The Dutch entrepreneurial development bank FMO and Rabobank are becoming partners in the EUR 100 million IDH Farmfit Fund with an investment of EUR 10 million each. This unique fund, made up of public and private funds, will make it possible to provide financing for small-scale farmers. By covering any initial losses on loans, the fund allows banks to provide financing for this sector in developing countries. The fund also invests in innovative companies that develop solutions for giving farmers access to financial services in an efficient manner or improving the profitability of their business.
Collaboration helps farmers develop their business
‘Many countries in Africa increasingly import food, while the continent has enormous agricultural potential. Local farmers do not have the means to develop this sustainably,’ says Roel Messie, CEO of the IDH Farmfit Fund. ‘This fund builds a bridge between small-scale farms in Africa and our financial services,’ adds Marianne Schoemaker, CEO of Rabo Partnerships at Rabobank. ‘For many banks, direct funding of small-scale farming in developing countries is a bridge too far. The chance of loans not being repaid is just too big.’ As the IDH Farmfit Fund covers initial losses, the risk aspect of financing is much smaller. ‘In this way, the fund encourages banks to invest after all,’ says Pieternel Boogaard, director of Agri, Food & Water at FMO.
By becoming partners in the IDH Farmfit Fund, FMO and Rabobank aim to strengthen the fund and, in doing so, actively contribute to the funding of sustainable agricultural development. This is urgently needed. Most of the world’s coffee, cocoa, tea and cotton is produced by small-scale farmers. Due to their small-sized farms, low productivity, and lack of know-how and means of production, the majority of those estimated 270 million farmers live in poverty. As they do not have the means to invest in their business, they are unable to work their way out of this. Together, JDE Peet’s, Mondelēz and Unilever have already contributed more than EUR 25 million to the IDH Farmfit Fund, and the Dutch government is also a fund partner. With the investments by Rabobank and FMO added, the fund has a total capital of nearly EUR 100 million.
Driver of funding for small-scale farming
The vagaries of the weather and low, fluctuating yields make investment in agriculture in developing countries risky. Together with other businesses, IDH, the Sustainable Trade Initiative, has been organizing and investing in the improvement of farmers’ incomes for more than ten years, and has made serious impact. Roel Messie: ‘The IDH Farmfit Fund taps into this experience, as it provides the venture capital and IDH helps develop and organize the sustainable projects that are being financed.’
In the joint financing of a small-scale farming business, by the fund and a financial institution (such as bank), the fund assumes the greatest risk, for example, by covering any initial losses. This makes it less risky for the bank to invest in this sector. Additionally, there is a guarantee facility that covers up to 50% of the “second loss” risk. This guarantee facility of USD 250 million was made available to the IDH Farmfit Fund by the US Development Finance Corporation. This further reduces the risk to financial institutions of granting loans to small-scale agriculture.
Thanks to the risk-reducing qualities of the IDH Farmfit Fund, the threshold to financial institutions for granting loans in this sector has been lowered and the fund is acting as a driver for securing finance for small-scale farming in developing countries.
About Rabobank Group
Rabobank is an international financial services provider operating on the basis of cooperative principles. It offers retail banking, wholesale banking, private banking, leasing and real estate services. As a cooperative bank, Rabobank puts customers’ interests first in its services. Rabobank is committed to being a leading customer-focused cooperative bank in the Netherlands and a leading food and agri bank worldwide. Rabobank employed 43,272 per 31 December 2020. Rabobank Group is active in 38 countries. www.rabobank.com/nl.
FMO is the Dutch entrepreneurial development bank. As a leading impact investor, FMO supports sustainable private sector growth in developing countries and emerging markets by investing in ambitious projects and entrepreneurs. FMO believes that a strong private sector leads to economic and social development and has a 50-year proven track-record of empowering people to employ their skills and improve their quality of life. FMO focuses on three sectors that have high development impact: financial institutions, energy, and agribusiness, food & water. With a committed portfolio of EUR 9.7 billion spanning over 85 countries, FMO is one of the larger bilateral private sector development banks globally. For more information: please visit www.fmo.nl