Small and Medium Enterprises Loan Contribution to Agricultural Sector Development

Abstract

The situation worsens as agriculture in developing economies suffers a constant finance gap limiting productivity, value addition and rural transformation. Even though larger agribusinesses tend to tap into formal finance, small and medium sized enterprises (SMEs) involved in agricultural value chains more widely act as key financial partners connecting farmers with the markets, inputs and technology. This paper provides an overview of the development SMEs financing in Asian and African economies, particularly through loan to agriculture sector. The purpose of this study is to test empirically whether increased SME lending to agriculture leads to improved agricultural development outcomes. The study analyzed secondary data from internationally recognized financial and development databases of 12 countries of two continentals, Asia and Africa for 2015-2025. For this purpose, Study applies econometric estimations with panel data techniques based on fixed-effects and pooled OLS estimation using cross-country and temporal variation controlling for the most relevant macroeconomic, demographic, and climate-related factors. The findings of regression show a positive and significant impact of SME credit to agriculture on development in the agricultural sector (as indicated by the agricultural value added and another related indicator). The results indicate that focused SME financing has a greater development impact than overall credit expansion. The study finds that strengthening the policy frameworks for agricultural finance to Small and Medium-sized food enterprises can be critical to promote sustainable agricultural growth, livelihoods in rural areas and long-term structural transformation.

SAARC J. Agric., 24(1): 319-335 (2026)