In a continuation of its efforts to help small-scale farmers and micro, small, and medium-sized rural enterprises in developing countries create jobs and increase incomes, the International Fund for Agricultural Development (IFAD) on Thursday announced an investment of US$9 million into the Agri-Business Capital (ABC) Fund, a blended capital impact fund.
The investment was made possible thanks to a contribution from the Swiss Agency for Development and Cooperation. It is the first time that IFAD, a specialised United Nations agency and international financial institution, is investing directly into a private sector entity, said a press release.
Under its private sector engagement strategy adopted in September 2019, IFAD can now directly fund private sector entities and invest in funds targeting rural small and medium-sized enterprises (SMEs) and small-scale producers’ cooperatives. This enables IFAD to fund a wider range of projects increasing poor rural peoples’ productive capacities, improving their benefits from market participation and promoting the use of climate-smart practices, the statement added.
IFAD’s strategy also aims to attract more private sector funding to the small-scale agriculture sector.
“The private sector’s involvement in the eradication of hunger and poverty was crucial before the COVID-19 crisis. Now it has become even more important as we work to reduce some of the immediate impacts of the crisis and plan for a longer-term recovery when it is over,” said Gilbert F Houngbo, President of IFAD.
“More than ever, we need to join forces with the private sector to help small-scale producers and rural SMEs preserve and create jobs for those who are more likely to be left behind,” he said.
According to the IFAD statement, small-scale producers and rural SMEs have always faced real difficulties in accessing the funding they need to grow their businesses. With COVID-19, their situation could become even more precarious without necessary support.
Prior to the COVID-19 crisis, the demand of $240 billion far exceeded the available supply of about $70 billion, leaving a funding gap of roughly $170 billion. About 70 per cent of the demand of approximately 270 million small producers in Latin America, sub-Saharan Africa, and South and South-East Asia was unmet.
“Small-scale farmers and rural SMEs are the backbone of the economy of their countries. They have a very high potential for growth and can create jobs – especially for the youth - and drive development in their communities and countries, but they need resources to invest,” added Houngbo.
The ABC Fund catalyses blended capital and invests in underserved segments of agribusiness value chains focusing on farmer organisations, financial intermediaries and agribusiness SMEs. It particularly targets commercially viable ventures that can help create employment, in particular for youth and women, and improve rural livelihoods. The fund also prioritises climate-smart projects that promote sustainable production.
Originally sponsored by IFAD in 2019, the ABC Fund, now an independent private investment fund, is structured to blend public with private capital. It also provides technical assistance to investees through a dedicated facility.
IFAD’s investment in the ABC Fund is part of a wider plan to scale up its engagement with the private sector and design innovative instruments to help increase investments in rural areas and help the private sector overcome the challenges of investing in small-scale agriculture, recognising that rural SMEs constitute an untapped business opportunity.
