Agribusiness-focused investment fund Root Capital plans to offer loans to 60 small and mid-sized food processing enterprises in Kenya.
The kitty is funded through a $3.5 million (Sh350 million) grant received from charity firm IKEA Foundation, founded by Swedish business magnate Ingvar Kamprad.
The Massachusetts-based financier said the credit line targets small and medium enterprises (SMEs) and small-scale farmers in Kenya who are locked out of the formal credit market.
“We aim to unlock the potential of these businesses to serve the needs of families in Africa now and into the future,” said Fred Kiteng’e, Root Capital’s East Africa general manager.
“Our philosophy is to price in line with local lending rates, so as not to distort market prices.”
Root Capital has disbursed $6.4 million (Sh646.4 million) to a portfolio of 19 small and micro agribusinesses in Kenya since setting up in East Africa in 2005.
Mr Kiteng’e said the loans target agricultural businesses that focus on export and local value chains including coffee, sorghum, wild-harvested crops - macadamia nuts, mushrooms - and agro-processing.
He said priority will be given to agricultural businesses in Kenya that promote gender equity, economic opportunity, and environmental stewardship, as part of efforts to build climate-smart livelihoods for families in rural areas, especially women and young people.
“In the process, it is our hope that these businesses start to redefine opportunities in agriculture for the next generation of farmers and agricultural professionals.”
The social impact investor reckons that the credit facility will “help raise incomes and stabilise employment for farmers disconnected from the formal economy.”
“We believe that when women and families have a more sustainable income, they are able to create better opportunities for their children,” said Jonathan Spampinato, head of communications and strategic planning at IKEA Foundation.
Root Capital offers three types of loan products: short-term trade credit and pre-harvest loans, with a repayment period of up to one year, medium-term fixed asset loans, with terms up to five years and long-term facilities.
The long-term loans come with tenors of up to seven years, which allows borrowers to invest in crop renovation and rehabilitation, according to Root Capital.
One of Rot Capital’s clients in Kenya is Freshco, producer of high-yield hybrid seed, primarily maize, to small-scale farmers.
Freshco took a $200,000 (Sh20.2 million) loan in2010 and $338,000 (Sh34.1 million) the following year, which helped the firm double production of its 11 varieties of maize seed and grow revenue.