ACDI/VOCA is a non-profit organization that implements official development assistance projects that aim to promote broad-based economic growth, raise living standards, and create vibrant communities in developing countries in partnership with the U.S. Government and other funding partners.
ACDI/VOCA engages in blended finance activities through AV Ventures LLC, its wholly owned impact investment subsidiary. AV Ventures provides innovative, catalytic financing in selected geographies including West Africa, East Africa, Central Asia, and Latin America directly to high growth potential Small and Medium Enterprises (SMEs) or through its relationships with financial institutions.
We spoke to Zubeiru Salifu, Senior Investment Manager of AV Ventures, about their comprehensive gender lens investing strategy, their decision to launch for-profit entities to engage in the blended finance space, and what they hear from their network on the ground about mobilizing private finance for agriculture.
Can you describe a blended finance transaction that ACDI/VOCA (or AV Ventures) has been involved in? In what capacity did it participate?
ACDI/VOCA and AV Ventures have been involved in many blended finance transactions since 2017. I’ll focus on the blended finance vehicle ACDI/VOCA incorporated in 2019, AV Ventures Ghana LLC (AVVG), a $3.8 million permanent capital blended finance vehicle, funded with $1.8 million in concessionary capital from the U.S. Department of Agriculture (USDA) and a $2 million long‐term loan from the U.S. International Development Finance Corporation (USDFC, previously OPIC). AVVG, which is managed by AV Ventures, provides financing to agribusiness SMEs and Financial Institutions in Ghana. AVVG was an integral part of the ACDI/VOCA-implemented Ghana Poultry Project (GPP) funded by USDA, creating a sustainable legacy to enable investment beyond the life of the donor funded project. GPP was instrumental in improving the competitiveness of the poultry value chain in Ghana through the facilitation of financial services to poultry value chain actors among other achievements. Through the GPP, AVVG disbursed about $ 2.85 million directly and indirectly through a partner financial institution to companies operating in the poultry value chain. This included input providers, commercial poultry producers, and technology platforms that increase the efficiency of the market for poultry feed.
What are you hoping to achieve with your catalytic capital?
With our catalytic capital, we hope to unlock innovative and patient capital to growth-oriented SMEs in developing countries to promote inclusive growth where local entrepreneurs and smallholder farmers in poor communities can be empowered to succeed. AVVG plays a catalytic role as the anchor investor in many of its portfolio SMEs, which positively impacts the livelihoods of thousands of smallholder farmers and other value chain actors, including youth and women in Ghana, by facilitating access to markets for their produce and access to financial services. We also aim to achieve systemic change in the agricultural sector – that is, improving the underlying market systems in ways that impact the entire sector. Examples of this are firms such as WARC Ghana that introduces new market channels for smallholder farmers while sustainably passing on best practices in regenerative agriculture; or Agrocenta, which provides an innovative digital technology that addresses limited access to financial services and opportunities for smallholder farmers to sell their produce reliably at market prices. Another example of systemic change is the introduction of a financial innovation like revenue-based financing (AVVG’s principal financial product) that is better suited to reach female entrepreneurs who are more likely to have stable growth prospects, but less likely to appeal to equity investors looking for outsized returns.
Does ACDI/VOCA apply a gender lens when it comes to its blended finance activities? If yes, could you shed some light on how this is accomplished (metrics tracked and indicators)?
Yes, we do. The four dimensions of our Gender Lens Investing (GLI) Strategy include: a) women in leadership where we support women ownership and participation in senior management and Boards of portfolio companies; b) women in supply chain where our funding can support women who provide production inputs, market channels and last-mile distribution of agricultural products; c) women’s access to capital where we facilitate increased access to credit and financial literacy training to women and d) workplace equity by ensuring and supporting portfolio companies to implement employment policies that are supportive of women.
In addition to equal representation of women and men on the management teams of AV Ventures, we also adopt gender mainstreaming throughout the investment process from sourcing and screening pipeline opportunities, structuring transactions to portfolio management. We prioritize GLI dimensions such as women in leadership, women in supply chains and workplace equity in sourcing, screening, and due diligence of pipeline opportunities. Our innovative and flexible financing structures such as revenue-based debt and flexible collateral requirements are especially well suited for women owned companies. We also provide managerial support which enables portfolio companies to improve and implement gender policies such as gender equitable labor policies.
As a non-profit in the blended finance space, what are some interesting or unexpected challenges ACDI/VOCA has had to navigate? What gaps/opportunities do you see in the blended finance market?
ACDI/VOCA decided to spin off new for-profit entities such as AV Ventures Ghana (blended finance vehicle) and AV Ventures (impact fund management subsidiary) with a separate team to facilitate its activities in the blended finance space. Internally within some parts of ACDI/VOCA, there was a lack of understanding of the impact investing initiative in the beginning, and some concerns that ACDI/VOCA’s involvement in the blended finance space could distract it from its core business. This has proven to be a non-issue over time due to improved internal communication and knowledge sharing. Strategically, ACDI/VOCA sees AV Ventures presence in the blended finance space as supporting its mission of achieving systems change and ensuring that business owners, smallholder farmers, and poorer communities are empowered to succeed in a more market-driven and commercially oriented way.
We see increased opportunities for many International NGOs (INGOs) such as ACDI/VOCA to participate in the impact investing and blended finance space to complement or achieve their missions. We believe they can draw on their deep in-country knowledge, networks, and trust to identify and screen high-impact investments that might otherwise be overlooked. We also see growing interest in the impact investing space by philanthropic capital providers who are providing first loss capital to lower investment risks and attract commercial investors to commit to impact funds. This provides opportunities for impact fund managers to raise long-term capital for investment in sectors such as the agriculture sector, which has tremendous potential to create sustainable jobs and increase economic opportunity for vulnerable groups.
In 2020, a third of blended finance transactions targeted the agricultural sector. When it comes to mobilizing private finance for agriculture, what perspectives do you hear from the organizations you work with (on the ground)?
There are both positive and negative perspectives held by the organizations we work with regarding mobilizing private finance for agriculture.
On the positive side, there is a broad consensus that the agricultural sector offers a significant potential for the creation of sustainable jobs and economic opportunities for smallholder farmers, women, and youth especially in sub-Saharan Africa (SSA). However, this is only possible if market actors can collaborate to address some of the systemic challenges inherent in the sector such as limited access to the appropriate financial products and services for value chain actors, the inability to leverage Ag-Tech and FinTech solutions to improve access to markets and inclusive financial services, and limited technical know-how and capacity development opportunities.
I also believe that working together we can de-risk the sector and unlock additional financing from commercial investors in a sustainable way, thanks to the growing availability of incentives to the sector coupled with risk mitigation tools. These can include agricultural insurance, third party loan guarantees, and first loss capital provided by philanthropic, institutional, and other private sector investors in the capital stack of high-impact Agri-focused funds.
On the negative side, most commercial investors in Agri-focused funds still consider financing agricultural SMEs as risky because of the exposure of these SMEs to adverse conditions such as drought, pests, and climate change which pose significant credit and other types of risks to investors. Some investors also still doubt if the sector can deliver attractive returns to investors seeking commercial above-market rates, given that it is still largely dominated by smallholder farmers operating at subsistence level. It is up to all of us in the blended finance space to demonstrate that there are opportunities if we know where to look and to build more bridges to investibility where needed.
How do you see ACDI/VOCA’s blended finance activities evolving in the future?
ACDI/VOCA’s blended finance activities are going to increase in the future with the launch of AV Ventures’ Investing in West Africa (IWA) Fund. The IWA Fund is a high impact agribusiness SME fund in West Africa that will build upon the experience of AV Ventures $3.8 Million pilot fund in Ghana.
The IWA Fund will use a blended structure with funding from philanthropic/catalytic investors used as first loss to catalyze impact-driven private sector funders, commercial investors, and/or Development Financial Institutions.
AV Ventures will continue to provide innovative financing and technical assistance to growth stage SMEs in the agricultural, AgTech and agricultural finance space, with plans to expand to countries such as Cote D’ Ivoire and Sierra Leone through its existing relationships with partners in these countries. AV Ventures is also very busy in other regions. We recently partnered at the General Partner level with Pomona Impact LLC, a pioneering impact fund manager focused on the Central American region, which is already investing in high-growth SMEs throughout Central America as well as Mexico and Colombia. In Central Asia, AV Ventures is managing a $5 million permanent capital impact fund called the Central Asian Impact Fund (CAIF), with anchor capital from an investor based in Kazakhstan. Launched in 2019 just before the pandemic, CAIF has successfully placed five investments in SMEs and microfinance institutions. And in Kenya, we manage a financial inclusion wholesale fund funded by USAID/Kenya, focused on demonstrating the viability of commercially viable wholesale lending in the arid and semi-arid northern counties. The $14 million fund is proving to be a critical provider of liquidity to high-performing but liquidity-constrained Micro Finance Institutions (MFIs), banks and pay-as-you-go renewable energy service providers.
ACDI/VOCA will also continue to provide an additional source of pipeline opportunities to blended finance funds including AVVG through its existing projects and partners on the ground, as well as technical expertise to support due diligence and other post investment management activities by fund managers.