Why the farmers that feed the nation are still kept out of formal credit markets

Sub-Saharan Africa’s smallholder problem is usually framed as a shortage of credit. But the deeper issue is closer to a market and regulatory failure. Across much of the region, governments have struggled to redesign property rights and land administration in ways that make rural assets both socially legitimate and financially usable. Land can support production, anchor household income, carry inherited use rights and structure entire local economies, yet still remain too weakly recorded, too ambiguously governed or too difficult to pledge to fit neatly inside formal credit markets. In economic terms, this is not only a capital shortage. It is a failure to convert existing economic rights into investable rights.

That failure has had a second-order effect. Because the state did not fully reimagine property in a way that widened financial inclusion, formal finance continued to privilege the kinds of land rights it already knew how to price: individualised, documented, standardised and easily enforceable claims. In practice, this means that modern lending systems still favour the asset forms most compatible with older commercial agriculture, while discounting land held through communal, customary or layered systems. The result is not always explicit exclusion. It is something more durable: a financial architecture that quietly reproduces an inherited agricultural hierarchy by treating one kind of property as economically fluent and another as economically incomplete.

That distinction matters because it reveals the real economic issue. Smallholders are not marginal producers waiting to be made relevant by finance. Globally, more than 608 million farms exist, more than 90% of them family farms, and those family farms occupy roughly 70–80% of farmland while producing about 80% of the world’s food in value terms. Small farms of under 2 hectares account for around 84% of all farms globally, but operate only about 12% of farmland and produce roughly 36% of world food. The issue, then, is not whether smallholders matter. It is why so much economically meaningful production still struggles to enter formal balance sheets on usable terms.

A property problem disguised as a credit problem

The most important economic distinction here is between ownership in use and ownership in finance. A farmer may have long-standing rights to cultivate land, social legitimacy within a community, intergenerational claims, and a track record of output. But unless those rights are easily registered, valued, transferred or seized, they do not travel well into a collateral-based lending model. This is where the smallholder financing problem becomes more than a banking problem. It becomes an institutional design problem.

The World Bank’s recent Africa Land Policy Note makes the scale of that design failure hard to ignore. Only about 10% of rural land in Sub-Saharan Africa is formally registered, and 26% of landholders say they fear they could lose their rights within five years. That means a large share of rural land remains productive in use but thin in legal-financial recognisability. An asset can therefore be agriculturally central and financially discounted at the same time.

The usual policy answer — just formalise and title everything — sounds clean, but the economics are messier. Property rights are not binary. They are bundles: rights of use, exclusion, inheritance, transfer, mortgage and governance. In many rural African contexts, the challenge is not simply to replace communal systems with individual title, but to build forms of rights that preserve community legitimacy while increasing durability, clarity and investability. The real market failure is not that customary systems exist. It is that too little institutional imagination has gone into making them legible to capital without destroying the social logic they rest on.

Why finance keeps reinforcing the same outcome

Commercial finance is conservative by design. It prefers assets that are easy to verify, easy to value and easy to enforce against. A title deed satisfies all three. A customary or communal right often satisfies none of them cleanly. So even when lenders are not trying to reproduce old agrarian structures, their underwriting models can still do exactly that. They reward legal standardisation over economic reality.

This helps explain a striking mismatch across African economies. Agriculture still accounts for a large share of employment and output, yet commercial bank lending to the sector remains extremely low. The African Development Bank’s Feed Africa strategy notes that only about 4.8% of annual commercial bank lending goes to agriculture in the benchmark it cites, despite the sector’s much larger macroeconomic role. The sector carrying rural livelihoods is financed as if it were residual.

Once that happens, exclusion stops looking political and starts looking technical. Without working capital, farmers underinvest in seed, fertiliser, irrigation, storage, mechanisation and transport. That weakens yields, raises post-harvest losses and reduces bargaining power with buyers. Farmers then sell earlier, smaller and from urgency rather than strength. Banks observe volatile incomes and weak documentation and conclude the farmer is risky. But the risk is not simply natural. It is institutionally produced.

This is why the financing gap is so large. IFC’s 2024 report on AgTechs in Sub-Saharan Africa, drawing on ISF Advisors, states that the financing gap for agri-SMEs and smallholder farmers on the continent is estimated at roughly $117 billion. Climate Policy Initiative found that climate finance reaching small-scale agrifood systems was just $5.53 billion in 2019/20, equal to only 0.8% of total climate finance tracked across all sectors. The producers expected to absorb climate shocks, preserve food supply and maintain local resilience are still financed at levels that are tiny relative to both their vulnerability and their system importance.

The least financeable producers often preserve the most resilience

There is another irony here. Smallholders are frequently closer than industrial systems to the biodiversity, mixed cropping and adaptive practices that make agriculture more resilient over time. FAO’s work on family farming and agrobiodiversity makes clear that family-based production systems preserve far more ecological diversity than a highly concentrated industrial food model does. That ecological diversity matters economically because it spreads risk, preserves adaptive options and can reduce vulnerability to shocks. Yet those qualities do not show up easily on a collateral register or in a buyer’s payment terms.

This is why smallholders can preserve value without capturing much of it. They may sustain local seed systems, mixed farming and ecological resilience, yet still face weak offtake terms because they lack the working capital to store, grade, aggregate or delay sales. The market praises resilience in principle, but often prices standardisation, volume certainty and balance-sheet strength in practice.

Women face an even thinner version of the same rights problem

The structure is even harsher for women. World Bank research shows that in Sub-Saharan Africa only 13% of women report sole ownership of land, compared with 36% of men. Even when joint ownership is included, the gap remains large: 38% of women report owning land versus 51% of men. Where finance leans heavily on formal ownership and clear transfer rights, this becomes an economic penalty, not just a social one.

The disruptors are not inventing new farmers. They are inventing new forms of proof

The most credible disruptors in African agri-finance are not solving the problem by pretending customary tenure will disappear. They are solving around it by making other forms of economic evidence count. Remote sensing, transaction trails, crop histories, insurance records, repayment behaviour and warehouse receipts are all ways of turning thin-file rural lives into thicker financial identities.

The significance of these models is not only that they provide capital. It is that they redefine what counts as proof. The old system asked first what the lender could seize. The new system is increasingly asking what the lender can verify. That is a profound shift.

The frontier is broader than fintech, and narrower than the hype

The stronger, better-evidenced innovations today are mobile money, alternative-data underwriting, insurance, mechanisation marketplaces, warehouse receipts and wider use of movable-collateral logic. IFC’s 2024 AgTech report identifies more than 200 AgTech models operating across seven major Sub-Saharan African markets, underscoring that the real shift is already happening through new data rails and financing structures rather than through blockchain alone.

So the deeper solution is not just more lending. It is a re-imagination of what counts as an enforceable economic right. That means better land administration, stronger women’s claims, clearer records for layered rights, functional warehouse-receipt and movable-collateral systems, stronger digital payment rails, and financial products designed around how rural production actually works rather than around how standard urban collateral already looks. Until that redesign happens, the farmers feeding the region will continue to produce like insiders and borrow like outsiders.