Project detailsIn 2020, as a response to the growing need for innovative climate-smart solutions in land use sectors, KOIS supported a major European impact asset manager to set up a catalytic finance facility promoting truly innovative business models in food and land use in Sub-Saharan Africa.
Innovative climate-smart business models as the pathway to improving agricultural practices
There is no doubt that the adoption of innovative climate-smart businesses, business models, and technologies in the food and land use sectors will become increasingly important. In fact, it will be needed to mitigate the growing demand for food production and the additional constraints it is expected to put on the environment. Climate change, natural resource conservation, and the state of the food and land use sectors (i.e., agricultural and forestry) are closely interlinked to this growth in demand.
Agriculture today remains a main contributor of greenhouse gas (GHG) emissions and non-CO2 GHGs, as well as encroachment on natural forests. Innovative climate-smart businesses, business models, and technologies are increasingly prescribed as the pathway to improving good agricultural practices and yields, increasing primary producer incomes, reducing food waste along the value chain, and reducing incentives for encroachment into natural forest areas.
Increasing access to sustainable financing in the land use sector
Several innovative businesses and technologies already exist in the land use sector of Sub-Saharan Africa. However, they face a key challenge: access to sustainable financing.
In fact, the estimated annual investment requirements for small ticket sizes of new innovative businesses, business models, and technologies in food and land use sectors in SSA could be between US$2-10b per annum. However, financing remains especially limited at this nexus of climate solutions and agriculture for SMEs, which bears 35% of that gap.
This is a consequence of both structural constraints and a lack of investable opportunities with appropriate risk-return fundamentals for most local financial institutions and impact investment funds. Financing these earlier-stage and innovative business models that remain pre-bankable likely entail risks outside the risk-return appetites of most investors.
A catalytic finance facility to promote innovative models in land use in Sub-Saharan Africa
In 2020, KOIS supported a major European climate focused asset manager focused on Latin America and Sub-Saharan Africa in setting up a catalytic finance facility in SSA.
KOIS provided an analysis and recommendations to set up a catalytic finance facility promoting truly innovative business models in food and land use, by complementing actors in the sector (e.g. FIs, incubators, accelerators, corporates, etc.) and closing the financing gap for SMEs in Sub-Saharan Africa. The facility will be part of a fund aiming to promote practices contributing namely to sustainable use of natural resources. The main investment criteria for the fund will be environmental factors.
KOIS’ recommendations were taken by the client, who is now in the process of reviewing the potential implementation of this catalytic finance facility.
The financing gap that the Agri-sector in SSA faces, despite its high need for affordable financing (especially for SMEs) and high employment rate, makes it one the most impactful area to catalyse investments from public and private sectors. Risks takers are needed to attract more interest and unlock financing to ultimately close the current outstanding gap.
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