The organizations Vredeseilanden/VECO, Alterfin, the King Baudouin Foundation, Louvain Cooperation au Développement, International Solidarity for Development and Investment (SIDI), Boerenbond and private investors jointly established Kampani, a new investment fund for producer organizations in the South. With this new investment fund we aim to offer a response to one of the main obstacles to progress concerning the smallholder farming sector in developing countries: the lack of growth capital.
Why is Vredeseilanden starting an investment fund with other partners?
The lack of finance possibilities for businesses of farmer organizations for amounts between 50 and 500 thousand euro is considered as a ‘missing link’ for those organizations to become profitable and sustainable entreprises at the service of their members and trustful and relevant partners for other actors downstream the food chain.
Vredeseilanden wants to support smallholder farmers in their efforts toward better living conditions. We are convinced the best way to help is through sustainable economic development. We create the opportunity for farmers to organize, so they can implement commercial activities, enabling them to reach a better income. When that runs smoothly, there is a certain point where such a firm should be able to scale: to serve more farmers and to increase effectiveness. But this entails investment.
The problem for small and medium enterprises is there is limited availability of capital in rural areas in developing countries. Microcredits for smallholder farmers do exist and there are investment funds for very large companies, but in between there is a gap. Small and medium enterprises face many difficulties securing financing, especially in the agricultural sector.
By the nature of agriculture and the vulnerability to external shocks, such as droughts and market fluctuations, investing in companies of farmers’ organizations is also considered very risky. In addition farming is a ‘slow’ sector: you have to wait at least one season till you know what you will earn from your investment. Therefore farmers are not always approached by investors who seek fast high returns.
This is the gap Vredeseilanden wants to bridge with KAMPANI: an investment fund with ‘patient capital’ for businesses of farmer organisations. Because food supply within a context of changing climate and a growing world population is one of our greatest challenges ahead. Farmers in the South cannot face this alone. They need connection with other actors within the food chain. The fact these actors co-invest in farming will not only contribute to economic growth, but also to help ensure the long-term supply of commodities, which are needed for their own (processing or commercial) activities.
In this sense, KAMPANI fits well with the vision Vredeseilanden has about development cooperation to move towards wider international collaboration for sustainable development with different stakeholders.
What does KAMPANI mean?
Kampani is an old word in Swahili, the language most widely spoken in East Africa, and it means ‘friendly partnership’. So Kampani wants to be a business partner for farmers’ organisations.
Why is Vredeseilanden not using grants for these investments?
Using grants and subsidies for a pure business operation often leads to inefficiency and poor management. Farmers do not have a full sense of ownership and therefore they do not feel involved or responsible. Because of the lack of ownership they often will not think and act commercially, the opposite tends to happen. Several studies as well as our own past experiences pointed that out. Grants and subsidies are better allocated to specific strategies, such as performing assessments, study work, lobbying, and capacity building/training of people. And Vredeseilanden will continue to do so too.
What is the difference between the investment fund of Vredeseilanden and the existing creditors, such as Alterfin, the Belgian Fund for Development Cooperation or micro credit institutions?
KAMPANI does not offer short-term loans, but it provides the long term subordinate debt/loans or it buys a share in companies created by farmer organisations. The businesses in which KAMPANI invests can then dispose of patient capital giving them the opportunity to build a company for the long term. Then again, KAMPANI’s investments will be relatively small: between 100,000 and 500,000EUR, with a target average of 300,000EUR. This is how Vredeseilanden together with other partners want to help control this so-called ‘missing middle’.
KAMPANI’s investment horizon covers 5 to 10 years. If the respective company is doing well, KAMPANI can be bought out by the same farmers or the investment can be transferred to local players. This results in a regain of capital for new investments.
Are there any risks for Vredeseilanden related to the investment fund?
KAMPANI, a separate joint-stock company, is completely independent of the business carried out by Vredeseilanden. So, worst case scenario the fund does go wrong, the normal program of Vredeseilanden will simply continue its course. Vredeseilanden will indeed do everything within its power to ensure KAMPANI is managed properly.
KAMPANI will indeed spread risks over multiple investments; additionally, each investment shall be preceded by a comprehensive screening of the business plan of the farmer organisations. This audit is conducted by Alterfin, which has a proven track record in this matter. An independent investment committee checks whether these proposals have a good chance to succeed. Moreover, the representatives of KAMPANI participate in the Executive Board of the businesses in the South for a close follow-up of all decisions. But this does not mean nothing could go wrong. All partners of KAMPANI are entirely aware of it, but they all share the same opinion: taking risks is necessary to accomplish progress.
Is there a specific example in which KAMPANI is investing?
The first two requests of partner organisations will probably arrive from Vredeseilanden. For instance, banana farmers from Senegal need capital to build a new irrigation system. A cocoa farmers’ organisation in Indonesia wants to build new infrastructure for the drying and safely storing of their cocoa.
Who can invest in KAMPANI?
Vredeseilanden, Alterfin, the King Baudouin Foundation, Louvain Cooperation, SIDI, Boerenbond, and other private investors together have raised a base capital of 2 million euros. The founders target 8 million euros by 2020. Similar companies and/or private investors that contribute with a higher amount than 50,000 euros can join KAMPANI on invitation by KAMPANI’s Executive Board. The NGO TRIAS has for example already expressed the wish to invest in this fund. KAMPANI has no intention to give an open invitation to invest according the law on public offers of investment instruments.
The general management of the fund has been be delegated to Wouter Vandersypen as Executive Director and the main office is in Alterfin, an organisation which will also be responsible for the portfolio management of Kampani. The deed of incorporation was signed on January 29th 2015.
Website: www.kampani.org Excecutive Director, Wouter Vandersypen : wvandersypen [at] kampani.org