Pioneers Post
social investment

Impact investors unite to create $25m fund for African agriculture

29 September 2011

The unique collaboration between diverse investors will result in increased capital to the sustainable African agricultural sector and a more rigorous focus on generating social and environmental benefits.

Luther Ragin, Jr., CEO of the Global Impact Investing Network 

A bunch of the world’s leading impact investors have joined forces with the U.S. Agency for International Development (USAID) to invest $25m in a new growth fund to support African agriculture.

The African Agricultural Capital Fund (AACF) brings together  J.P. Morgan’s dedicated Social Finance Unit wit the, Gates, Gatsby and Rockefeller foundations.

As East Africa struggles with skyrocketing food prices and the region’s worst drought in 60 years, the fund will deliver much needed growth capital to boost the productivity and profitability of Africa’s undercapitalized agriculture sector.

Over the next five years, Pearl Capital Partners (PCP), a specialised African agricultural investment fund manager based in Kampala, Uganda, will invest the AACF’s $25 million in at least 20 agriculture-related businesses in East Africa.

The initiative aims to infuse equity and expertise into a sector that has suffered from under-investment, and pave the way for raising the productivity and incomes of at least a quarter of a million households.

PCP’s model focuses on building the skills of local management teams rather than infusing management expertise from abroad, making it a sustainable approach to investing on the continent.

Under the new fund’s impact investment philosophy, PCP will aim to have both a strong financial return and significant social impact. Successful agribusiness development creates positive financial returns for the fund’s investors. At the same time, agribusinesses are vital sources of employment, secure markets and improved products for millions of smallholder farmers across East Africa. New investments will need to demonstrate that they benefit large numbers of farmers and have an environmentally benign footprint.

AACF is being capitalised by a unique consortium of impact investors in conjunction with USAID. In order to attract investors to East Africa’s fledgling but increasingly profitable agribusinesses, USAID’s Development Credit Authority is guaranteeing 50% of an $8 million commercial loan from J.P. Morgan’s Social Finance Unit to AACF.

The fund is also supported by $17 million in equity investment from the Bill & Melinda Gates Foundation, the Gatsby Charitable Foundation, and the Rockefeller Foundation. The fund will also have access to $1.5 million in USAID-funded business development services, primarily funded under President Obama’s flagship Feed the Future initiative, to improve investee companies’ operations, competitiveness, and access to markets.

The co-investors in this fund are all members of the Global Impact Investing Network (GIIN) Investors’ Council, through which they collaborated to identify complementary social, environmental, and financial goals for this project.

J.P. Morgan, the Rockefeller Foundation and USAID are anchor funders of the GIIN, which is a nonprofit organisation dedicated to increasing the scale and effectiveness of impact investments.

Julie Sunderland, Director of Program Related Investments for the Bill & Melinda Gates Foundation, said: ‘The African Agricultural Capital Fund will catalyze the growth of small and medium agribusinesses in East Africa.

‘These businesses work with smallholder farmers across the agricultural value-chain and are important for the sustainable development of the sector. We are optimistic that the success of AACF and the individual businesses within its portfolio will encourage additional capital investment in enterprises employing, purchasing from and providing inputs and services to smallholders.’

Lord David Sainsbury, settlor of the Gatsby Foundation, said: ‘The success of our original investment in PCP since 2005 demonstrated the viability of achieving both commercial returns and strong developmental impact in agriculture, by targeting companies that play strategic roles in markets. We are delighted that this has now attracted a wide range of public, private and foundation investors to scale up the concept and strengthen agriculture in the region.’

Luther Ragin, Jr., CEO of the Global Impact Investing Network, said the ‘unique collaboration between diverse investors’ would result in increased capital to the sustainable African agricultural sector and also ‘a more rigorous focus on generating social and environmental benefits’.

USAID administrator Rajiv Shah commented: ‘Investors increasingly see the promise of Africa’s agriculture sector, but the transaction risks are often perceived to be too high. That’s why we’re leveraging our development dollars and using innovative tools like the Development Credit Authority to lower the investment hurdles for private partners that want to invest with us.’

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