Felipe Dizon, acting program manager for the Global Agriculture and Food Security Program (GAFSP), recently told AgFunderNews: “We are targeting high-potential but underserved areas of the agricultural sector in low-income countries. “The market gap in funding must be urgently addressed.”
His remarks come shortly after GAFSP launched a new $75 million investment facility to accelerate financial innovation to support smallholder farmers and micro, small and medium enterprises (MSMEs) in the agricultural sector in approximately 77 low-income countries. He pointed out the lever.
What problem are they trying to solve? global hunger. In Africa, where the majority are low-income countries, at least 20% of the population, or more than 280 million people, face hunger. The situation is similar in parts of Asia and Latin America.
And we are just six years away from achieving Goal 2 of the United Nations Sustainable Development Goals, which aims to end hunger by 2030.
Image credit: Global Agriculture and Food Security Program Lack of funding: The eternal challenge to reduce hunger
For most poor countries, climate change, resource scarcity and access to finance have emerged as key challenges in combating hunger. Finance, in particular, is a perennial challenge for farmers and food producers who depend on crop cycles and seasons.
In July, the United Nations released the State of Food Security and Nutrition in the World report, which showed that 63% of low- and middle-income countries are unable to finance food security. Essentially, approximately 119 countries have limited or moderate access to finance for food security and nutrition.
According to the report, there is a clear link between limited access to financing and the prevalence of undernourishment. Countries with limited access had a 23.1% chance of being undernourished, compared to 10.4% in countries with moderate access and 6.9% in countries with high financial access.
Across sub-Saharan Africa, only 25% of the estimated $240 billion agricultural credit market is currently filled, according to data from Aseri Africa, a market catalyst that mobilizes private capital into the agricultural sector. Not too much. Of the $180 billion annual gap, small and medium-sized enterprises (SMEs) are missing $65 billion.
As has been proven over the years, traditional financial markets such as commercial banks, microfinance institutions, and savings and credit cooperatives have not been able to solve the financing challenges in the agricultural sector.
Small farmers and micro, small and medium enterprises (MSMEs) in the agro-food sector are too risky and too costly for executives at this profit-driven financial institution. More importantly, the returns are too low.
In Kenya, for example, only about 4% of all commercial banks’ outstanding loans go to the agricultural sector. The situation is even worse in Myanmar, where less than 2% of loans from private commercial banks go to the sector.
Creating a global agriculture and food security program
Wealthy countries have largely succeeded in meeting their financial challenges, but are realizing that it would be imprudent to leave large parts of the world behind. To this end, stakeholders from G20 countries and multilateral development finance institutions (DFIs) came together in 2010 to establish GAFSP.
For more than a decade, GAFSP has helped advance access to finance for agricultural value chains in low-income countries. Today, our global portfolio of 300 projects benefiting 20.5 million people has accessed $2.5 billion worth of financing. Nearly 60% of this will be earmarked to support investment and capacity-building activities in Africa, with about a quarter allocated to South and East Asia.
Following tangible success, GAFSP is now pushing the boundaries. Established a new $75 million investment facility, the Business Investment Finance Track (BIFT), to accelerate financial innovation to support smallholder farmers and MSMEs in the agri-food sector in approximately 77 low-income countries.
BIFT aims to encourage public-private partnerships, foster civil society engagement, and attract a wide range of investors, including impact investors, asset managers, and banks, to support larger-scale, impactful programs. The aim is to strengthen the co-financing platform that aggregates funds.
The 77 countries covered are by design. Most are affected by fragility, conflict and violence, factors that exacerbate food security and agricultural development challenges.
What is BIFT?
“BIFT responds to the growing recognition that business as usual will not get us back on track to ending hunger by 2030,” Dizon said.
In essence, BIFT is designed to de-risk investments destined for smallholder farmers, agri-food MSMEs, producer associations and start-ups. The ultimate goal is to ensure access to finance across the value chain so that companies can achieve scale and leverage traditional financing.
BIFT also aims to mobilize private capital by supporting innovative blended finance solutions. This is an important component. This opens a new window for supporting projects that may not attract commercial funding due to perceived high risk. Of note, these projects, some of which are in early stages, are likely to have an impact on development.
To access funding under BIFT, project sponsors must ensure that their proposals support national strategies and ongoing public investments, with a particular focus on building inclusive, climate-smart and nutritious food systems. It is necessary to show that it is consistent with
The proposal explores how the company’s blended finance solution addresses funding shortages and focuses on smallholder farmers, producer organizations, MSMEs, and agribusiness start-ups, especially those involved in the production and marketing of nutritious food for regional markets. You need to clearly explain how you will meet the company’s needs.
“BIFT is an important step forward in addressing the financing gap for smallholder farmers by unlocking much-needed private capital,” Dizon said.
BIFT will begin as a pilot until June 2026, but in the long term, the aim is for BIFT to become the basis for food production.
Can BIFT have a transformative impact?
To be sure, there is no shortage of programs aimed at improving agricultural productivity in low-income countries. A recent entrant into a crowded field, the dark cloud hanging over BIFT is whether it will have a far-reaching transformative impact.
Dizon thinks that will be the case. The fact that it encourages multilateral DFIs to move from a direct investment approach to mixed finance solutions is itself fundamental.
And, by fostering collaboration, BIFT will help the poorest countries by providing more systemic impact and solutions for traditionally underserved segments within the agri-food system. and strengthen inclusive, climate-smart and nutritious food systems in some of the most vulnerable countries.
“This is about more than just funding projects. It’s about working with a range of partners to create long-term solutions that improve food security, climate resilience and economic opportunity in the world’s most vulnerable regions. That’s true,” Dizon said.
BIFT is being implemented in various regions in partnership with the African Development Bank, Asian Development Bank, International Finance Corporation, IDB Invest, and the United Nations’ International Fund for Agricultural Development.
