Securitization has reached African agriculture. Nairobi-based Apollo Agriculture sold a bundle of pooled loans it has made to smallholder farmers to raise capital for additional lending. The buyer, IDH Farmfit Fund, is a Netherlands-based blended finance fund for smallholder farmers. The sale of nearly 24,000 smallholder farmer loans, many to first-time borrowers and women, via Kaleidofin’s credit platform Ki, mobilized 276 million Kenyan shillings ($2.5 million) for Apollo.
“The local currency advantage directly translates to a lower cost of capital and lower cost of financing for our farmers,” Apollo’s Eli Pollak told ImpactAlpha. UK-funded FSD Africa helped with regulatory structuring. The deal follows IDH’s $5.3 million investment in India-based Kaleidofin last year to strengthen its credit scoring capabilities.
Local currency
Pollak says one of Apollo’s key challenges has been accessing local currency financing to lend to farmers. When having to borrow in dollars or euros, Apollo had to hedge its local currency risk, leading to higher costs of capital for farmers. The securitization structure helped leverage Apollo’s receivables and the historical performance of its farmer-borrowers to bring in local-currency financing.
The securitization deal, which received an investment grade rating of BBB- from African credit rating agency Agusto, is the first of a multi-year series Apollo expects to generate 2.4 billion Kenyan shillings and expand financing to more than 130,000 farmers.
Securitized impact
Impact securitization deals in Africa have been executed in clean energy and small business finance. Last year, Kenya based pay-as-you-go solar company Sun King raised $156 million in its second securitization deal. The capital was earmarked to finance nearly 1.4 million solar products and smartphones across Kenya. Sun King’s first such deal in 2023 raised $130 million (see, “Sun King raises $130 million through securitization of off-grid solar payments”).
In 2020, NSIA Banque Côte d’Ivoire issued the first securitization of small business loans by a commercial bank in the eight-country West African Monetary Union block. The International Finance Corp.anchored the transaction, which raised 40 billion West African francs (then $67.5 million) to lend to more small businesses.
