This document prepared by the Global Innovation Lab for Climate Finance (which is part of the Climate Policy Initiative) describes a plan with 1AF for a combo fund + venture studio managed by 1AF. This was prepared Sep 2021 at which point the status was working w legal counsel on fund business + governance model and fundraising had begun
The Lab has a chapter in India as well: The Indian Ministry of New and Renewable Energy has endorsed the India chapter and is a key stakeholder. The Lab in India has been hosted and funded by Shakti Sustainable Energy Foundation, with additional funding from the Swedish Development Corporation, David and Lucille Packard Foundation, the UK Department for International Development (DFID) and the Oak Foundation. Climate Policy Initiative’s team in India serves as the Lab Secretariat and provides analytical support.
Initially launching with a focus on the Rwanda avocado value chain. For reference, 1AF “serves over 750,000 smallholders in Rwanda with extension, inputs, financing and market access” and has “over 2,000 staff in Rwanda spread across offices, warehouses, processing facilities, tree nurseries, and the field.”
Targeted SMEs include input suppliers, processing companies, supermarkets, and exporters. The SRF will target SMEs that require between USD 0.25-2 million, offering a combination of equity, working capital, mezzanine debt, and senior debt.
New investment-ready businesses will be launched from an agri-SME venture studio to fill value chain gaps, such as marketing smallholder produce to international buyers that demand sustainably and ethically sourced products.
To ensure farmers remain the ultimate beneficiaries, the fund will only invest in SMEs that can obtain premium pricing for crops and pay fair prices to farmers.
Of the assumed $4.2 million in grant funding for the pilot phase, $1.3 million of start-up costs are incurred to establish and staff both the SRF and venture studio. Net proceeds of $2.9 million are then deployed to fund two avocado processor SMEs as part of the SRF ($1.4 million) and launch two aggregation and cold storage businesses within the venture studio ($1.5 million). Following the two-year pilot phase, the model assumes that the SRF expands into one additional market per year, investing between $0.6 million and $1.4 million in 1-2 investment-ready SMEs per active market, per year. Further, the SRF is assumed to invest in 50% of all SMEs launched from the venture studio.
Structure
Expected returns
Further Research: “To better understand the current landscape of financing solutions available to agri-SMEs in Africa and identify the unique aspects of the SRF, the Lab Secretariat gathered information from several comparable existing instruments. The Secretariat conducted detailed review of IDH FarmFit, Root Capital, AgDevCo, TerraFund, GAFSP, FAFINA, ABC Fund, SME Impact Fund, and FinGAP.”