Success factors of enterprise support for agri-SME growth and access to finance

On 25 May 2022, the Argidius Foundation co-organized a webinar with the Smallholder and Agri-SME Finance Network (SAFIN) to share their learning on how enterprise support organizations (ESOs) can boost their financial sustainability, cost-effectiveness, and impact on agri-SME growth and access to finance.

The session built on the main findings of the report ''How to fulfil the potential of Business Development Services (BDS) using SCALE”, which introduces five fundamental considerations for increasing the efficiency of such support when provided to small and medium-sized enterprises. Based on evidence collected by the Argidius Foundation from over 50 ESO programmes, the five key characteristics are summarized under the acronym SCALE:

  • Select the right enterprise

  • Charging enterprises improves performance

  • Address problems: we learn best through problem solving

  • Learning by evaluating enterprise performance

  • Lead by Example: Improve your own organization to better serve enterprises

Photo: IFAD/R. Ramasomanana

The session sought to apply these findings to the agriculture sector. It invited comments from a small group of key experts before opening up to a larger discussion with audience members, and produced the following key insights:

1. Selection is particularly challenging in the agriculture sector

The agriculture sector stands out for the prevalence of free services provided by ESOs as a result of donor and government funded programmes. This tends to affect the process of enterprise selection as neither the enterprise nor the service provider is incentivized to ensure alignment of the services with the specific needs of the business, which is crucial to the effectiveness of enterprise support to agri-SMEs. For certain service providers, charging for services is considered part of the selection process, as experience has shown that SMEs that are willing to pay are often more ambitious and most motivated to identify and correct internal issues.

2. The type of support offered (what) is less important than the delivery process (how)

The report and virtual session highlighted the significant role played by enterprises, first in recognizing their need for support, but also in collaborating fully with the ESO to identify and address challenges. However, business needs can evolve over time including during support delivery, which requires the nature of support provided to evolve as new challenges emerge. As a result, businesses also need to gain a greater understanding of the wider ecosystem of support providers, including investors, who may provide different types of services for new business needs.

3. Pursuing access to finance can influence selection and problem solving

In many cases, the selection criteria and diagnostic tools used by ESOs to identify businesses to support are not aligned to the criteria used by financial institutions in their decision making process. As a result, the services provided may not generate the types of improvements that could lead to increased access to finance. For example, willingness to pay taxes and formalize the business may not be a critical consideration for ESOs to engage an institution, while these are basic legal requirements for financial institutions to consider investment. ESOs should therefore develop a thorough understanding of the selection criteria of financial institutions and design relevant support services if their aim is to improve access to finance for agri-SMEs.

4. Different cost-benefit outcomes can be assigned to different types of support services

In evaluating the right service to provide an agri-SME to maximize the impact of enterprise support, ESOs face a wide range of options with various cost considerations. However, certain approaches, such as peer-to-peer learning, can be provided at relatively low cost and in addition to other services with a high potential for positive impact. In one ESO programme, this approach contributed to 10% additional growth among participating enterprises in comparison to enterprises not involved in the programme.

Watch the session recording