If China has an agricultural development bank, why doesn't Africa?

A Chinese saying holds that governing a great state is like cooking a small fish - a matter of light touch and careful proportion. In 1994, China split agricultural credit in two: commercial lending - including to smallholder farmers - stayed with the Agricultural Bank of China, while policy-driven lending was carved into a new Agricultural Development Bank. Behind the split lay a deeper shift in thinking - agriculture was not one problem, but several overlapping ones. China uses the shorthand "the three rurals": agriculture as industry, the rural area as space, farmers as people. Agriculture means raising output and modernising production. The rural area is spatial - roads, irrigation, storage, and governance are public goods needing patient capital. Farmers are a human question - the survival, income, and rights of smallholder households. Each demands different instruments, risk pricing, and repayment horizons. That recognition is not new to Africa. In 2003, the African Union's Maputo Declaration committed member states to raising agricultural spending to 10% of national budgets. The 2014 Malabo Declaration went further, centering agricultural transformation in national development agendas. African policymakers have long grasped the challenge's multiple dimensions; but what has remained totally unresolved on the continent is the question of finance. And indeed, translating the recognition of complexity into workable financial-institutional design. Are there interesting insights from China that can help solve this problem? The practical rationale for the financial split The Agricultural Bank of China's (ABC) history is largely this distinction surfacing through practice. Reconstituted in 1979, it handled nearly all rural finance at once, policy and commercial operations side by side. By the early 1990s the cost was hard to ignore. For instance, many loans for the purchase of grain, cotton and oil and poverty alleviation were lent in bulk to township enterprises or farmers, but many could not be recovered upon maturity, and gradually accumulated as bad debts. Subsidised policy rates against market-priced deposits created losses, and loans approved because of political needs rather than real financial opportunity eroded credit discipline across the board. Hence, by the mid-to-late 1990s, ABC's non-performing loan ratio was over 30%, and in some branches was over 40%. In many ways this wasn't surprising. A loan for grain reserves and a loan for a farmer's seed and fertiliser carry different risk profiles and repayment cycles; bundled together, the risks bleed into each other. Thus, the 1994 split - and the creation of the new Agricultural Development Bank (ADB). It delivered measurable results. By 2003, China's ADB carried an $83bn loan book, financing that year's state purchase of 90 million tonnes of grain and 600,000 tonnes of edible oil. The ABC, meanwhile, worked through inherited bad debts. In 2008, it shed roughly 400bn yuan in non‑performing loans and received a $19bn capital injection, before a 2010 listing that was, at the time, the world's largest IPO - all while still serving close to 590 million rural customers. Africa's challenges Africa faces this same three-part problem today, at real scale. Recent estimates put its annual agricultural financing gap at roughly $100bn, as its food import bill keeps climbing. Agriculture contributes close to 30% of Africa's GDP yet captures less than 5% of bank lending. Smallholders, who grow roughly 80% of the continent's food, are almost always locked out of formal finance for want of land titles, records, or organisation. We know at Development Reimagined that most African and non-African development finance institutions will - as a matter of fact - not invest in a greenfield agricultural transformation or processing project on the continent under $5m, however strong the business case and feasibility study.Yet, we see all the time on the continent, pledges to "invest more in agriculture". But it can mean anything - a smallholder credit line, a road, or a fertiliser subsidy - yet these often land in the same budget line and bank window, and each ends up under-resourced. Moreover, traditional donors and partnerships with donors exacerbate these issues - pushing a focus on certain crops or seed distribution, without targeting the rest of the system. And national and international efforts to build rural roads, for example, are often divorced from the question of raising agricultural output and productivity. Indeed, in our view, far too little attention is given to the latter question in national and international financing. China's experience is enlightening. Fail to separate these three problems and resources scatter - appearing to cover everything while properly feeding nothing. What China did in 1994 was a return to specialisation: different investments need different institutions, products, and appetites for risk. Groundwork exists - but there are gaps Africa has been running - to a degree - a version of this split. Kenya's savings and credit cooperatives (SACCOs) are built around coffee, tea, and dairy cooperatives and have enabled organised micro-finance channels for smallholders, building on the Grameen Bank from Bangladesh. In Nigeria, the IFAD-backed Value Chain Development Programme - $158m, reaching up to 3.6 million northern farmers with formal credit - remains under active implementation. Rwanda's agricultural transformation management and Ethiopia's cooperative unions are amongst the continent's largest agricultural federations. Similarly, the African Development Bank continuously funds rural roads through specific national projects, runs Technologies for African Agricultural Transformation (TAAT) for agricultural productivity, and has built targeted facilities to mobilise capital for smallholder farmers. Each effort has produced real results, but the challenge is that many are focused on one part of the system. Moreover, many of these efforts run into constraints set by the global financial architecture and banking rules with colonial origins such as tight fiscal space, IMF discipline requirements, customary land tenure that resists conventional collateral, currency volatility. On top of this, in many regions, there is instability and climate change. Paths worth considering So what can and should be done to truly recognise this three-part financing model in Africa, as China did? Is there a need for a new African Agricultural Development Bank? The first step is to recognise the differences but ensure each channel - the policy one most of all which is key for raising agricultural productivity - is adequately capitalised, not merely separated. China uses two banks, one commercial and one policy-driven, to divide the labour. The policy piece in Africa in particular is still mostly run through government agencies or folded into a multilateral bank's broader portfolio, rather than carried by its own standalone, state-backed institution, with its own capital pool. A dedicated African agricultural development bank, ideally continental, could potentially close this gap, but the next best alternative is several reconstituted such sub-national or national agricultural banks. The key challenge is bringing such banks to durable scale, on terms fitting each country's own fiscal capacity, land tenure, and market structure. The second step is to focus on the issue of equity across countries, using existing structures and connectivity. The ABC's client base evolved from individual farmers toward cooperatives, family farms, and agribusinesses, because dispersed smallholders were too costly to serve one at a time. As already noted, several African countries carry a rich tradition of community-based cooperation, from village savings and loan associations to national cooperative federations. The China logic can scale beyond one country: a coordinated continental facility working through existing organisations, rather than around them, could pool risk and narrow the gap in credit terms that smallholders currently face depending on which national system they happen to sit in. A unified, pan-African farmer credit system - a new Agricultural Bank of Africa - could drive the costs of credit down for the over 800 million Africans living in rural areas. It took the Agricultural Bank of China more than forty years to reach a system dividing labor across commercial, policy, and cooperative finance. That path wasn't fast, and its direction wasn't obvious from the start. China's experience is a useful point of comparison and learning, enabling African governments and financial institutions to leapfrog those experimental years, use Africa's own experience and foundations, and come to faster solutions than China even did. Ellie Chen is business manager for Africa Reimagined at Development Reimagined. This piece is the latest in a series with Development Reimagined on "China through African eyes". Too often the focus on China is either on what it has achieved or as a competitor. The series will explore the "how" of China, and how and when African countries can adapt this into African contexts.