Bamboo Finance is moving to fill the financing gap for small- and mid-sized African agribusinesses.
The Luxembourg-based private equity firm has raised the first $10 million for its planned $50 million “Nisaba” impact fund from Louis Dreyfus Holding, a major global agriculture conglomerates. Bamboo expects to achieve a first close and begin making investments by mid-2016.
Bamboo and Louis-Dreyfus’ mission is to spur development and encourage additional private investment into Africa's food sector, which the World Bank estimates has a market potential of $1 trillion by 2030. Africa’s home food markets are currently about one-third that size. Lack of investment capital and capacity constraints are key reasons why the sector hasn’t fulfilled its potential. Root Capital's Lending for African Farming Co., or Lafco, is aimed at the same opportunity.
The idea for Nisaba took two years to come to fruition. “It has taken us time to think about how [Louis Dreyfus] should play a larger part in sustainable development and what tools to use. It was a matter of figuring out an efficient way to make a difference and how to leverage our core competency as a group. That’s not easy,” explained Pierrick Paindavoine, Louis Dreyfus’ director of Nisaba.
Bamboo Finance was one of a few players that came forward with a bid to help Louis Dreyfus put an impact strategy together. The investment thesis the partners developed for the Nisaba fund – named after the Sumerian goddess of writing, learning and the harvest – is that impact capital is needed to correct the mismatch between financing needs and available capital.
“In Africa, there are a lot of small and medium-sized businesses that have the potential to impact job creation and play a role in increasing the GDP of their countries but need financing to develop their businesses,” Paindavoine noted. “[We have seen] many that we couldn’t support because they are too small or not in our core area or are too complicated.”
The 10-year fund aims to draw on Louis Dreyfus’ knowledge of the African agriculture landscape and Bamboo’s expertise in the small business sector to help small- and medium-sized businesses reach scale and become commercially investable. Nisaba will target long-term equity, quasi-equity and mezzanine debt investments of $3-3.5 million for five-year terms, with the intent of earning 12-14 percent gross returns on the portfolio.
Portfolio companies will also be supported through a small technical assistance fund that is being raised separately.
Nisaba's mandate will stretch across nine East and West African countries, where the fund intends to build distribution channels for smallholder farmers, who operate on less than two hectares of land and make up 80 percent of African farmers.
This post was updated November 4, 2015.