Dutch development finance firm FMO and Rabobank are coming as partners in the €100 million IDH Farmfit Fund, a developing countries-focused agribusiness investment vehicle, with €10 million each.
“This fund builds a bridge between small-scale farms in Africa and our financial services,” said Marianne Schoemaker, CEO of Rabo Partnerships at Rabobank.
Pieternel Boogaard, director of agriculture, food and water at FMO, said that for many banks, direct funding of small-scale farming in developing countries is a bridge too far. “The chance of loans not being repaid is just too big. As the IDH Farmfit Fund covers initial losses, the risk aspect of financing is much smaller,” Boogaard said.
The IDH Farmfit Fund has already received commitments of more than €25 million from Dutch tea and coffee company JDE Peet’s, Mondelēz and Unilever. The Dutch government is also a partner in the fund.
With the latest investment by Rabobank and FMO, the fund has a total corpus of nearly €100 million.
The fund assumes a bigger risk by covering any initial losses in the joint financing of a small-scale farming business by the fund and a financial institution such as a bank. This makes it less risky for the bank to invest in this sector.
Additionally, there is a guarantee facility that covers up to 50% of the “second loss” risk. This guarantee facility of $250 million was made available to the IDH Farmfit Fund by the US International Development Finance Corporation. This further reduces the risk to financial institutions of granting loans to small-scale agriculture.