Design of the Facility For Agriculture Finance in Africa (FAFINA) for agribusiness SMEs

Design of the Facility For Agriculture Finance in Africa (FAFINA) for agribusiness SMEs

Overview: Convergence, African Development Bank (AfDB), and IDH Sustainable Trade Initiative (IDH) are partnering to support the design and establishment of the Facility For Agriculture Finance in Africa (FAFINA). FAFINA aims to be a pan-African vehicle that will provide critical financing to “missing middle” small and medium sized agribusinesses (agribusiness SMEs) in Sub-Saharan Africa.

FAFINA is part of AfDB’s Feed Africa Strategy and will be the Bank’s first initiative to provide both direct and indirect financing to agribusiness SMEs (USD 1M+), and be additional to its traditional business model of focusing on large-scale investments (USD 30M+).

Many African nations are dependent on the agriculture sector for income, food security and job opportunities, yet the industry lacks considerable financial investment. Currently, across most African countries, the agriculture sector comprises 25-40% of a nation’s GDP. The African urban food market is expected to rise to a total of USD 1T by 2030, illustrating its impressive growth potential. Access to finance is available for most large agribusinesses through commercial banks, private equity, and DFIs, while microenterprises have access to microfinance. However, there is a financing gap for a large span of agribusiness SMEs who struggle to access appropriate financial products. FAFINA aims to address this gap by targeting the “missing middle” agribusinesses.

FAFINA intends to reach this underserved segment through three components:

  1. An investment platform that will crowd in private investments to provide direct and indirect debt and local currency financing to agribusiness SMEs.

  2. A syndication platform that will be leveraged to attract local commercial banks to co-finance transactions on a project level.

  3. A Technical Assistance Program designed to support the development and bankability of agribusiness SMEs.

Convergence, AfDB, and IDH are co-funding FAFINA’S market scoping work, and the design of the business plan and financial structure.

Design question and learning potential for the market: How will FAFINA leverage local financial markets to create a sustainable financing solution for agribusinesses?

FAFINA will be the first initiative from AfDB to provide direct debt financing to agribusinesses (USD 1M+), additional to its traditional business model of focusing on large scale investments (USD 30M+). FAFINA aims to be the region’s first large-scale initiative to promote local financial markets through i) local currency financing, as the preferred mode of financing for agribusinesses, and ii) the establishment of a syndication platform to attract local commercial banks to co-finance transactions, thereby creating a sustainable financing solution for the agricultural sector. Further, FAFINA will create knowledge products such as due diligence, structuring, and pricing models to increase the capacity of local commercial banks to lend to the agribusiness segment.