Solutions to Filling the ‘Missing Middle’s’ Finance Gap in Agriculture

Categories: Featured , Member News

IGD’s role in the Rockefeller Foundation’s YieldWise Initiative aims to drive a market-led approach to reduce post-harvest loss and increase off-take from YieldWise-supported smallholder farmers. IGD’s engagement with African companies has highlighted that the lack of affordable, appropriate and available  finance is a critical challenge to growth.

 

By Helen Mant and Mary Jane Potter

 

Finance is critical to achieving growth and driving increased demand for smallholder produce.  IGD has identified ambitious African mid-tier companies engaged in the YieldWise initiative, who have the potential for significant growth, but are struggling to find the right funder to scale. While seeking financing for their businesses, many mid-sized companies have found that they are too large for microfinancing, yet too small to be considered by more traditional lenders or impact investors due to perceived risks.

IGD has been proactively seeking finance providers with innovative finance offerings to help bridge the “missing middle” finance gap.

 

A New Model for Mid-tier Financing

One model for giving mid-sized companies access to financing is Innovare’s Lease Financing Facility. The “Facility” was designed for companies engaged in the maize value chain in Tanzania to address the funding gap for the “missing middle”.  The Facility helps farmers access capital equipment financing through their farmer organizations  as well as small- to medium-sized food processing companies.  Innovare provides the capital through partnership agreements with local leasing companies and with equipment vendors to ensure that the farmers and companies can buy equipment through lease-to-own financing.

Since launching the Facility, Innovare has begun deploying capital to companies engaged in the YieldWise maize pilot in Tanzania, along with agricultural training provided by development funders. With this pilot project nearing completion in the southern highlands of Tanzania, Innovare tested and confirmed a business case that demonstrates the efficacy of lease financing for smallholder farmers, farmers organizations, SMEs and public and private investors.

The project is on track to select qualified organizations, equipment manufacturers and vendors with leased equipment in the field to participate in this lending program, just in time for the maize harvest starting in June 2017. The working partnerships between Innovare and its expert partners, including AGRA and its on-the-ground partners who work directly with farmers organizations and SMEs, will help to strengthen their operations, develop business plans, and facilitate the final selection and due diligence process.

In the pilot project, Innovare is also adding commercial off-take agreements to the risk mitigation structure.  As farmers increasingly have access to equipment, they will be able to produce higher yields and better quality crops, while decreasing post-harvest losses which impact their bottom lines. And expanded and predictable crop production will provide off-takers with incentives to contract for purchases and also encourage off-takers to play an important role in participating in the financing of agricultural mechanization and attracting private investors.

 

Meeting the Needs of “The Middle”

This highly integrated financing model in Tanzania has attracted wide interest among YieldWise partners and has been replicated across Tanzania and other African countries, as well as development finance institutions and private sector leaders. While currently operational in Tanzania, Kenya and Uganda and working in three different value chains (tractors, soya processing, grain storage), demand from both investors and vendors is strong.

IGD and Innovare believe their YieldWise pilots demonstrate that working along the agriculture value chain provides greater opportunities for collaboration. IGD is now working with Innovare to identify and connect with other companies that could potentially benefit from the Innovare Facility. The financing of equipment purchase will lead to increases in capacity for processing, value addition and improves off-take potential. Similarly, expanding access to financing can help to transform agricultural value chains, improve smallholder farmer livelihoods, and address post harvest loss through the expansion of production capacity of manufacturers and improving transport and logistics facilities.

Innovare is now raising more than $25 million in market-rate debt in the global capital markets by combining standard financial instruments including multiple risk-mitigation strategies (i.e., guarantees and buy-backs), along with commercial rate lending and leasing to continue scaling the project.

The Facility demonstrates a clear case of the importance of a strong commercially-aligned foundation, which connects public and private interests and motivates all participants to tackle post-harvest losses.

For more information on IGD’s work with Yieldwise click here or contact hmant@igdleaders.org. For further details on Innovare, visit http://innovareadvisors.com

 

Helen Mant is IGD’s Senior Advisor for Advisory, and Mary Jane Potter is Chief Investment Officer  at Innovare.