Pulse 4

Fund management and inclusive agribusiness: A global perspective

Published on

May 10, 2017

For decades, investors have created funds to invest in agribusinesses and develop the markets in which they operate. At the same time, relatively few funds focus on small rural enterprises and smallholder farmers because of high risks and uncertain returns. However, in the transition of rural economies, the growth of an inclusive agricultural market is both necessary and can still be good business. In a new Briefing Note, we interrogate how different impact-oriented agribusiness funds combine public and private capital to build a more inclusive agricultural market. This blog is a quick summation of some of the findings in that briefing note.

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In traditional development circles “inclusive markets” refer to markets that “extend choices and opportunities to the poor (and other excluded groups) as producers, consumers and wage earners”
– United Nations Development Program           

Impact as a goal: Our latest research from the Initiative for Smallholder Finance focused exclusively on impact-driven agricultural funds, combining public and private capital totaling US$19 billion to execute unique strategies in the agricultural sector. We found a range of strategies to reach smallholders, cultivate a pipeline, align technical assistance, and match sources of capital to return expectations.

Orientation and types of funds: At one end of the spectrum, larger wholesale funds or regional funds make investments in large agribusinesses and medium agro-enterprises – such as commercial farms or processing facilities – that effectively “rise the tide” by growing the overall agricultural sector. At the other end, are funds that seek to push the frontier by reaching smallholder farmers directly. Along this spectrum are a number of funds making investments in midmarket infrastructure or technologies that may provide services to smallholders, such as agro-dealer networks, seed companies, warehousing, or transportation.

Figure 2: Fund Landscape
Initiative for Smallholder Finance
ISF briefing note 15: Fund landscape


Key insights:

Here we present three insights from our research:

  • Fund managers use dramatically different approaches to develop and assess pipeline investment opportunities. Most fund managers spot opportunities the traditional way, through word of mouth and professional networks. More recently, savvy NGOs have onboarded investment teams or created their own fund vehicles to connect enterprises from their field work to investors.

  • Technical assistance (TA) plays an important role, but is tough to get right. Funds that invest in smaller agribusinesses often need TA for both the investee and their underlying small producer networks. This TA is expensive and time consuming, but can multiply impact or pave the way for future growth. Some funds, such as the African Agriculture Fund, have structured sidecar TA grant facilities to systematically deliver business and impact support around their investments.

  • The relationship between capital and fund managers matters. When capital providers with different risk, return, and impact profiles work together to structure a fund, fund managers must become sophisticated stewards of the fund’s impact agendas for them to thrive.

Thinking differently

Investments in agribusinesses will continue to drive how agricultural markets develop and formalize across Africa, Asia, and Latin America. Going forward, we believe there are more sophisticated ways for donors and technical assistance providers to think about and co-develop new funds.

  • Donors can think more critically and holistically about funds as a path to market development and sustainability outcomes. Funds such as the Arise fund, Factor[e], and the Livelihoods Fund for Family Farming have tightly defined their investment theses to guide tradeoffs between financial return and impact objectives.

  • NGOs and technical assistance providers are in a unique position to move from service provider to incubator by looking across their current portfolios to package investment opportunities or insight that will spark new fund development or investment over time. Mercy Corps’ Social Venture Fund, for example, provides early stage financing for enterprises that are identified through Mercy Corp’s programmatic activity.


Note** This research is part of a broader exploration of how “smart subsidy” can be used to catalyze inclusive agricultural market development that actively includes and empowers smallholder farmers.  For those interested in further developing this perspective please reach out to Dan at [email protected] or Matt at [email protected] at the Initiative for Smallholder Finance.

About the Author(s)

ISF Advisors
Learning Lab Strategic Partner

ISF is an advisory group committed to transforming rural economies by delivering partnerships and investment structures that promote financial inclusion for rural enterprises and smallholder farmers. Combining industry-leading research with hands-on technical expertise, ISF develops practical, profitable, and sustainable financial solutions.

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The Learning Lab works to identify and share knowledge relevant to our learning agenda and our users, but also to create new knowledge through research and facilitated learning. Original content from the Learning Lab includes news about the Lab, analyses we've conducted, knowledge products we've created, and posts we've written about other relevant initiatives.

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Research Partner

This research was made possible through support from the U.S. Government's Feed the Future initiative.

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