IFAD launches new agriculture investment fund, looks to strengthen private sector strategy

WASHINGTON — On Friday, the International Fund for Agricultural Development announced a new $60 million fund to de-risk investments of small loans in agriculture value chains in Africa.

The Agribusiness Capital Fund, or ABC Fund — with contributions from the European Commission, Luxembourg, Africa, Caribbean, and the Pacific group of states, and AGRA — seeks to mobilize about $240 million in private capital.

Since its founding, IFAD has been tasked with investing in rural people and helping them improve food security and nutrition while increasing their incomes. In the past decade, the international financial institution has repeatedly run into the same problem: a lack of financing to build the types of businesses that will help rural communities process their crops and link them to markets.

The ABC Fund, which will be managed independently, will provide loans of between $25,000 and $1 million to small businesses in order to address the “missing middle” of finance between microfinance and commercial loans. While IFAD’s current mandate does not allow them to provide funding to the private sector, it is using its experience and other programs to help identify a pipeline of potential investments and is funding a facility associated with the fund that will provide technical assistance or support to the small businesses to help them succeed.

IFAD hopes that its presence will also help derisk a risky field, both because of the uncertainty associated with agriculture and with the small deal size, said Paul Winters, an associate vice president at IFAD.

“We’re helping proactively create a market,” he said. “The pipeline is built on what we can do already.”

If the fund is able to attract its $240 million target, Winters said he expects it will impact some 700,000 households. IFAD said that it will look to collect data from beneficiaries to measure impact and will have a learning agenda with the new fund, which was about two years in the making.

While it has helped organize the effort, IFAD cannot itself manage a fund or even contribute to it directly, though the organization is working to change that. Agency leaders discussed its private sector strategy at IFAD’s governing council meetings in Rome, Italy, this week, and had conversations around whether it would be able to make these kinds of investments in the future.

“The intention is not to spend a great deal of IFAD funding on this,” Winters said. “We want to get mostly outside funding.”

Being able to invest itself would put IFAD in a better position to attract private funds — for example, the EC was hesitant to commit to the ABC Fund without IFAD investing itself.

“If you want to assemble finance, others have the expectation you will participate in some way,” Winters said.

Winters said he sees IFAD having an opportunity to build on the value chain work it has ramped up in the past decade by not only continuing to provide loans and grants that support smallholder farmers and rural households, but by also assembling finance to fill gaps they identify.

In the future, IFAD may be able to work with them more directly, potentially through contributing to a fund, though it is unlikely the agency would do direct funding itself, he said.

In an ideal scenario, an IFAD loan to a government to support smallholder farmers could be linked to private funds for agribusinesses that could then buy products from those farmers — increasing the value or price they get for the products they produce, Winters said.