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)