Description financing model: Direct Farmer Financing (Market)
Direct Farmer Financing (Market) involves pioneering banks providing loans directly to farmers, supported by catalytic capital through de-risking instruments or financial incentives to improve loan affordability and uptake
Applicability: Applicable to broad range of farmers and agri-SMEs that meet defined eligibility criteria
Considerations: Scalability depends on the availability of catalytic capital
Description of de-risking tool(s):
Tranching: Investment structure split into tiers with different risk-return profiles, enabling blended capital participation by matching investor risk appetite
Guarantees: Third-party assurances (typically by public or development actors) to cover losses in case of borrower default, reducing perceived investment risk
Case study description:
This model supports transactions that protect natural forests and restoration of natural ecosystems, promote sustainable agri and improve rural livelihoods.
- Agri3 raises capital from concessional & commercial sources; Tranching is used to de-risk commercial capital
- This capital is deployed as risk participations in loans
- Partner Financial Institutions provide these de-risked loans to sustainable land use projects. AGRI3 can participate in any tranche of the capital structure for loans with tenors of up to 15 years
- Agri3 fund targets market returns through guarantee fees and investments in bonds
- Each facility has impact targets (KPIs) aligned with Agri3’s impact objectives; Facilities provide semi-annual reports to Agri3, which prepares annual impact report for investors
- ~5% of total Agri3 fund is used for funding Technical Assistance (TA) managed by IDH; TA is provided to farmers participating in projects of local partner banks
Currently supporting 9 projects; Current Agri 3 fund size is $93.5M (of which $5 TA), aim to unlock $1B
