Rural Finance and Investment Learning Centre

This resource appears in: Business Support, Business Support Services: General, Agribusiness and enterprise support, Business planning, Equity investments in agribusiness

Despite significant progress in the rural agricultural finance sector, financial service providers are still unable to meet the full USD 240 billion demand of rural households for agricultural and non-agricultural finance. The latest data suggests that providers are currently supplying approximately USD 70 billion. This leaves around USD 170 billion —or 70%—of the global demand for smallholder finance unmet. This gap cuts across all geographic regions and financing types, but is particularly concentrated in long-term agricultural finance, for which 98% of global demand remains unmet. As with the direct-to-smallholder finance market, there is a large gap when it comes to lending to agricultural SMEs. There is no comprehensive global sizing of the demand and supply for lending to agricultural SMEs, but recent analyses have painted a stronger picture of how the market functions and illustrate why—despite agricultural SMEs playing a vital role in economic development—financial service providers limit their lending to these clients.

In recent years, new financing products have begun to penetrate rural markets. These include the rise of lending “innovators”—fintechs and mobile network operators that deliver credit directly to rural households through digital channels, holding the associated credit risk on their own balance sheet. While these innovators have great potential to address customer pain points and reach unserved customer segments, they currently represent a small portion of the lending market. At the same time, there’s been an emergence of new models of agricultural insurance, digital payments, and savings accounts. With greater breadth, depth and innovation in rural financial services than ever before there are new opportunities emerging to close the persistent rural finance gap.

This resource appears in: Equity investments in agribusiness

Equity as a funding instrument is particularly important for the responsible development of financial markets. Through purchasing shares in financial services providers (FSPs) and other types of institutions, development finance institutions (DFIs) and social investors have three distinct opportunities to shape market players and in turn influence how markets develop by potentially driving competition, promoting innovation, improving market efficiencies, creating demonstration to crowd-in others and ultimately better serve customers.

This resource appears in: Equity investments in agribusiness

This report has been written for emerging market private equity fund managers. It highlights trends in private equity investment in emerging markets agribusiness and promotes adopting environmental and social management systems to generate sustainable financial returns. While the report points out the environmental and social risks in primary production, it considers how such risks may reverberate through the value chain. These risks and opportunities are not exclusive to a particular commodity but relevant to all agro- commodities, including livestock, aquaculture and timber, the last of which is the focus of a case study in this report.

This resource appears in: Equity investments in agribusiness

• Le guide présente un panorama de l’investissement dans les PME en Afrique.
• Il introduit la démarche de l’investissement en capital dans les petites entreprises sur la base de témoignages d’investisseurs et d’entrepreneurs.
• Il propose une feuille de route pour le lancement d’un véhicule d’investissement en Afrique ciblant les petites entreprises.

Le guide « Investir dans les PME en Afrique » est destiné aux professionnels souhaitant démarrer une activité d’investissement en Afrique, aux entrepreneurs Africains et plus généralement au secteur de l’investissement dans les PME dans le monde en développement.

Lien vers la publication  -  French (fr)

This resource appears in: Equity investments in agribusiness

There are entrenched myths about agricultural equity investing which need to be addressed. Four spring to mind, which we will consider in turn:

1. Soft commodity prices must rise to deliver positive returns from agricultural equities;

2. Agricultural equity returns are too volatile;

3. The agricultural universe is too small; and

4. Food prices have been inflated by investing in agricultural equities and biofuels production.

Presentation  -  English (en)

This resource appears in: Equity investments in agribusiness

Private equity (PE) and venture capital are forms of investment that bring together specialised fund managers and investors to provide equity investments into private (i.e. non-publicly listed) companies. Compared to other emerging markets, the PE industry in Africa is still at an early stage of development but several circumstances suggest that its growth is proceeding at a sustained pace.

The agribusiness sector in Africa has become an increasingly important destination for investments, and investment in this sector is projected to grow further in future. PE may represent an additional, important source of capital for agriculture. However, due to lack of publicly available data, very little is known about PE deals concluded in Africa, where they stand within the panorama of agribusiness investments and the impact they have on local economies.

This study seeks to shed some light on the volume and the characteristics of PE investments in agribusiness in Africa, with the objective of assessing whether, and how, these could contribute to developing the sector.

This resource appears in: Equity investments in agribusiness

The overall objective of this report is to identify potential interventions to enhance the capacity of newly created private equity funds in agriculture and/or agribusiness in Africa, especially the stimulation of technical assistance to agricultural value chains.

Through the application of specifically designed criteria, a total of ten funds out of a potential 110 investment vehicles were selected for this analysis. An analytical framework for analysis of the selected funds was constructed and applied to each of the ten funds. Where possible, case studies of specific investments were documented, reflecting obstacles, social impact, or social outreach. Given the extensive experience of one particular fund and its track record (Actis African Agribusiness Fund) the case study in that particular case reflects risks perceived and lessons learned by their management.

Findings emanating from this evaluation revealed firstly that Development Finance Institutions (DFIs) are new but also very crucial contributors to agricultural private equity funds. This welcome development is however complicated by different and more tedious funding procedures of DFIs compared to traditional private equity investors. A second finding revealed that, while technical assistance funding is desired by all the chosen funds, technical assistance is not an ingredient of fund offerings at this juncture. A third and final finding cited lengthy regulatory procedures involving governmental institutions as a stumbling block to funds which typically have a limited time span (usually 10 years or less).

Based on the findings the following are recommended:

1.    Facilitate the timely private equity funding process by streamlining the DFI due diligence process and merging this process with that of traditional private equity investors;

2. CoordinatetechnicalassistancefundingandDFIfundingtoincreasetechnical assistance funds at the disposal of fund managers and also facilitate the process to obtain funds;

3.    Increase technical assistance funds available to fund managers available to portfolio companies by funding a dedicated technical assistance or challenge fund; and,

4.    Remove barriers preventing funds from achieving timelines by influencing government policies on acquiring rights and permits common to private equity agribusiness investments.

This resource appears in: Equity investments in agribusiness

This report focuses on the role of private investment vehicles that advertise and manage investment opportunities in farmlands and agriculture for investors, such as institutional end investors e.g. pension funds, endowments, foundations, and high net worth individuals. This secluded and highly unregulated form of investment typically seeks to gain control of private land and farm assets, to resell them at a superior market return after an agreed period of time and/or to generate cash from rents.

Betting on World Agriculture: US Private Equity Managers Eye Agricultural Returns  -  English (en)