Description financing model: Intermediated Financing Facility

Commercial capital is channeled through a facility that extends loans to farmers or agri SMEs. These facilities often pool funding from both commercial and catalytic sources, enabling greater scale while balancing risk and return.

Applicability: Well-suited for a range of asset owners (e.g., pension funds, institutional investors) who seek to support farmer financing without direct engagement

Considerations: Success is dependent on effective matching of stakeholders with different risk-return expectations

Description of de-risking tool(s):

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: 

Provision of trade financing to agribusinesses in Senegal facilitated through The Multilateral Investment Guarantee Agency (MIGA)'s provision of trade finance guarantees for public sector risk. These guarantees guard lenders against non-payment by a sovereign or state-owned entity of its obligations relating to cross-border trade finance.

1. MIGA issues a trade finance guarantee of €300M to an international lender (Standard Chartered), covering the risk of non-payment by the Government of Senegal (GoS)
2. Standard Chartered provides a short-term revolving loan facility to the Government of Senegal. The loan can be repeatedly drawn and repaid within its 1-year tenor.
3. The GoS allocates or on-lends the trade financing budget made available through the Standard Chartered facility to local intermediary banks, at agreed upon terms
4. Local lenders provide trade financing at preferential rates to agribusinesses for importing agricultural inputs and exporting agri-products
5. Agribusinesses repay local banks after completing trade cycles (exports, sales, etc.)
6. Local banks pass repayments back to GoS and Standard Chartered, and potentially reuse revolving credit
7. In the case of GoS default on its payments, MIGA covers Standard Chartered’s losses up to the guarantee amount

The project supports GoS food security and agricultural programs, and is expected to ease the financial challenges faced by local intermediaries in the agriculture sector.