Design of Food Securities Fund, an open-ended investment fund for private credit in agriculture

Design of Food Securities Fund, an open-ended investment fund for private credit in agriculture

Overview: Clarmondial was awarded a proof of concept grant in 2017 Q3. Clarmondial will structure and launch an open-ended investment fund for private credit in agriculture. The Food Securities Fund addresses a growing credit gap in the agricultural and agri-food sector, as local agricultural companies have insufficient access to credit from local banks, funds and other lenders. To close this gap, the Fund will raise capital from institutional investors to lend to responsible local agricultural aggregators (e.g. cooperatives, traders, and processors) in developing countries, primarily in the form of working capital. It will partner with agriculture corporates who have existing supply chain links to these aggregators. The Fund will offer a complementary source of financing to aggregators by entering into risk- sharing arrangements with corporates. Loans will be provided to aggregators based on the quality of their supply chain relationships with corporates instead of solely relying on collateral, which many aggregators do not have enough of. To encourage responsible practices, loans will be conditional on the implementation and monitoring of good social and environmental practices, including the promotion of climate smart agriculture, deforestation free supply chains, rural development (in particular for smallholder farmers and agro-food and rural SMEs) and increased transparency.

The Fund has received strong support to date, including from several leading agriculture corporates and asset managers. For regulatory reasons, the Fund will only accept professional (qualified) investors. A first close is expected to take place with the catalytic participation of leading private banks, family offices and foundations. Convergence’s funding will enable Clarmondial to complete the design work required to launch the Fund in Europe and North America.

Design question and learning potential for the market: How can the relationships and experience of existing market players (e.g. agriculture corporates) be leveraged to extend credit to responsible agricultural aggregators?

The Food Securities Fund will follow an innovative approach, partnering with agriculture corporates who have existing supply chain links to local aggregators. This will help overcome many challenges in the extension of credit, including: i) pipeline, which will be sourced through the agriculture corporates, ii) credit history / track record, which will be determined leveraging the relationships between the agriculture corporates and aggregators, and iii) risk sharing, where the agriculture corporate will participate in loans through first loss, thus reducing risk for the fund and ultimately investors. Should this approach be successful, it represents a replicable approach that can be applied in many contexts and regions.

    Status
    In progress
    Year and Quarter
    2017 Q3
    Design Activity
    Proof of Concept
    Region Focus
    Global
    Sector Focus
    Agriculture