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October 17, 2011

$25m Fund set up to finance ‘small cap’ agribusiness in East Africa

A new fund has been set up by a group of impact investors and a US government agency to drive growth in East Africa’s troubled agricultural sector.


Already, $25 million has been invested into the African Agricultural Capital Fund (AACF) by the US Agency for International Development (USAid) and impact investors, who include Bill & Melinda Gates Foundation, the Gatsby Charitable Foundation and the Rockefeller Foundation.


Pearl Capital Partners, a Kampala-based specialised African agricultural investment fund manager, will be responsible for investing the funds in at least 20 agriculture-related small and medium-sized enterprises in East Africa over the next five years.


“The AACF will catalyse the growth of small and medium agribusinesses in East Africa,” said Julie Sunderland, the director of programme-related investments at the Bill & Melinda Gates Foundation.


She added that since they work with smallholder farmers across the agricultural value-chain, these businesses are important for the sector’s sustainable development.


However, according to the managing partner of PCP, Tom Adlam, a funding gap exists for small-cap agricultural businesses across East Africa, between large-scale commercial banks and microfinance institutions.


“This new fund will help to address this gap, providing long-term capital to entrepreneurs who are building businesses in the agriculture sector while delivering quality financial returns for investors,” Mr Adlam added.


In fact, there is optimism that the establishment of the fund could signal a change in fortunes for the businesses.
“We are optimistic that the success of AACF and the individual businesses within its portfolio will encourage additional capital investment in enterprises employing, purchasing from, and providing inputs and services to smallholders,” said Ms Sunderland.
The CEO of the Global Impact Investing Network, Luther Ragin, Jr, concurred that collaboration between the diverse investors would result in increased capital to the sustainable African agricultural sector.



Besides targeting positive financial returns, the fund is also interested in having significant social impact through provision of employment, secure markets and improved products for smallholder farmers across East Africa.


“New investments will need to demonstrate that they benefit large numbers of farmers and have an environmentally benign footprint,” a statement announcing the new fund said, adding that this is targeted at “infusing equity and expertise” into the sector, and “paving the way for raising the productivity and incomes of at least a quarter of a million households.”


It added that the fund manager, would focus on building the skills of local management teams rather than introducing management expertise from abroad, making it a sustainable approach to investing on the continent.

Pearl Capital Partner has received investment from the Gatsby Foundation in the past.


“The success of our original investment in PCP since 2005 demonstrated the viability of achieving both commercial returns and strong developmental impact in agriculture by targeting companies that play strategic roles in markets,” said Lord David Sainsbury of the Gatsby Foundation.


He added: “We are delighted that this has now attracted a wide range of public, private and foundation investors to scale up the concept and strengthen agriculture in the region”.


The co-investors in the fund are all members of the investors’ council of the Global Impact Investing Network, a nonprofit organisation dedicated to increasing the scale and effectiveness of impact investments and whose main funders are JP Morgan, the Rockefeller Foundation and USAID.


Through the council, the co-investors collaborated to identify complementary social, environmental, and financial goals for the project.


Besides $17 million in equity investment from the Bill & Melinda Gates Foundation, the Gatsby Charitable Foundation, and the Rockefeller Foundation; AACF has also received an $8 million commercial loan from JP Morgan’s Social Finance Unit, 50 per cent of which is guaranteed by USAID’s Development Credit Authority.


The guarantee is meant to attract investors to East Africa’s agribusinesses.

The East African 

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