In 2018, SAFIN partners agreed to focus this workstream on building evidence around the rationale for the use of blended finance and good practices in that connection with a view to mobilizing private capital for actors that deliver finance to agri-SMEs (including financial and value chain actors). A collaborative effort with OECD to take a joint “deep dive” into blended finance in agriculture was kicked off with a session at the OECD Private Finance for Sustainable Development Week in Paris in January 2019. The session was chaired by the SAFIN Senior Coordinator. The main deliverables produced during the year in this workstream include the following:
Landscape report on blended finance and agriculture
The SAFIN secretariat commissioned a study to frame the SAFIN-OECD deep dive, conducted by Tanja Havemann, Director of Clarmondial. The report covered trends in agricultural and development finance, types of risks that may require recourse to blended finance in the sector, data sources and challenges, and a taxonomy of blended approaches and instruments in agriculture. It outlined a range of risks that often arise in agricultural investment projects and value chains which may justify recourse to blended finance in specific circumstances. It also noted that decision-makers often have to deal with a limited knowledge base for informing their decisions about when and how to blend finance and identified the main sources of data currently available to inform such decisions.
Call for case studies on the use of blending in agricultural and rural finance
In May 2019 SAFIN and OECD issued a call for proposals for case studies on the use of blended finance in agriculture and in rural finance. This yielded around 20 proposals covering traditional and innovative tools and approaches used by a range of actors in Latin America, Asia and the Pacific, and Africa. Around half of the proposals were selected for further development in the course of the summer. SAFIN partners contributed the bulk of these case studies, which demonstrated that blended finance is an established reality for many institutions involved in the network as sponsors, funders, technical service providers or implementers. Nine case studies were eventually finalized for publication. These studies cover examples of blending for the purpose of addressing business model risks facing specific financial institutions (notably banks), blending solutions designed to simultaneously redesign incentives and redistribute risks in the agri-finance ecosystem, and blending aimed at fostering market diversification.
Regional workshops in Africa and Asia and the Pacific
Two regional workshops were organized in Nairobi, Kenya, and in Bangkok, Thailand, on 1 and 2 October and on 14 and 15 October, respectively, to validate the findings of the landscape report and to promote in-depth discussions on good practices and lessons emerging from the case studies. Co-organized with OECD and with the secretariats of the African Rural and Agricultural Credit Association (AFRACA) and the Asia-Pacific Rural and Agricultural Credit Association (APRACA), the workshops were designed to provide participants with an opportunity to listen to the views of financial institutions operating at the country or regional level whose voices are not widely heard in international debates on blended finance. These workshops brought together representatives of AFRACA and APRACA member institutions, including agricultural and rural banks, microfinance institutions, a number of investment funds and central banks.
The SAFIN Investment Prospectus Framework provides an adaptable blueprint for a collaborative process to shed light on transformative investment opportunities in selected value chains, areas where the financial sector is unable or unwilling to provide solutions to unlock investment, and financial solutions that can be designed or implemented by SAFIN partners. Four country pilots had been initiated in 2018 (for the Dominican Republic, Jamaica, Nigeria and Uganda) which required additional substantive analytical and consultative work in 2019. A new pilot was also launched during the year in India based on a scoping exercise, and another such exercise was initiated for Colombia.
The introduction of scoping exercises was the outcome of a reassessment of the IP process to date by SAFIN partners which culminated in a workshop in Delhi on 10 November. This step was taken in response, in particular, to a widely felt need to enhance local ownership of the IP process by ensuring that the focus of each pilot is chosen in line with government development priorities and with a full awareness of the economic, policy and institutional context. It also came in response to the difficulties encountered in achieving sufficient granularity in the identification of concrete investment opportunities and of the financial interventions needed to make them more attractive to the requisite range of investors. The new IP approach includes an initial scoping exercise and a later “deeper dive” or IP process. As another effort to further local ownership and foster a focus on concrete opportunities, a dialogue was initiated with the International Center for Tropical Agriculture (CIAT) and the International Trade Centre (ITC) around how to create synergies between the IP process and the CIAT climate-smart investment need assessments and the ITC Alliances for Action.
Progress by country
Jamaica: The 2018 IP for the coconut value chain in Jamaica was completed in the same year and highlighted opportunities in seedling business development and the processing of coconut water for local consumption and export. Led by ITC, this IP process benefited from sector-wide dialogue and investment planning developed through the Alliances for Coconut Industry Development for the Caribbean (CIDC) project, which was designed using the Alliances for Action (A4A) model. The prospectus contributed to the project by identifying knowledge gaps and targeting training aimed at increasing the flow of finance to the sector (e.g. financial literacy training for farmers). It also informed stakeholders about investment challenges and opportunities along the value chain, thereby influencing policy decisions and helping to secure US$22 million in planned investments in Jamaica in the processing of value added products and nursery development.
Dominican Republic: A draft prospectus for coconuts and associated crops in the Dominican Republic was validated during a consultative meeting held in April 2019 with coconut producers and processors and representatives of financial institutions, governmental entities and SAFIN partners. The draft outlines three main opportunities for investment: smallholder intercropping, medium-scale intercropping and intensive coconut farming. It describes the following potential approaches for supporting the provision of credit and investment in the sector: a financing scheme for enhancing the value chain, a “patient” investment fund and a financing model using self-managed funds supported by fiduciary committees. A small group of stakeholders led by Fundación Capital – a SAFIN partner and the author of the prospectus – then set out to work on a proposal for the design and implementation of a financial solution based on the opportunities highlighted in the IP. Other stakeholders involved include JAD, the Ministry of Agriculture and Fisheries, and ITC, with the latter institution’s participation again taking the form of an Alliances for Action project.
Uganda: Investment prospectuses for two value chains were validated in the first quarter of 2019 through consultations in Kampala with local SAFIN partners, the Ministry of Agriculture, Animal Industry and Fisheries of Uganda, and oilseed and coffee producers. In the oilseeds value chain, the main investment opportunities were found to lie in soybean bulking for local markets, soybean farming, medium-scale sunflower processing, small-scale sunflower processing and smallholder sunflower farming. In the coffee value chain, opportunities were found in dry processing, coffee farming and export grading. IP findings were positively received by key sector stakeholders, but no consensus was reached regarding which specific opportunities to pursue or what related financial interventions to undertake. Given the high level of interest generated among industry stakeholders by the IP process, however, UAA intends to apply that process to six other livestock-related value chains. Moreover, the IP for oilseeds informed the design of the IFAD-supported National Oilseed Project in the second half of 2019.
Nigeria: This IP was validated in Abuja in October at a consultative meeting hosted by SAFIN country anchor AFEX Commodities Exchange Ltd. The focus is on states where the cultivation of these three crops is prevalent: soybeans in Benue State, maize in Kaduna State and cassava in Kogi State. The opportunities for transformative investments identified in the course of this process include soya cake and crude soya oil processing, packaged garri processing and expansion of the Agro-Service Provider (ASP) infrastructure. A key outcome of the consultation was a consensus that the latter should be the focus of follow-up action and an agreement as to the next steps to be taken, which include conducting a feasibility study and designing a financial solution to ensure private sector involvement in strengthening the ASP system in order to maximize sustainability and market impact.
India: In the last quarter of 2019, a scoping analysis was conducted of five agri-SME-dense value chains: oilseeds, nutri-cereals, pulses, spices and non-timber forest produce. This study was reviewed at a consultation meeting in Delhi hosted by ACCESS Development Services, SAFIN’s anchor for the pilot. Private, public and development actors at the meeting validated the analysis and made recommendations concerning the focus of subsequent IP development efforts. A proposal was made to move forward with an IP process focusing on millets in the States of Rajasthan and Madhya Pradesh, given their importance as indigenous, highly nutritious, climate-resilient crops endowed with strong market potential. Ongoing preparations by the Government of India for the International Year of Millets in 2023 were also a factor in selecting this focus for the IP to be prepared in 2020.
Colombia: A scoping exercise covering investment opportunities in the cocoa, coffee and dairy value chains was launched late in the year. The analysis identified several opportunities in each value chain, including increasing productivity at the production level, product differentiation, deepening local markets (notably for dairy products and coffee) and investing in climate resilience (notably for coffee). An in-country consultative meeting is planned for the first quarter of 2020.
Since its establishment, SAFIN has sought to raise awareness about the need to bridge the financing gap and enhance the investment capacity of agri-SMEs. In 2019, the SAFIN secretariat and a number of the partners convened or participated in several international and regional forums dealing with policy-related issues with this agenda in mind. These include the following:
Sustainable Development Goals (SDG) Investment Fair and Financing for Development (FfD) Forum
The FfD Forum is the pre-eminent international forum for discussions on investments conducive to the realization of the 2030 Agenda. To date, however, agricultural finance and agricultural or agri-food investments have received limited attention in this forum. As in 2018, in 2019 SAFIN partners sought to address this gap by playing a leading role in the organization of side events showcasing not just needs, but also opportunities for financing transformative investments in this domain.
In partnership with the International Coffee Organization (ICO), the SAFIN secretariat, with the participation of ITC as a SAFIN partner, co-hosted two events on challenges, risks and possible solutions for closing financing gaps in the coffee sector at a time of low international prices and mounting environmental and climate-related challenges. The first session, held at the SDG Investment Fair, targeted an audience of private investors, while the second targeted the policy and development finance communities gathered at the FfD forum.
Forum on financing for agricultural development in Latin America and the Caribbean
In May the SAFIN secretariat was invited to join the International Food Policy Research Institute (IFPRI) and the Inter-American Institute for Cooperation on Agriculture (IICA) in co-hosting a forum in San José, Costa Rica, on policy, institutional and market challenges in agri-finance in Latin America and the Caribbean. The discussion revolved around the question whether current agricultural and rural finance systems in the region can support the transformative investments required to fulfil the 2030 Agenda, including shifting to a “greener”, more nutrition-sensitive and inclusive type of agriculture.
The event was framed by a paper prepared by IFPRI and IICA that offered a historical overview of agri-finance systems in the region, including first- and second-tier agricultural banks. A forward-looking knowledge and action agenda was drafted on the basis of the paper and the discussions that focuses on the evolving mandates of these particular institutions and emerging business models in fintech and in value chain finance in the region.
As is their regular practice, SAFIN partners offered peer support for the design of two new initiatives: a new impact investment fund led by the International Co-operative Alliance, and a new technical assistance facility or value creation hub led by AgDevCo. This support primarily took the form of brainstorming sessions and webinars in the run-up to the November plenary meeting. In addition, during the first half of the year, the secretariat continued to scope the elements of a potential SAFIN “match-making” platform to facilitate productive collaboration between finance providers and seekers from within the Network and beyond. It also led a dialogue among several existing platforms around what institutional, language-related or technological innovations could facilitate greater inter-platform connectivity.
During the second half of the year, the secretariat commissioned a study from Maarten Susan of Moving Frontiers on possible solutions for the problem posed by the lack of transparency in the funding landscape from the perspective of agri-SMEs. The study proposed the development of a “funding discovery” platform that would allow agri-SMEs to learn about a broad spectrum of financial providers, their products and services.
Lessons learned and the way forward
2019 was a year of transition and of learning for SAFIN. Some of the main lessons learned across the workstreams and other SAFIN activities include the following:
1. Realizing the full scope of opportunities around the IP process. The realization that the IP process holds much greater potential and is much more complex than originally thought has led to a change in approach both in the analytical part of the process and in the approach taken to partnerships. Partners have expressed the conviction that there is a great deal of scope for refining the IP tool and turning it into a nimble but powerful broker of productive conversations and inclusive business-oriented collaboration between the agricultural and finance communities. The next generation of IP pilots to be nurtured in 2020 is likely to be focused less on aligning the portfolios of SAFIN partners and more on fostering transformative locally owned and led processes.
2. Empowering all partners as co-owners of the network through a new knowledge management approach. SAFIN can only thrive and make a positive difference if it adds value to what its partners do, both on a transactional basis and by amplifying the impact of their work to build a better ecosystem for agri-SME finance. In this regard, 2019 has yielded important lessons concerning what sort of knowledge management and communication instruments and architecture the network requires in order for it to be broadly owned and broadly sustained by its partners.
3. Developing strategic partnerships to leverage SAFIN’s niche in blended finance. SAFIN has found a niche in the debate on blended finance since 2018 thanks to its focus on, and capacity to engage with, national financial institutions (including through regional agricultural credit associations) in order to give voice to their perspectives in global debates and to respond to their needs for knowledge and capacity-building. As the regional learning events in Asia and Africa have demonstrated, these needs are context-specific and have to do with local institutional histories, market circumstances and investment risks. SAFIN’s niche position is also a reflection of the fact that its diverse range of partners mirrors the diversity of the types of collaborative efforts that need to be in place in order for blending to contribute to the development of more inclusive and sustainable agricultural markets. Both of these features of the “SAFIN niche” call for a greater focus on strategic partnerships in the coming months, whether in activities designed to build local capacity or in piloting uses of blending that are driven by market-building, rather than deal-making, considerations.
4. Addressing data opacity in the funders’ landscape from the agri-SME perspective. Finally, as many data initiatives emerge across the landscape, SAFIN has identified the lack of transparency regarding funding opportunities from an agri-SME perspective as a largely neglected area in which a great deal of work needs to be done. Going into 2020, the challenge will be to consider what role SAFIN could play – given its limited capabilities and the constraints on the scope for data-sharing within the Network itself – in closing this gap and who the most strategic partners for this effort may be.