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Assets will be made available to FPOs via a NewCo (PLC) which needs a sustainable business model as pure grants are a no-go from a regulatory perspective and amount of capital available is limited. Initial thoughts on proposed model.

Objectives

  • 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)

  • Repayment terms are flexible and financing serves as training wheels to unlock further subsidies and commercial capital

Funds Flow

  • 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)

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