The World Bank identifies Agriculture as a sector that has 2-3 times the propensity to reduce poverty. In subSaran Africa, it contributes 25-30% of GDP and employs nearly 56% of the active population. In Sierra Leone, agriculture is the backbone of the economy, accounting for an estimated 60.7% of GDP per World Bank and OECD national accounts data, and employing around two-thirds of the national labour force. Within this sector, Micro, Small, and Medium Enterprises (MSMEs) play a crucial role in driving innovation, employment, and sustainable growth. Despite its importance, the sector attracts less than 10% credit and less than 6% to Agri MSMEs.

A 2018 Dalberg and KFW report estimates that there is a $100 billion annual gap in access to finance by Agri-SMEs in sub-Saharan Africa. This gap is attributed to factors, including higher risk associated with agriculture; poor bankability of SMEs; and the lack of conducive legal and regulatory frameworks. “Access to finance is a major constraint to growth cited by firms …just 20% of all firms have a bank loan or a line of credit, the lowest share of any continent” posits the Economist. It argues further that “the ratio of credit to GDP in SSA is half of that found in South Asia and Latin America. Moreover, lending rates by banks of 19 African countries were found to be more than twice as high as in Vietnam and India”. The World Bank has cited regulatory constraints as a particular challenge, noting that “Basel III raised the minimum capital ratios and liquidity ratios of banks, which do not favour SME lending, especially long-term lending. These issues can be exacerbated by unstable, often uncertain policies, as well as policies that are not market friendly for the agriculture sector.”

Our research, consistent with earlier findings of the World Bank, IFC and the African Development Bank noted there is no policy owner for Agricultural Finance in Sierra Leone. It strands between the Central Bank, Ministries of Finance and Agriculture & Food Security. On the Bank of Sierra Leone, we noted aside the Agriculture Credit Facility, there are no specific agri prudential requirements. The objectives of Banking Act of 2019 as variously amended on the objectives Section 5(1) and (2) focus on price stability and monetary policy but there is the need to have a development objective as well. SME Collateral requirement continues to be concern, and so is treatment of guarantees in addition to loan-loss provisions.

Some selected sections of the revised prudential guidelines for commercial banks issued by the Bank of Sierra Leone poses a challenge to unlocking financing to Agri SMES. Specifically sections 6(5) makes 50% of paid-up capital as statutory minimum reserve and therefore not available for lending; section 36 on the treatment of security interest posits that … “while banks can accept collateral as security for credit, due to difficulties with foreclosure and collection, at the present time the only security which shall be taken into account when calculating provision for bad debts shall be cash, government securities, and other readily realizable securities. Sections 52 frowns on granting advances for purchase/improvement/alteration of land; while section 53 forbids lending in foreign currency or wrong-way lending though this has been amended in the 2024 Gazette but with tighter conditions. During the validation workshops, we found that the ACF was not known to some SMEs. It will be worthwhile partnering with the SME Development Authority (SMEDA) for outreach on facilities and interventions like the Agriculture Credit Facility, beyond the partner financial institutions.