Empowering Kenya's Producers and Agri-SMEs to face COVID-19 and Climate Change

Introduction: According to the United Nations, Kenya’s Agricultural Sector represents 27% of GDP directly and indirectly through linkages with other sectors. The sector employs more than 40% of the total population and more than 70% of Kenya's rural people. The sector also represents 60% of Kenya’s exports. Agriculture has been seriously hurt by COVID-19 and a historical locust infestation. Crops have been destroyed, sales exports canceled leading to massive layoffs, supply chains have been disrupted due to partial lockdowns. Freight charges have also increased and there is a serious disruption in the availability of agricultural inputs. All these factors have affected the financial and business sustainability of many SMEs in the sector (Agri-SMEs).

Kenyan’s agriculture sector was facing serious challenges before these crises. Energy costs were high and climate change was leading to prolonged droughts and excessive quick rains. Access to finance remained low at less than 5% of total loans in the country. A growing bureaucracy due to decentralization and slowness in VAT refunds were making business difficult. Competitiveness was affected by lack of proper packing, logistics, and cold storage facilities. Labor complaints were also growing across the sector. A comprehensive solution is needed to enhance the sector’s sustainability.

The Agriculture Investment & Liquidity Facility or AGIL: Tiserin Capital (TC), a Kenyan based financial advisor and investor, and the Kenya Investment Mechanism (KIM), a USAID funded project seeking to unlock US$400 million in investments, have partnered to develop and launch AGIL.

AGIL seeks to support Kenyan farmers and Agri-SMEs navigate out of this dual crisis, but more importantly, enhance their competitiveness and climate resilience to sustain future crises. AGIL will be set as a Trust Company and will utilize a blended finance model to de-risk the sector’s weaker credit profile while providing climate-smart solutions to strengthen the sector’s capacity to manage future crises. AGIL also seeks to transform credit due diligence processes by incorporating climate resilience, soils, and hydrology assessments and recommendations. This combined with viable and sustainable growth plans are expected to reduce the blended finance component gradually; thereby, de-risking credits and making them commercially bankable.

AGIL plans to mobilize up to US$50Mn in long-term debt, soft credits, and grants. In return, AGIL will provide debt for up to 5 years to farmers and Agri-SMEs for i) debt restructuring; ii) working capital/trade finance; iii) CAPEX for packing houses, cold storage, modern-irrigation, greenhouses, vehicles, etc.; iv) consolidation purposes; and v) sustainability efforts such as energy and water efficiency. AGIL also expects to mobilize up to US$0.5Mn grants to develop the climate-smart agriculture due diligence process. This first phase covers Kenya only, but AGIL is expected to go across the East Africa region in 2021.

Manager: Tiserin Capital will manage the facility. KIM will work with its network of investment advisors to undertake due diligence (tax, financial, and legal DD) on each pre-selected Agri-SME. It will also provide advisory support to borrowers on the environment, social and governance (ESG) issues.

Tiserin Capital’s Principals bring considerable experience in agribusiness, ESG, blended finance, financial markets, and restructurings/crisis response. They are both based in Nairobi.

German Vegarra, an IFC veteran, was IFC’s Global Head Agribusiness where he developed and launched the world’s first blended finance fund for agriculture (GAFSP) in 2012. He led IFC’s manufacturing, agribusiness, and services (MAS) operations in Africa and launched the G-20 endorsed Global Trade Liquidity Program (GTLP) during the Global Financial Crisis. German will lead AGIL.

Aida Kimemia, also an IFC veteran, managed IFC’s East Africa region, quadrupling its operations. She led investments across IFC MAS sectors, most notably in agribusiness, health, and education in Africa. Aida will lead risk management and ESG.

Pipeline: projects are being identified directly by Tiserin Capital and through partners like KIM that has a project pipeline of approximately US$500Mn in agricultural projects.

Impact: AGIL will measure jobs protected and new jobs, especially for women and youth; and energy and water efficiency. AGIL will ensure all borrowers meet best practice E&S standards and SME governance plans. AGIL is also expected to develop a novel and replicable credit assessment process that takes into to account climate resilience and competitiveness; thereby, mitigating systemic risks.

If you are looking to join AGIL as a funder or borrower, please send inquiries to: info@tiserincapital.com

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