Innovative finance model reaps rewards for Africa's smallholder farmers, report shows

Felicia Mbaidooue Gbuuka, 35, stands beside her tractor at her home in Yagba community, Nigeria on June 25, 2023.

Nairobi, Kenya – A groundbreaking report has spotlighted the significant success of an innovative “blended finance” approach pioneered by Heifer International and Hello Tractor in empowering smallholder farmers across the African continent. The findings, released by Aceli Africa and Dalberg, demonstrate how a strategic combination of diverse capital sources, local ingenuity, and robust partnerships is driving profitable and sustainable growth within often-marginalised rural economies.

The 2024 Aceli Financial Benchmarking Report, which meticulously analysed nearly 33,000 loans valued at almost $2 billion disbursed by 41 lenders across Kenya, Rwanda, Tanzania, Uganda, and Zambia between 2020 and 2023, identified Hello Tractor as a leading performer in the crucial sector of agricultural Small and Medium-sized Enterprise (agri-SME) finance. Notably, Hello Tractor’s profitability outstripped the average of traditional commercial banks, non-bank financial institutions (NBFIs), and even social lenders included in the comprehensive analysis.

The report’s key findings paint a compelling picture of Hello Tractor’s impactful approach:

Unprecedented Financial Inclusion:Remarkably, 100% of Hello Tractor’s borrowers were individuals previously excluded from formal banking services. This starkly contrasts with the 22% of unbanked borrowers served by commercial banks, underscoring Hello Tractor’s success in reaching the most financially excluded populations.
Robust Portfolio Health:Hello Tractor exhibited exceptional portfolio health, with a 95% loan repayment rate. This significantly surpasses the 86% average recorded by commercial banks, indicating the financial viability and responsibility of their clientele.
Exceptional Profitability:Despite operating with borrowers often perceived as higher risk, Hello Tractor achieved a 7.2% profitability rate. This impressive figure not only surpasses the industry average but also stands in stark contrast to the negative returns experienced by most social lenders (-16.8%) and NBFIs (-6.8%), and outperforms commercial banks (3.5%).

Auma Fatuma tills her garden with a hoe as a tractor ploughs the other chunk. Mechanisation has helped her increase her acreage and production.

These remarkable results underscore the effectiveness of Hello Tractor’s innovative “pay-as-you-go” model for tractor services. This is further strengthened by supportive 60-month loan terms and an expanding network of locally-based after-sales support, ensuring that machinery remains operational and dependable for farmers. Crucially, the partnership with Heifer International has facilitated the training and certification of local youth as skilled technicians. This not only guarantees consistent maintenance and uptime for the tractors but also builds crucial trust among both financiers and the farming communities.

Adesuwa Ifedi, Senior Vice President for Africa Programs at Heifer International, emphasised the significance of the findings, stating, “This report validates our long-standing belief that rural communities offer significant investment potential. By strategically blending innovation, trust, and local expertise, we are demonstrating that smallholder farmers can be central to Africa’s agricultural transformation.”

Hello Tractor’s success is deeply rooted in its unique approach to assessing creditworthiness. Instead of solely relying on traditional individual credit histories, they primarily underwrite the agricultural assets themselves – the tractors. By extending credit based on the productive use of this machinery, they are effectively opening up economic opportunities for individuals and communities who have historically been excluded from conventional financing avenues. Of the 88 loans facilitated through a $2.5 million investment from Heifer International, a significant 76% ranged between $50,000 and $200,000, achieving an impressive 100% repayment rate among these first-time borrowers.

Jehiel Oliver, CEO of Hello Tractor, highlighted the transformative impact of the collaboration, stating, “Our collaboration with Heifer International through the Mechanization for Africa Initiative has clearly shown that smallholder farmers and rural entrepreneurs are viable and profitable customers. With the backing of long-term capital, robust after-sales support, and data-driven operations, we can finance a new generation of rural entrepreneurs who are generating significant impact within their communities.”

Heifer International – Nigeria, 2024. Pay-As-You-Go Tractor and Mechanization program. Heifer International and Hello Tractor launched the Pay-As-You-Go (PAYG) model and Tractors 4 Africa project, a tractor co-sharing model that makes accessing tractors affordable for farmers and offering tractor services profitable for the tractor’s owner. Tractors have been identified as a net income-increasing technology for smallholder farmers and research has shown that access to tractors can result in 5X improvement in yield for smallholder farmers. In Awe local government of Nassarawa State, Sunday Jacob, 35, works as a tractor operator who tills and plows the land when services are requested. He was hired as a tractor operator by Hauwa Adamu Tamuzu, 45, (not pictured), who became a tractor owner through the pay-as-you-go financing option.

The Aceli report provides compelling evidence for the efficacy of blended finance – the strategic combination of concessional and commercial capital – as a powerful mechanism to unlock much-needed commercial investment for agri-SMEs across Africa. Hello Tractor’s model, characterised by remarkably low credit losses and the efficiency afforded by technology, directly challenges conventional perceptions that lending to rural borrowers is inherently high-risk.

This impactful partnership serves as a powerful illustration of three core pillars of Heifer International’s overarching strategy for sustainable development:

Catalysing Local Innovation:By investing in and scaling locally-grown solutions like Hello Tractor, which are specifically tailored to the unique challenges and opportunities of the African agricultural landscape.
The Power of Partnerships:By strategically aligning the resources and expertise of philanthropic organisations with the financial rigour of commercial actors to achieve sustainable and widespread impact.
Routes to Profitability:By demonstrably proving the potential for smallholder finance to evolve beyond a reliance on subsidies towards achieving genuine scale and long-term profitability through effective and innovative business models.
Tractor operator Sunday Jacob, 35, drives the tractor owned and loaned by Hauwa Adamu Tamuzu, 45, (not pictured). As a tractor operator, Sunday has completed specialized training through the program to run the tractor when tilling services are booked for Hauwa’s tractor. Here, Heifer staff speak with Sunday while he is working.

Ultimately, the success of the Hello Tractor–Heifer International partnership offers a valuable blueprint for how impactful collaboration can revitalise African food production systems, drive crucial innovation, and foster meaningful change within rural communities. As agricultural mechanisation continues its transformative journey across the continent, this model provides a compelling example of how inclusive finance and effective local execution can unlock Africa’s vast and often untapped agricultural potential.