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03 Aug 18

Convergence partners with IDH and AfDB to design sustainable financing solution for African “missing middle” agribusinesses

Convergence partners with IDH and AfDB to design sustainable financing solution for African “missing middle” agribusinesses

The African Development Bank (AfDB), IDH Sustainable Trade Initiative (IDH), and Convergence 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 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 agribusinesses (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 agribusinesses 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 agribusinesses.
  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 agribusinesses.

Convergence, AfDB, and IDH are co-funding FAFINA’S market scoping work, and the design of the business plan and financial structure. This partnership is part of Convergence’s Design Funding program, funded by the Government of Canada, to pilot innovative blended finance vehicles that aim to catalyze private capital at scale for sustainable development.

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