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Empowering Smallholder Farmers Through Value Chain Integration

Empowering Smallholder Farmers Through Value Chain Integration

Empowering Smallholder Farmers Through Value Chain Integration

Empowering Smallholder Farmers Through Value Chain Integration

IDH The Sustainable Trade Initiative - a Grow Africa knowledge partner - has teamed up with the Dutch development bank, FMO, to provide innovative funding solutions to agri-businesses lending to smallholder farmers. Through the Smallholder Finance Facility (SFF), the partnership will enable agri-businesses’ to offer finance and technical assistance to smallholders for investments in their farms, which improve yield and productivity. This in turn should lead to increased and more reliable supply for the agri-business supply chain, and improved income for the smallholder.

The Smallholder Finance Facility is able to invest in countries across Asia, Africa and Latin America, and targets operations where smallholders are unable to access affordable credit from the local financial sector, to invest in their farm. The € 50 million facility, comprising a commitment of €45mln debt from FMO, through a fund they run for the Dutch government, and €5 million grant from IDH - in turn funded by the Dutch government - will support investments by agri-businesses into long-term finance for smallholder critical infrastructure (for example commodity storage, agro-processing, replanting and rehabilitation); working capital (for farmer pre-financing of fertilizer and pesticides) and; grants (for technical assistance aimed at supporting the agronomic and financial needs of the smallholders).

The fund is able to directly risk-share with suitable agri-businesses on their smallholder investments and will typically allocate between US$ 2 million and US$ 10 million per suitable project. The smallholder finance facility provides companies a financial risk-sharing structure that allows them to upscale engagement with farmers, enabling the farmers to invest in productivity improvements; and thus hopefully creating a virtuous circle.

"Our ultimate aim is to enable smallholder farmers to build a solid and credible credit history and improve profitability, which will lead toward their bankability”,  says Johnny Brom, Senior Manager, Innovative Finance at IDH

The financing facility has been in place since August 2014 and the joint FMO /IDH deal-team is now assessing investment opportunities. Two projects are already well advanced in discussions - Input financing for both cotton and maize crops of smallholder farmers in Zambia, reaching 65,000 farmers initially, and input financing for cocoa farmers in West Africa.

IDH works within 18 different sector supply chains. The in-depth networks across the value chains, and deep seeded insights of value chains, gives IDH an advantage in assessing the risk /opportunity cost of providing finance to the agribusinesses involved. FMO is the Dutch development bank and has invested in the private sector in developing countries and emerging markets for more than 45 years. With an investment portfolio of EUR 8 billion spanning over 85 countries, FMO is one of the larger bilateral private sector development banks globally

The Smallholder Finance Facility is actively looking for partners to engage with on smallholder investment opportunities.

Please contact Johnny Brom, Senior Manager, Innovative Finance at IDH for more information.