A new wave of fund managers in Africa are looking to reach deeper into the agriculture ecosystem with smaller investments, more flexible capital, and a focus on frontier markets. Yet these high-impact managers, many of them raising their first funds, face the steepest challenges.
That’s according to a new landscape analysis by Financing for Agricultural SMEs in Africa, or FASA, and Small Foundation, which analyzed 175 funds backing the continent’s small and growing agricultural businesses.
“What we are seeing now is really exciting. A new generation of fund managers emerging, closer to the market, better positioned to take risks, and better positioned to reach the ‘missing middle,’” wrote Anders Aabo of the FASA Steering Committee in an introduction to “The landscape of Agri-SME funds in Africa” report.
The fund managers, he said, “are deploying smaller tickets, working hands-on with companies, and building the pipeline of businesses that the rest of the market depends on.”
The report measured additionality based on whether or not the agri-small businesses financed by a given fund would otherwise secure funding. The first-time managers in the sample ranked highest on that measure.
Larger funds have dominated fundraising for agriculture, as established managers build on their track records and provide bigger check-writing opportunities for institutional capital and development financiers. FASA’s survey of 175 Africa-focused agri-SME funds had a median size of $40 million. Some 117 of the funds are in the market looking to raise a collective $6 billion; more than half of that target is from just 16 funds seeking $100 million or more for their second, third or fourth funds.
In February, for example, Mauritius-based Phatisa Food Fund landed $86 million from British International Investment FinDev Canada, Norfund, Swedfund, the IFC and Phatisa, for its $300 million ambition of backing agri-input providers and agriprocessors. Last year, AgDevCo landed $85 million from BII, Swedfund and Norfund. London-based Helios was halfway to its $400 million target for its Climate, Energy, Adaptation and Resilience fund after securing anchor investments in 2024 from InfraCo Africa and the UK’s Foreign Commonwealth and Development Office. The fund also got backing from the Emerging Markets Climate Action Fund, and others to support climate-smart agriculture among other solutions.
Agricultural small and medium-sized businesses, or agri-SMEs, have more financing options than ever, the report says. “But they still face acute funding gaps, especially for the patient and bespoke capital which can be the difference between success and failure.”
Emerging managers
First-time managers, predominantly smaller funds with ticket sizes below $500,000, make up 65% of the funds tallied by FASA. They are seeking an aggregate $2.8 billion in financing. They make up for their small size in their ability to reach agri-SMEs that would otherwise be overlooked.
The smaller funds coming to market often target climate resilience, livelihoods and food security. And two-thirds of the new funds are managed by Africa-based teams, what the report authors call “a sea change” from earlier funds that were often not local.
“The most encouraging trend is the emergence of a new generation of highly additional, locally rooted fund managers,” Small Foundation’s Andrew Tarazid-Tarawali tells ImpactAlpha. “We believe local fund managers often have a deeper understanding of local markets, stronger networks, and a greater willingness to serve underserved SMEs that international investors frequently overlook.” Small Foundation launched two working capital facilities early last year to support African fund managers through to first close, as part of its strategy of supporting local funds.
Néré Capital in Burkina Faso, for instance, has provided local currency-based equity to early stage agri-SMEs which make nearly half of its portfolio. Teranga Capital deploying in similar terms has nearly a third of its portfolio being agri-SMEs. Pearl Capital Partners achieved three exits so far from its Yield Uganda Investment Fund which backs agri-SMEs and is looking at making five more, by 2027 when the fund nears its end.
“The characteristics that make this generation of funds valuable are the same ones that make it hard to fund,” says the report.
Their smaller funds sizes, agricultural focus, as the small business, frontier market, and emerging-manager risk add up to a fundraising challenge. FASA estimates nearly $1.2 billion in catalytic capital is needed to unlock agri-SME financing.
Once a fund secures an anchor investor or achieves a first close, it is three times more likely to reach a viable fund size. That suggests “a clear role for catalytic capital and concessional funders to provide the early commitments that reduce fundraising risk and draw in a broader set of investors via anchor investments and concessional capital,” the report authors write.
They point to dedicated vehicles looking to fill the gap by anchoring or derisking funds, such as FSDAi Nyala Facility, a joint venture of the Collaborative for Frontier Finance and Nyala Venture, and Ci-Gaba, which recently secured over $30 million in the first close for a targeted $75 million fund.
FASA has raised $86 million towards a $250 million goal. The fund of funds, which pools catalytic capital to crowd in private and institutional capital into the agriculture sector, was launched with $200 million at the 2023 UN General Assembly by USAID and the Norwegian government. It has since raised an additional $86 million from the UK, South Korea and France.
FASA targets one of the most financially challenged segments: small funds, providing subordinated capital of between $2 million to $10 million. FASA made its first investment last month, a $5 million commitment to Catalyst Fund, to support climate-smart agriculture.
“FASA was created at exactly the moment the market needed a specialised intermediary,” Tarazid-Tarawali says. “The strongest rationale is that a fund-of-funds can systematically strengthen the ecosystem of local fund managers rather than backing only a handful of individual funds. This creates a multiplier effect; stronger local fund managers ultimately mean more capital reaching locally owned and operated agri-SMEs across the continent.”
The report urges donors and other financiers to prioritize the scale-up and replication of these vehicles in order to meet what it estimates is a nearly $1.2 billion need for catalytic capital.
Local currency investments from donors and other financiers cannot be overstated. Financiers are urged to provide catalytic capital to small funds that can mobilize and deploy local currency, while providing grant-funded FX hedging facilities to larger agri-SME funds.
Technical assistance is another great need that the report pushes for, starting by decoupling technical assistance from overall fund size and providing separate funding for operational expenses to help small funds sustain themselves as they work on creating impact.
Financiers are also asked to size their concessional capital targets relative to additionality and market-building value and not just fund performance metrics. They also need to allocate resources to measure livelihoods, food security and nutrition outcomes more rigorously beyond jobs created or number of farmers supported, in order to increase capital mobilization for these outcomes.
Gender integration needs to be deepened. Especially by larger funds which are lagging behind on this. Financiers need to provide more incentives, requirements and talent development support to support more gender diversity in decision-making roles within agri-SME funds. Additionally, they need to assess first-time fund managers by quality rather than previous fund management expertise while supporting warehousing facilities like 2X Ignite for female fund managers and fund readiness programs like the International Social Finance Accelerator, a multi-year programme supporting impact-focused emerging managers.
“From Small Foundation’s perspective, the most effective path is not only backing explicitly gender-focused funds but also strengthening local fund managers so they systematically source, support, and finance female entrepreneurs,” Tarazid-Tarawali says. “The opportunity is to move gender from a standalone impact theme to a core investment practice embedded across the agri-SME ecosystem.
Overall, more capital needs to be mobilized to reduce dependency on donors. To get here, co-investment structures, standardized frameworks, peer learning platforms are needed to unlock domestic capital from pension funds, corporates, and other local investors as well as foreign capital providers.
Knowledge gaps
A report from ISF Advisors published last year found that senior investor protections in blended finance vehicles exceed estimates of portfolio losses by nearly 15 to 20 times.
“Investors often provide concessionality by forgoing risk-adjusted financial
returns, rather than through increased risk-taking,” ISF Advisors said, while high-risk capital remains hard to raise and is sought from donors and bilaterals.
FASA research found that funders size the concessional capital they bring to their target mobilization ratio, prioritizing fund-level outcomes and performance over whether the capital is actually reaching underserved agri-SMEs.
FASA positions itself as both an investment and learning platform. The landscape report is the first in a series it intends to share.
“The learning agenda is more important than mobilizing capital,” said Songbae Lee of the Agri-SME Learning Collective, formerly at USAID.
“Some will say a fund is a failure if it doesn’t mobilize a certain amount of capital. I’d argue it will be a failure if the data it generates isn’t useful enough to improve how the next one is designed.”
“FASA’s learning agenda will unpack how patient and risk capital can best reach those enterprises in greater volume, and in ways that can best support their performance and impact,” said Hugues Vincent-Genod of I&P, which manages the FASA fund of funds.
“By aggregating data and learnings at scale and disseminating results, FASA seeks to help fund managers design stronger vehicles, investors allocate capital with greater confidence to the sector, and donors and philanthropies identify where their interventions can be most effective.”
