The United Nations’ International Fund for Agricultural Development (Ifad) has launched a new financing programme that will help aid rural businesses in the food systems of the world’s poorest countries.

The Private Sector Financing Programme aims to spearhead an increase in much-needed private investment in small and medium-sized enterprises (SMEs), farmers’ organisations and financial intermediaries servicing small-scale farmers, which are often neglected by investors.

It will provide loans, risk management instruments – such as guarantees – and equity investments.

“To help end poverty and hunger, we urgently need to stimulate more private sector investments to rural areas and unlock the immense entrepreneurial potential of millions of rural SMEs and small producers,” says Ifad president Gilbert Houngbo.  

He adds that, with access to capital, they can attract more investors and partners, grow their businesses and create employment opportunities - especially for young people and women.

As part of its launch, Ifad announced the programme’s first loan of $5-million to a Nigerian social impact enterprise, Babban Gona, which has a strong background in successfully moving small-scale farmers from subsistence to a more market-orientated model.

The loan will help Babban Gona support 377 000 small-scale rice and maize producers in Nigeria with a comprehensive package of training, quality inputs, and marketing services.

Babban Gona will also store and sell the harvest on behalf of its farmers when prices are higher. They aim to create up to 65 000 jobs for women and 66 500 jobs for youth by 2025. By committing these funds, the financing programme aims to stimulate larger contributions from other investors and help Babban Gona meet its target to raise $150-million to reach millions of small producers.

“Lack of financing and access to financial services prevents rural SMEs and small-scale farmers from harnessing opportunities offered by a growing demand for more diverse and nutritious food globally,” Ifad states.  

The organisation adds that SMEs involved in food processing, packaging, transport and marketing are essential to small-scale farmers, providing them with services, inputs and market opportunities, which contribute to increasing their income and employment.

Even before the Covid-19 pandemic struck, financial service providers only met about 30% of the $240-billion that rural households required in their demands for finance.

In addition, the lending gap to agricultural SMEs was around $100-billion annually in sub-Saharan Africa alone.

Ifad intends to mobilise $200-million for the private sector financing programme from public, private and philanthropic sources to leverage a total of $1-billion in private investments.

This will likely improve the lives of up to five-million small-scale farmers. The programme will focus its investments on job creation, women’s empowerment, building farmers’ resilience and accelerating climate change mitigation.

“With growing hunger and poverty and the urgent need to make our food systems more sustainable and equitable, business as usual is not an option. We need to innovate now. This is why Ifad is creating new instruments to catalyse increased private sector investments to rural areas where they are needed most,” Houngbo points out.