The Smallholder Finance Facility (SFF) offers support for investments in crucial value chains, co-financing smallholder farmers – together with supply chain actors – in order to improve their productivity and thus livelihoods. The Facility aims to invest up to $50 million into upstream supply chain projects over the coming 5 years, by providing a combination of technical assistance, conditional grants and debt instruments.
SFF supports the idea that the best way to improve smallholder farmer livelihoods and create meaningful impact is to improve farms productivity and profitability through:
- Good agricultural practices (GAP)
- Access to quality inputs (fertilizers, pesticides, seeds, etc.)
- The rehabilitation and/or replanting of crops
- Providing the needed finance to implement these activities.
SCMs are investing in their supply base in order to improve production techniques, increase yields and volumes, and strengthen the physical infrastructure for inclusion of the smallholder farmer base. Though these can be attractive business opportunities, the investments required are significant and SCMs often face liquidity constraints and an insufficient risk appetite.
Investing in smallholder farmers can create both: business value, socioeconomic and environmental impact:
- Business value :supply security, increased production volumes, higher supply chain efficiency, improved supplier loyalty, efficient crop risk management, etc.
- Socioeconomic and environmental impact: significant improvements in the livelihoods of smallholder households; sustainable land-use practices; improved management of natural resources, better working conditions, etc.
Pre-financing of inputs: Crop inputs such as fertilizer and pesticides are essential to improve production standards and yields but most smallholder farmers lack access to funds to buy these inputs. In some instances SCMs provide inputs but liquidity constraints and risk appetite restrict the SCM from achieving greater impact. SFF can offer working capital solutions whereby the efforts of the SCM will be leveraged with co-investments from SFF, thereby increasing working capital available for the farmer. Working capital solutions can be on a risk-sharing basis, have a tenor of 3 to 5 years and can be used to finance portfolios of loans to farmers with tenors up to 1 year.
Long-term finance for critical infrastructure: SFF can offer long term financing in order to improve smallholders’ access to sourcing, processing and storage capacity in the value chain. Such financing can be offered via the SCM to smallholder farmers. Financing can be on a risksharing basis, tenors will be in line with the nature of the investments to a maximum of 10 years. Eligible investments include fixed assets, seedlings and trees.
Grants: SFF is able to offer technical assistance funding needed for the organizing and training of farmers within a financing program. Furthermore, grants can be used for the testing of new interventions which can subsequently be scaled within the financing program. Technical assistance work can be carried out directly by the SCM or by other organizations. Grants are limited to a maximum of 50% of the cost of the technical assistance program, with the SCM providing the balance.
Impact Measurement: SFF would include a thorough M&E framework for its projects including setting the right deliverables with its partners to measure the impact achieved. Cost-sharing is limited to 50% of the cost of impact monitoring and reporting with the SCM providing the balance.
Farmers: Focus should be on smallholder farmers that lack access to appropriate financial products. The combination of finance and technical support should support the farmer to develop into a commercial farmer over a period of maximum 5 years.
Portfolio: Farmer financing portfolio should at least be USD 1 million with the potential for growth.
Purpose: Farmer loans in the portfolio are used for productive investments in inputs (fertilizer, seeds, pesticides, small farming material) and fixed assets such as rehabilitation of tree crops, equipment and the establishment of critical infrastructure.
Capacity: The entity should have the capacity to responsibly manage a farmer financing portfolio, i.e. have a / develop a credit policy and loan monitoring system.
Impact: The entity should be able to provide insight in the development of the income of the farmer (profitability).
Environmental & Social risks: The entity should properly manage the environmental and social risks that could occur in farmer financing projects, such as child labour, deforestation, land rights, water use etc.
Client Protection Principles: The entity should incorporate Client Protection Principles of Smart Campaign in the way they work with farmers. For more information click here.
Monitoring: The entity should have the capacity to be able to collect the data to monitor and evaluate the progress of the farmers.
Information requirement: Please provide a business plan substantiating the envisioned finance program including at least: nr. and type of farmers involved, track record of the sponsor and management, projections of the portfolio, aimed impact at farmer level.
Both IDH and FMO are well known in commodity value chains and have their own unique skill sets. FMO has a long track record in financing private sector investments in emerging markets and supports both companies and micro-finance institutions to create impact. IDH has a successful track record in mobilizing the industry and supporting supply chain managers to work directly with smallholder farmers improving yields and agricultural practices. Together FMO and IDH combine their products, knowledge and networks to provide holistic solutions that benefit all stakeholders in commodity value chains.
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