In 2017, IFAD took its first plunge into private sector investments by launching the Uganda Yield Fund in partnership with the European Union. The Yield Fund is an innovative, social impact investment fund targeting agricultural small and medium sized enterprises (SMEs) and producer groups in Uganda – the missing middle in the investment space. The fund offers patient, risk capital products such as equity, quasi-equity and debt funding to small and growing agribusiness in Uganda. It invests in companies that offer a solid social impact proposition with attractive financial returns. In addition, a Business Development facility (BDS) supports the companies in improving on their operational processes, as well as addressing areas of Environmental Social and Governance (ESG). IFAD was selected as the coordinating partner by the EU and carrier of EU funds.
Compared to operations with IFAD’s “standard” investment instruments, providing finance and BDS support through an agribusiness investment fund clearly has its challenges. The financial sector in Uganda remains relatively underdeveloped, and the legislation to guide and support the operations of equity funds is inadequate. The EU wanted to establish this fund as a Ugandan company, partly to support the overall financial sector development in the country. Most other funds of similar type select to register themselves in countries like Mauritius, which brings clear advantages to the investors in areas such as the smooth transfers of funds, taxation and the resolution of potential disputes.
It has been close to two years since the implementation of the fund has started. Where are we today?
Following a successful first close of EUR12 million from the EU through IFAD and National Social Security Fund of Uganda (NSSF), the Fund – managed by Pearl Capital Partners (PCP) and supervised by IFAD – has made five investments in agro-companies for a total of EUR3.3 million in a mixture of Quasi Equity loans (with an option to be transferred into shares) and debt financing with revenue participation. These companies include:
• A Kampala-based soya processor with plans for transforming the company into a modern agro-industrial unit. Their extensive and deep-reaching network of smallholder providers, a modern factory and a sales network targeting both the retail health market and regional aid agencies create a huge impact potential on both producers as well as consumers’ side.
• An innovative start-up producing liquid eggs for business clients. With Yield investment in a network of buying centres and a digital solution to connect to farmers, the company will start procuring eggs from smaller producers.
• A coffee processing company based on a coffee growers cooperative in Central Uganda. This company specialises in Fair Trade coffee which it sells through its international partner organisations to the export market.
• A moringa farming and processing company; the investee is an agri-ceutical company specialising in production and processing of Moringa Oleifera (moringa). The company operates with its out growers using an innovative Secured Income Programme model, which offers the farmers a regular monthly payment for their moringa supplies to the firm.
• An internationally accredited analytical laboratory and inspection company playing a strong enabling role in the agro-sector. Particularly for the export-oriented agro-firms, the better capacities and shorter testing times following from the Yield Fund investment are likely to be of major importance when trying to capture new regional and global markets.
We are currently working on a second capitalization round of the Uganda Yield Fund. Due to the (deliberately) higher risk profile compared to other funds and extensive due diligence required by new potential investors, the full capitalization of the Fund did not go as quickly as planned. As of 1 March, two investors have received approval from their Investment committees to invest in the fund. The additional EUR 8 million will bring the Fund to a final close of EUR 20 million.
IFAD and the EU are very keen to capture the many lessons to be learned from this initiative. In the next impact investing blog, we will discuss some initial lessons from the first two years the fund.
For any questions, please contact Dagmawi at d.habte-selassie@ifad.org