Innovative finance for inclusive agribusiness

1. Innovative finance for inclusive agribusiness Webinar: 13 December 2018 @Inclusivebiz @BoPInc @IDH_buzz inclusivebusiness.net

2. Andrew Kaiser Tedesco Director Africa & Impact Investment Inclusive Business Action Network

3. Agenda WelcomeandintroductionbyiBAN Introducing agenda forthewebinarand speakers (iBAN, Andrew Kaiser-Tedesco) Presenting keyinsightsfrom interviews and primer (BoPInnovation Center, Niek van Dijk) Poll IDH’sexperiencefinancingsmallholderfarmingwithlarge companies (IDH, Bernd Isenberg & Dominic Strano) Questionsandanswerswiththeaudience (iBAN, Andrew Kaiser-Tedesco)

4. The Inclusive Business Action Network (iBAN) • iBAN aims to improve the conditions for the up-scaling and replication of inclusive business models • Since 2014, iBAN works in partnership with key stakeholders • iBAN enables change by empowering those who can make a difference Implemented by Financed by

6. inclusivebusiness.net • The gateway to information on inclusive business • Largest database of inclusive businesses and intermediaries • Largest IB knowledge resource • Curated content and bi-monthly magazine CLUED-iN Register at https://www.inclusivebusiness.net/my-iban

7. Company and policy-maker engagement Regions: South East Asia & Sub-Saharan Africa Sectors: Agribusiness, Energy, & National Policy Cross-cutting themes: Gender & ICT

8. $12 trillion Inclusive Business Business opportunity in reachingtheSDGs • Business that focuses on • suppliers • distributors • retailers • customers • living at the base of the pyramid.

9. Key Insightsinterviews & deskresearch Niek van Dijk Program Manager BoP Innovation Center

10. Set-upinterviews 10 interviews held with (larger) agribusiness companies active in Africa 5 companies member of the Global Agribusiness Alliance 5 companies not member of GAA, but active in inclusive business projects Main questions discussed: How familiar are you with the different innovative financing opportunities out there? What experience do you have with (co-)financing inclusive (agri)business? How advanced are you as a company in moving from traditional CSR approaches to creating an inclusive core business? What role could innovative finance play in this?

11. Key Insightsinterviews There is interest to learn more on innovative finance, to hear about firsthand best practices Best-practice sharing with other practitioners would be the main value added for everyone. Innovative financing is either already a familiar field or it is not perceived as a challenge. Financing is not the main challenge for larger agribusinesses Lack of supporting policies in Africa, need for behavioral change in high-level business management, scarce expertise and difficulties of cross-sector collaborations seem to be the true challenges for inclusive agri-business. Many companies are at an early stage of integrating IB as a core model, some are engaged in innovative financing, very few have experience w impact investing Most companies do have substantial experience with inclusive business projects, but there is much less experience with impact investment.

12. How far are the companies in moving from the traditional CSR approach to creating an inclusive core business? Company AWe see the trend to recognize non-financial returns. We are just beginning with more focus on that. Company BExperience in inclusive business in Asia but challenge to replicate in Africa. Active strategy on contributing to SDGs Company D Own agricultural finance facility. Provide short/ long-term financing to farmers. Low High Company G CSR framework in place.GRI reporting on achievements w inclusive projects. We see business value of working with smallholders. Company ICore model is inclusive, much experience in working with smallholders. Impact measurement not (yet) systemic Company EWe are at an early stage, old-school CSR approach is dominant.

13. How familiar are companies with innovative financing instruments? Company B Experience with DFI’s in Asia & Africa. Discussing with investors in Kenya & Ethiopia. Money is chasing us, but no good opportunities to invest. Company FNeed low risk, minimal guarantee loan for 5-10 years, to double the number of farmers Company AWe want to move from traditional to more innovative financing, but have no experience yet Company C Experience with PPP financing. Lke to learn more on Project Financing & Results-based Financing. low high Company ENo experience, would like to learn about the opportunities Company IWe do blended finance with IFC,are an intermediary between banks and smallholders, started a finance company ourselves

14. Innovative funding opportunities identified

15. Key considerations when seeking innovative finance opportunities Company financingvs multiple partner financing Financingdepends on achievingandverifyingcertainresults Public, private, blended (below 1m, 1-5m, 5m+) Cropcycle(< 1 year), medium term (1-5 years) longer term (5-10 years) Do I look forfinanceformyown company or a broader project with different partners? Can I directly link/make conditional a certainsocial or environmental impact of my company totherequiredfinancing? Does the risk-return ratio on your project/company investment need public financingfor de-risking/first loss What ticket sizesam I lookingfor? Whatduration/time of investment am I lookingfor?

16. PPPs / Project finance Characteristics multiple partner financing • Process • Key steps forkicking off activitieswith PPP / Project financing are: • Lead parties scout for private sector partners (e.g. call forapplications) • Group of partners identified • partners agree on the foundations forcollaboration/ operationof the SPV, dividing: • tasks • responsibilities • financing • Setting up PPPs/SPVs is complex & intensive. Presenceof an independent partnership broker canbe of great benefit. Case example Clinton Foundation brought development fundersand private investorstogether in a joint venture fornutritious food processing thatraised $59 million. As a result, AfricaImproved Foods was created in Rwanda as a Holding Company – a Special Purpose Vehicle (SPV). The mainshareholders are DSM (47%) IFC (20%), CDC (20%) FMO (13%) andgovernment of Rwanda (8%). financing is notlinkedtosocialKPIs mostlypublic fundedwith private co-funding project financing: $100 million < , PPP: diverse medium term (~5 years)

17. Results-basedfinancing Characteristics company financingthroughintermediary Case example The Government of Rwanda andthe World Bank initiatedtheTransformation of Agriculture Sector Program. Paymentswillbe made based on thefollowingresults: 1) Increasedagriculturalgrowthrate 2) Decreased percentage of ruralpopulationundernationalpoverty line 3) Increasedagricultural land under “modernized” agriculturaluse 4) Increasedagriculture export • Process • Key steps foragribusiness companies are: • Proposingapproach on howtocontributeto, or realizetheresultswhichtherespective program aimstoachieve • Havingtheirproposalacceptedbytheprogram • Engaging in contractswiththeprogram, setting indicators. • Measuring indicators set bytheprogram • Demonstratingthatresults have been achieved paymentslinkedto indicators (i.e. production/ smallholderdevelopment mostlypublic funding diverging per result, startingsmall amounts up to 100m <100$ variesfrom short to long term(<1 year - 5< years)

18. Impact investment funds Characteristics • Process • Keysteps are: • Application: tobeconsideredfor investment, companies may have toapplytoprove readiness & fit withthefund criteria • Duediligence: companies in pipeline go throughscreening • Technical assistance (TA) couldbeofferedbefore&during investment toensurecompanies are ready anduse investment well • Contractingandreceivinginvestment • Regularreporting Case example AHL Ventures Partners, an impact-focused venture capital firm with a large portfolio in agribusiness in Africa, brought together a consortium that includes investments by Global Partnerships/Eleos Social Venture Fund, Beyond Capital, and Rafiki Ventures. AHL Ventures Partners earlier also was one of the first investors in Twiga Foods, another innovative Kenyan agribusiness company, active in the production and local trade of bananas. company financing (debt / equity) companies are requiredto report on relevant indicators, wide-spread: IRIS a wide array of investors are behindthe funds fromindividualstobanks average ticket sizes for funds that target agriculture are between $50-$100 million from debt to equity, up to very long term

19. Poll questions Barriers for inclusive business in African Agriculture I consider innovative finance to be important, but not the biggest challenge for inclusive business in agriculture Innovative finance is thé driver for inclusive agribusiness in Africa Innovative finance is not an issue, there is plenty of funding available Innovative Finance should be primarily used by companies to Improve environmental footprint Expand collaboration with smallholder farmers Experiment with more high-risk, innovative business approaches Enter into new geographical markets with a higher market risk My main interest would be to learn more about PPPs/Project Finance Impact investing Crowdfunding Blended Finance Value Chain Finance Results-based Finance Thematic Bonds

20. IDH‘sexperience in financing (smallholder) farming Bernd Isenberg -------------- Dominic Strano

21. FarmFit Investing in inclusive agribusiness December 2018

22. Bridging the gap between agribusiness and financial institutions Analytics Innovation Blended Finance

23. Analytics: Our Service Delivery Model approach

24. Why did we start with “Service Delivery Models”? Financing for services and infrastructure Training, inputs, services, etc. Products Donors & FIs Service providers Farmers Enabling Environment • To create: • Data-driven and systematic insights into efficiency and sustainability of SDMs • Better-informed investment strategies to be able to offer a complete package

25. What are Service Delivery Models (SDMs)? Donors/ investors Enabling Environment SDMs are supply chain structures, which provide services such as training, access to inputs and finance to farmers, to improve their performance, and ultimately their profitability and livelihoods. Payment Case Owner Services Services Inputs & Services Inputs & Services Farmer Organization / Service Entity Service/input suppliers Inputs & Services Legend: Money Goods / services Farmers

26. The business case for farmers We provide insights on: Economic sustainability at farm level Main cost drivers Main revenue drivers Baseline Segment 1 Segment 2 USD 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Years after farmer (0.95 ha) joins the SDM Revenue 1 Revenue 2 Revenue 3 Expense 1 Expense 2 Net income Baseline net income

27. The business case for companies We provide insights on: Service profitability Commercial viability SDM sustainability Overall SDM P&L by service (‘000 usd) Number of farmers in the SDM and net cost per farmer (USD) 500 0 -440 -452 -463 -467 -469 -478 $ 000 -502 -505 -506 -500 2016 2017* 2015 -1,000 40 12 11 2014 2015 2016 2017 2018 2019 2020 2021 2022 $/MT sourced Revenues Expenses Inputs Overhead Seeds Net Seeds Farmer training Certification Diversification Inputs Diversification

28. The analysis is applicable across countries, commodities, contexts Cocoa Coffee Côte d'Ivoire Indonesia Ethiopia Madagascar Madagascar Cameroon Uganda Tanzania Ghana Ghana Côte d'Ivoire Côte d'Ivoire Vietnam Various Tanzania Mexico Uganda Staple crops Cotton Rice Cashew Tea Tea Maize Vegetables Vegetables Cashew Other Rwanda Burkina Faso Tanzania Tanzania Mozambique Kenya Guatemala Côte d'Ivoire India Nigeria Spices Cassava Staple crops Spices Vanilla Cassava Cassava Cotton Staple crops Spices Madagascar Uganda Madagascar Nigeria Nigeria Nigeria India Various Nigeria India

29. Example insights Costs of service delivery per archetype Funding strategy per archetype % other Change in cost per farmer % from donor Current sources of funding (internal and external) % from services Cost per farmer Grant 10% 10% Concessional Types of external funding Commercial Growth (CAGR) 10% 10% Scale Set-up Innovation Use of external funding Capacity building Local trader/processor Service focused Global sourcing Farmer-led Risk sharing Operations Global Local Service Farmer-led

30. Innovation

31. We provide you with the business and technical advisory needed to innovate your SDM. Innovation Design Implementation We support you to bring the tailored insights from your SDM analysis to life in new inclusive models Project Management Co-fund

32. FarmFit Fund IDH’s blended finance mechanism

33. Set-up of the Fund RISK SHARING STRUCTURE • The Farmfit Fund will bring together donors and multi-national brands in a financing structure that can catalyze service providers (input providers, traders) and large amounts of funding from banks and institutional investors. • A 15 year junior loan from the Ministry of Foreign Affairs (MoFa) will crowd in FMCG’s, which will provide 15 year loans that rank senior to MoFa. • USAID will issue a guarantee for senior lenders participating in transactions of the Fund for 50%. • The Fund will catalyze value chain partners. The value chain partners will rank paripassu with the Fund and the Banks senior. • The Fund will take a 10 % - 40 % risk in a transaction, hence there will be a 2.5X - 10X catalyzing impact. BANKS 40% USAID 40% Second Loss Value Chain Partner 10 % Farmfit Fund 10% First Loss Buza 5% Brands 5%

34. Fund Scope The Fund will invest in transactions that: Sectors: Cocoa, Coffee, Cotton, Palm oil, Tea, Sugar, Aquaculture, Soy, Cassava and other commodities; Geography: DAC list. Target 50 % Africa, minimum 35 %. Max 40 % in Latin America and 40 % in Asia; Fund contribution in a transaction max. 30 %, in Least Developed Countries max. 40 %. For Fintech/Agtech investments a contribution of up to 50 % can be considered; Maximum 10 % of Fund invested per deal; Return objective: capital preservation. • Benefit the livelihood of farmers as a result of increased productivity and income, by: • Providing financing to smallholder farmers though value chain partners (traders, input providers), (local) financial institutions and farmer’s organizations; • Financing Agri SMEs either directly or via (local) financial institutions; • Financing other actors that provide services or products to smallholder farmers and/or Agri SMEs. • Financing can be provided for production assets and working capital with tenors up to 7 years;

35. Impact Farmfit Fund • We will improve the livelihoods of 3 - 5M male and female smallholder farmers by: • Creating 1B+ of economic benefit at farm level • Increasing income in 50%+ • We will demonstrate the viability of smallholder farmer finance by: • Building a sizeable and well performing portfolio • Identifying the drivers to lower the true costs and risks of farmer finance

36. Thank you! Bernd Isenberg Program Manager FarmFit m: +31 6 21431276 e: isenberg@idhtrade.org Click here

37. Questions & Answers

38. inclusivebusiness.net