IFAD's new investment drive targets rural businesses, farmers

16Jul 2021
By Guardian Reporter
Dar es Salaam
The Guardian
IFAD's new investment drive targets rural businesses, farmers

RURAL businesses, which are vital for transforming food systems, will get a much needed boost from an ambitious new financing programme launched on Wednesday by the International Fund for Agricultural Development (IFAD), a UN agency.

The funding is part of IFAD’s broader efforts to address rising hunger and poverty levels in the world’s poorest countries.

The Private Sector Financing Programme (PSFP) is meant to spearhead an increase in much-needed private investment in small and medium-sized enterprises (SMEs), farmers’ organizations and financial intermediaries servicing small-scale farmers, which are too often neglected by investors.

It will provide loans, risk management instruments (such as guarantees), and equity investments.

IFAD President Gilbert Houngbo said the agency can help countries end poverty and hunger. “But to achieve this, we urgently need to stimulate more private sector investments in rural areas and unlock the immense entrepreneurial potential of millions of rural SMEs and small producers. With access to capital, they can attract more investors and partners, grow their businesses and create employment opportunities - especially for young people and women.”

With the growing hunger and poverty and the urgent need to make food systems more sustainable and equitable, ‘business as usual’ should not be an option, he stated.

“We need to innovate now. This is why IFAD is creating new instruments to catalyse increased private sector investments to rural areas where they are needed most.”

As part of its launch, the PFSP announced its first loan of US$5 million to a Nigerian social impact enterprise, BabbanGona, which has a strong background in successfully moving small-scale farmers from subsistence to a more market-orientated model.

The loan will help BabbanGona support 377,000 small-scale rice and maize producers in Nigeria with a comprehensive package of training, quality inputs and marketing services. BabbanGona will also store and sell the harvest on behalf of its farmers when prices are higher.

They aim to create up to 65,000 jobs for women and 66,500 jobs for youth by 2025.

By committing these funds, the PSFP aims to stimulate larger contributions from other investors and help BabbanGona meet its target to raise $150 million to reach millions of small producers.

Lack of financing and access to financial services prevents rural SMEs and small-scale farmers from harnessing opportunities offered by a growing demand for more diverse and nutritious food globally.

SMEs involved in food processing, packaging, transport and marketing are essential to small-scale farmers, providing them with services, inputs, and market opportunities, which contribute to increasing their income and employment.

Even before the COVID-19 pandemic, financial service providers only met about 30 percent of the $240 billion that rural households required in their demands for finance. In addition, the lending gap to agricultural SMEs was around $100 billion annually in Sub-Saharan Africa alone.

IFAD aims to mobilise $200 million for the PSFP from public, private and philanthropic sources to leverage a total of $1 billion in private investments. This will improve the lives of up to five million small-scale farmers. The PSFP will focus its investments on job creation, women's empowerment, building farmers' resilience and accelerating climate change mitigation.

IFAD's investments, combined with its 40 years of experience working with rural communities, global field presence and large portfolio in agriculture, give it an advantage in attracting private investors who may be cautious about investing in agriculture and rural economies.

The PSFP is part of IFAD's wider ambition to increase its engagement with the private sector to reach millions more rural people and double its impact on eradicating hunger and poverty by 2030. To this end, in 2019 IFAD amended its founding agreement to enable it to invest directly in private sector entities. Previously, IFAD only channelled investments to rural areas through grants and sovereign loans to governments. IFAD's loan to BabbanGona is its first loan to a private sector entity.

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