UTRECHT, Netherlands — Neumann Kaffee Gruppe (NKG) is launching the USD 25m Coffee Smallholder Livelihoods Facility: a global investment into sustainable sourcing backed by IDH, ABN AMRO, BNP Paribas, Rabobank and USAID. This financing will provide investments for smallholder coffee farmers including fertilizers, seedlings and equipment, cash advances, coupled with coaching and access to market, to make smallholder farmers in NKG’s supply chains more resilient and improve their livelihoods.
The USD 25m revolving credit facility is an innovative finance facility that involves a syndication of leading European banks underpinned by a first lost guarantee from IDH and a second loss guarantee from USAID. IDH, together with NKG will take the first loss participation of up to USD 2.5m each on potential farmer defaults. The senior financing is provided by ABN AMRO, Rabobank and BNP Paribas with USAID providing the senior lenders with a risk sharing second loss guarantee.
About 80% of the world’s coffee is produced by smallholder farmers throughout Africa, Asia and Latin America[1]. An estimated 90% do not have access to formal financial services[2] to allow them to invest in their farms, run them at full potential and improve their livelihoods. The NKG Livelihoods Facility aims to address this issue by providing short, medium and long-term financing to over 300,000 smallholder farmers that form part of NKG’s value chain in 10 countries.
The facility is a huge expansion of the successful NKG-Ibero Uganda finance facility that IDH co-structured in 2017 with NKG and ABN AMRO to support Ugandan coffee farmers with cash and fertilizer advances ) and serves as the precursor to the opening of IDH’s 100 M Euro Farmfit Fund.
Blueprint for IDH Farmfit Fund
Joost Oorthuizen, CEO IDH stated: “We are very happy to expand the successful innovative finance pilot we did with NKG and ABN AMRO in Uganda, into 10 new countries with ABN AMRO, BNP Paribas, Rabobank and USAID. This way of blended financing is a blueprint for future financial arrangements that we expect to offer through the soon operational IDH Farmfit Fund to millions of smallholder farmers in multiple commodities to lift them out of poverty”.
IDH Farmfit Fund is a pioneering blended finance fund which has been launched by IDH to catalyse commercial investment into improving livelihoods of smallholder farmers. The IDH Farmfit Fund brings together a unique coalition of public sector investors, private sector investors and financial institutions to unlock investments at scale into making value chains more sustainable. The IDH Farmfit Fund is supported by investments from the Dutch Government and a number of international brands. Together these investors will take the highest risk positions in investments into improving food security and smallholder livelihoods. These investments will then unlock investments from global and local financial institutions.
USAID, recognizing the role of smallholder farmers and the importance of catalysing commercial investment into this market segment, have provided a USD 250m second loss guarantee to the Farmfit Fund. This is the biggest guarantee ever provided by USAID and reflects their ongoing commitment to investing in food security and to improving the outcomes for smallholder farmers.
The IDH Farmfit Fund will be managed by IDH Investment Management’s global investment team and will complete IDH’s Farmfit offering, which includes IDH’s Farmfit Business Support. IDH Farmfit Business Support is a facility established by IDH with support of the Bill and Melinda Gates Foundation and DFID. Building on 10 years of experience of IDH, this facility will provide businesses across the value chain with business analytics and advisory services to improve the sustainability and resilience of their smallholder farmers service delivery models.
Together the IDH Farmfit Fund and IDH Farmfit Business Support provide an integrated approach to catalyzing investment at scale into improving food security, making value chains more sustainable and improving the livelihoods of millions of smallholder farmers.
[1] http://www.fairtrade.org.uk/Farmers-and-Workers/Coffee
[2] Financial Inclusion Data, World Bank, 2017.
