Ifad poised to plough loans into private sector projects
After four decades of focus on lending to governments, the UN’s agricultural development fund is about to branch out into loans to the private sector
The International Fund for Agricultural Development, the United Nations agency, is preparing to launch its first ever private sector financing operation in July, GlobalMarkets can reveal.
Ifad’s 40 years of development investment has consisted exclusively of government lending operations. However, its first ever loan to the private sector is expected in the coming weeks, with more to follow this year.
Ifad will make use of loans, risk management instruments such as guarantees and credit enhancements, and equity investments. Its governing council agreed to the change in its founding agreement in February 2020 and announced its private sector financing programme, but the first deal under the programme will be launched around mid-July.
“Ifad will invest in small and medium-sized enterprises, farmers’ organisations and financial intermediaries servicing small-scale farmers, which are too often neglected by investors,” said an Ifad spokesperson.
Rural agricultural businesses often struggle with access to capital because of lack of visibility, expertise, or ability to post collateral. Financial service providers met only about 30% of the $240bn financing needs from rural households before the Covid-19 pandemic, according to Ifad. It calculates the lending gap to agricultural SMEs in sub-Saharan Africa is around $100bn per year.
In addition to providing financing from its own coffers, Ifad hopes to catalyse private investment in the same sectors. “Ifad’s investments, combined with its 40 years of experience working with rural communities, global field presence and large portfolio in agriculture, give it an advantage in attracting private investors who may be cautious about investing in agriculture and rural economies,” the spokesperson said
Ifad plans to lend $200m via its private sector financing programme and hopes this will leverage a total of $1bn in private investment. The spokesperson said this investment would “improve the lives of up to five million small-scale farmers”.
The investments will be focused on job creation, women’s empowerment, building farmers’ resilience and accelerating climate change mitigation.
Ifad has previously been financed purely from the endowments and donations it receives. However, the agency is soon to become a capital markets borrower. CFO Alvaro Lario said the fund would be looking to raise between $1bn and $1.3bn for IFAD's 12th replenishment period (from 2022 to 2024) via long-dated medium term notes. Initially, its borrowing will be in euros and dollars, but Ifad plans to issue in local currencies as well.
It is looking to sell these bonds to impact investors. “We want long-term investors with whom we can have a long-running partnership,” said Lario, who added that they have already had interest from investors based in Asia.