Time to Bed Down! Two Vignettes to Sleep On

Now that we've unpacked financial intermediation, it's time for a few of our favorite campfire stories. Our first vignette comes from Fintrac. It’s a great example of inducing a private company to invest in the rural agricultural input shops that are critical to upgrading agricultural production. The second is from ICCO Investments: it shows how a small grant (in this case from USAID’s DIV program) was able to attract matching private funding for proof-of-concept of a new model to deliver off-grid lighting. 

Securing Private Financing for Agricultural Input Hubs in Mozambique

The challenge: As a for-profit agricultural trading company in Mozambique, Export Marketing Company Limited (EMCL) needed better quality commodities from smallholder farmers. This could be achieved through better access to improved agricultural inputs and other agricultural support services (equipment rental and warehousing), but scaling up the one-stop-shop hubs to provide these inputs and services was expensive and risky.

The solution: To catalyze the scaling of these hubs, USAID/Mozambique committed to an investment (grant) of $6 million in return for EMCL’s investment of an additional $12 million to build 23 new hubs.

How it mobilized private capital: Feed the Future Partnering for Innovation (P4I) facilitated a partnership between USAID/Mozambique and EMCL. The private financing was committed through a competitive solicitation process where EMCL submitted a simplified technical and cost proposal, offering a 2:1 funding match.

How it was inclusive: Key evaluation criteria were smallholder farmer impact and inclusivity. EMCL is set to reach 22,900 additional farmers with access to storage facilities, market opportunities, quality agro-inputs, and mechanization equipment via the retail hubs while also training people (70% of whom are women) who will be given the option to buy these hub operations.

How it was innovative: The most innovative aspect of this partnership is that it was “pay-for-performance” – payments were released after the completion of milestones that are consistent with metrics typically used by businesses. The largest payments to EMCL are disbursed after the retail hubs are operational and smallholder farmers have benefited from the services being offered. This provides an economic incentive for EMCL to perform and also mitigates the risk for USAID through ensuring the project is meeting its development targets.

Lessons learned: To successfully mobilize private capital, the purpose of the partnership should strategically align social impact goals with private sector business interests. Additionally, reducing the partnership process requirements and requiring a match of funds from the private sector ensures commitment.  

This vignette was submitted by Fintrac’s Mark Sevier (msevier@fintrac.com), Mission Partnerships Specialist. 

Mobilizing Private Capital to Provide Low Cost Lighting Services to Marginalized Communities in India 

The challenge: The inability of communities in rural India to access affordable lighting was a deterrent to education (children could not read or study in the evenings) and income generation (no work could be performed in the evening).  

The solution: A $300,000 grant from USAID’s DIV program triggered $500,000 in private financing from ICCO Investments (an affiliate of ICCO Cooperation) which was used to finance a clean energy proof-of-concept pilot by Mera Gao Power (MGP). The pilot allowed the company to test the financial viability of its business model, which used solar-generated energy for lighting services.

How it mobilized private capital: The grant triggered the loan from ICCO. While the grant enabled MGP to conduct a successful test of its model for off-grid lighting services delivery to the poor, the subsequent loan helped the company scale up its operations to reach 18,000 families. Having demonstrated success, MGP was able to mobilize financing of $1 million from an investor as well as $500,000 debt from ICCO Investments on market terms, allowing MGP to expand its operations to other districts, states, and countries.

How it was inclusive: The enterprise focuses on remote hamlets that have been devoid of electricity. So far 18,000 households and 90,000 people have been connected – people who otherwise would not have been able to access and benefit from electricity. Furthermore, since the investment, anecdotal information suggests a boost to the local economy.

How it was innovative: Grant funding enabled a pilot project to test the proof-of-concept of MGP’s unique approach to service provision. The success of this pilot triggered additional investment on market terms.

Lessons learned: A mix of grants and investments is required to validate the business case when operating in difficult circumstances with bottom of pyramid populations that have minimal purchasing power.

This vignette was submitted by ICCO USA’s Juliet Macdowell (Juliet.Macdowell@Icco-cooperation.org), VP and Director of Institutional Relations, with support from Kailash Iyer (Kailash.Iyer@icco-investments.org), Regional Investment Manager for ICCO Investments. 

Next up: A Month on the Trail - Hot, Dusty and Dry: A Primer on Finance