalytic instruments from development finance institutions – all designed to invest in capability rather than assess creditworthiness.

And just as early education prepares learners for more structured environments, this first layer of capital plays an institutional role.

It helps embed foundational practices – such as input tracking, basic recordkeeping, operational planning, and early engagement with formal markets – that form the behavioural and structural base upon which future finance can responsibly scale.

Once a farmer begins to generate surplus and demonstrate operational consistency, they enter the next phase, akin to secondary school education. Here, the enterprise still requires support, but is ready to engage with financing instruments that introduce basic credit discipline.

Low-cost, easy-to-repay finance

Concessional finance – typically offered at below-market interest rates, with extended repayment terms and flexible collateral requirements – is best suited to provide backing without exposing the farmer to the full weight of commercial obligations. It enables the development of repayment discipline and cash flow management, while also signalling financial maturity to future lenders.

Structures may include subsidised soft loan facilities, government credit schemes, guarantee-backed instruments, and blended mechanisms where donor or public capital absorbs a portion of the risk. Critically, this stage should not be seen as a temporary workaround, but as an essential layer in the capital architecture.

It allows agripreneurs to formalise their operations, deepen market relationships, and begin to assemble a documented financial track record that commercial lenders will later rely on.

It is also where credit scoring models can begin to evolve – incorporating behavioural indicators and alternative data in ways that recognise progress and support structured transition.

By the time an agripreneur reaches the tertiary level, the enterprise has typically achieved consistent output and built stable commercial relationships, underpinned by a growing and predictable cash flow.

At this phase, access to credit from commercial lenders becomes more likely as the enterprise’s financial profile, developed through the earlier stages, aligns more closely with lending requirements.

This kind of graduated approach is not about prolonging dependence; it is about sequencing risk in ways that build viable, credit-ready agribusinesses from the ground up. It anchors a more inclusive financial architecture that closes the structural gap defining the missing middle and enables more producers to transition into scalable agricultural enterprises.

It also creates a more efficient use of developmental funds, ensuring that agripreneurs who demonstrate capability can advance to the next level, while freeing up resources to support other emerging ones.

Dr Langa Simela is the business development manager at Absa AgriBusiness. The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or positions of Food For Mzansi.