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Quickly make capital available to farmer orgs (eg, FPOs) to they can invest in collective assets which increase income and deliver co-benefits (esp gender empowerment and climate resilience)
Aggregate patient capital which is willing to accept a low risk adjusted rate of financial return in exchange for high impact (eg, SDG achievement, greater climate resilience)
We cannot provide grants for farmer orgs to purchase assets directly bc of FCRA issues
Also, providing recovery of capital (and perhaps some nominal financial return) opens up the universe of available capital
Repayment terms are flexible and financing serves as training wheels to unlock further subsidies and commercial capital
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FPO wants to make a 15 lakh investment and has 2 lakh available with members
75% subsidy available via govt programs but timeline to access is unknown
NewCo provides 13 lakh up-front, directly pays the vendors, the asset sits on its books and enters into a lease + transfer agreement with farmer org
FPO needs to repay [1.2]x the value of the loan to NewCo at which point the asset transfers to them
What if the FPO wants to continue renting and not take ownership of the asset? Do we want to offer that?
Nominal amount of fixed annual payments which count towards the loan repayment ([2]% of loan value?)
Asset repayment loan is “mezzanine debt” that sits below (existing and new) senior debt but above any distributions to FPO members
Sits below senior debt as we don’t want to impinge their ability to access commercial capital)
Need to understand cash flow profile of FPO to figure out expected timeline for repayment which determines NewCo’s IRR
Govt subsidy funds, once received, could be used to repay a bulk of the loan
NewCo investors could be organized in a blended finance model where more commercial investors get repaid first and philanthropic investors capital is subordinated at thus more at-risk
Setting up this repayment waterfall on a per-deal basis could be a pain given small check size so might make sense to syndicate a portfolio of investments over-time which could be organized by theme (eg, water, soil health, gender empowerment, income/livelihood)
Open Questions
What are the regulatory implications of this approach?
Would we consider giving access to the asset to a local service provider rather than an FPO? My sense is no if we are focused on strengthening the farmer groups
What if funding goes to individual members of a farmer org and they can choose how to invest (eg GiveDirectly model)? Not sure that fits with the approach outlined above but flagging as an alternative formulation
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