AFRICA – IDH Farmfit Fund, the catalysing smallholder finance facility of IDH has received financial support from the Dutch development bank FMO and Rabobank, each investing €10 million (US$11.8m).
The IDH Farmfit Fund, with backing from public and private organizations makes it possible to provide financing for small-scale farmers in developing countries.
By covering any initial losses on loans, the fund allows banks to provide financing for this sector with ease, acting as a bridge between small-scale farms and financial services.
It also invests in innovative companies that develop solutions for giving farmers access to financial services in an efficient manner or improving the profitability of their business.
‘‘Many countries in Africa increasingly import food, while the continent has enormous agricultural potential. Local farmers do not have the means to develop this sustainably,” said Roel Messie, CEO of IDH Farmfit Fund.
By becoming partners in the IDH Farmfit Fund, FMO and Rabobank aim to strengthen the fund and, in doing so, actively contribute to the funding of sustainable agricultural development.
”For many banks, direct funding of small-scale farming in developing countries is a bridge too far. The chance of loans not being repaid is just too big.”Pieternel Boogaard – Director of Agri, Food & Water at FMO
This is urgently needed as most of the world’s coffee, cocoa, tea and cotton is produced by small-scale farmers.
Due to their small-sized farms, low productivity, and lack of know-how and means of production, the majority of those estimated 270 million farmers live in poverty.
As they do not have the means to invest in their business, they are unable to work their way out of this.
”For many banks, direct funding of small-scale farming in developing countries is a bridge too far. The chance of loans not being repaid is just too big.
“As the IDH Farmfit Fund covers initial losses, the risk aspect of financing is much smaller. ‘In this way, the fund encourages banks to invest after all,” said Pieternel Boogaard, Director of Agri, Food & Water at FMO.
Leading food manufacturing companies, JDE Peet’s, Mondelēz and Unilever have already contributed more than €25 million (US$29.6m) to the IDH Farmfit Fund, and the Dutch government is also a fund partner.
With the investments by Rabobank and FMO added, the fund has a total capital of nearly €100 million (US$118.7m).
The vagaries of the weather and low, fluctuating yields make investment in agriculture in developing countries risky.
Together with other businesses, IDH, the Sustainable Trade Initiative, has been organizing and investing in the improvement of farmers’ incomes for more than ten years, and has made serious impact.
In the joint financing of a small-scale farming business, by the fund and a financial institution (such as bank), the fund assumes the greatest risk, for example, by covering any initial losses.
This makes it less risky for the bank to invest in this sector. Additionally, there is a guarantee facility that covers up to 50% of the “second loss” risk.
This guarantee facility of US$250 million was made available to the IDH Farmfit Fund by the US Development Finance Corporation.
This further reduces the risk to financial institutions of granting loans to small-scale agriculture.
Thanks to the risk-reducing qualities of the IDH Farmfit Fund, the threshold to financial institutions for granting loans in this sector has been lowered and the fund is acting as a driver for securing finance for small-scale farming in developing countries.
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