IDH Farmfit Fund
Rabobank partner in sustainable impact fund
Millions of smallholder farmers need to increase their production in a sustainable way to feed the growing world population. However, smallholder farmers often do not have access to financial resources to do this. This is a major problem, especially in Africa. The EUR 100 million IDH Farmfit Fund stimulates banks to finance sustainable, smallholder farmers in developing countries. That is good for the farmers in those countries themselves, but also good for sustainable food production. Rabobank is a partner in the fund with an investment of 10 million euros.
Providing access to finance for smallholder farmers
“Many countries in Africa increasingly import food, while the continent has enormous agricultural potential,” says Roel Messie, CEO of the IDH Farmfit Fund. “Local farmers do not have the means to develop this sustainably.” An additional problem is that smallholders in Africa have limited access to financial services. “For many banks, direct funding of small-scale farming in developing countries is a bridge too far. The chance of loans not being repaid is just too big,” says Marianne Schoemaker, CEO of Rabo Partnerships at Rabobank. “This fund builds a bridge between small-scale farms in Africa and our financial services.”
She continues: “Smallholders have access to financing through IDH Farmfit Fund, so that they can invest in sustainability. The Farmfit Fund provides a so-called first loss guarantee to banks, taking on the highest risk in a transaction and therefore risk for ‘commercial’ banks and investors is reduced. For smallholder farmers, the high risk is the biggest challenge for commercial banks and therefore they often do not receive a loan. With the Farmfit Fund financing will be possible because several partners such as large corporates and public funds participate in it, making more risky constructions possible that none of the partners could have taken alone.”
Agriculture in developing countries is risky due to weather dependence, outdated techniques and uncertain prices. Moreover, many banks do not have the knowledge of the tropical agriculture sector, which includes about 300 million small-scale farmers around the globe.
Rabobank collaborated previously with IDH in 2019. Together they secured a $25 million loan for Neumann Kaffee Gruppe (NKG). The risk on the farmers’ loans was shared between NKG, IDH, and the banks. The arrangement was particularly special because it also gave farmers access to long-term loans, enabling 300,000 farmers in ten countries to buy new coffee bushes, better seeds, fertilizers and crop protection products. This not only improves farmers’ yields. It also makes their farms more resilient in the long term.
IDH is an organization that aims to realize global, sustainable trade by taking concrete action, together with companies, financial institutions, governments and citizens. Rabobank Group offers retail banking, wholesale banking, leasing and real estate services in various countries around the world. Rabobank Group puts the common interest of people and communities first and creating value for the customer is central to its services. By providing a loan to the IDH Farmfit Fund, Rabobank can contribute to the security and resilience of the future food supply. With Farmfit Fund, Rabobank can test new financing options, generate data and investigate whether the risk is really that high. It is a high-risk investment, but one that fits perfectly with Rabobank’s mission, which is contributing to a future-proof society for everyone and a sustainable food system.