The Catalytic Climate Finance Facility is a partnership between Climate Policy Initiative and Convergence.
Convergence’s Design Funding and Market Acceleration (DFMA) Associate Director, Trang Vandelis, spoke with One Acre Fund’s Senior Direct, Jeremy Golan, about how One Acre Fund aims to design their blended finance vehicle and their advice to prospective grantees.
The conversation has been edited and condensed.
Trang: Tell us about One Acre Fund’s story, what you do, where you work, and your mission.
Jeremy: One Acre Fund works in East, Central, and Southern Africa. Our mission is to make smallholder farmers more prosperous, climate-resilient, and empowered, especially female farmers. Our core model is rural distribution of farm inputs on credit.
We now work with about four million farmer households. We’ve been finding in this work that smallholder farmers are very vulnerable to climate change. One solution is to transition to high-value, climate-resilient crops that do better when the weather is bad.
One Acre Fund has been working with farmers to transition to these crops and to access markets. What we've been finding in our pilot, which we started after working with the Global Innovation Lab for Climate Finance to incubate this concept, we found that there's a virtuous cycle where One Acre Fund is providing direct support to smallholders, as well as technical assistance.
SRV is working directly with the companies providing finance and also helping them scale their business. This results in farmers having more markets, growing their income. The businesses are getting follow-on-investment and becoming more investment-ready.
Trang: Can you talk a little bit more about SRV and the pilots you've done to date?
Jeremy: When going through the Lab’s cycle, Climate Policy Initiative (CPI) staff helped us think through what this looks like. We have a lot of direct experience with smallholders, but a little less experience on the finance and the blended capital side.
We set up a pilot in Rwanda with a new company that can make these investments. We invested in horticulture exporters, as well as a coffee washing station that buys from farmers. One Acre Fund then trains the farmers and provides inputs. We’ve seen that virtuous cycle in place.
We've done a lot in avocados as well, launching with a co-investor an avocado oil processing plant that's live. We're planning to expand to other countries and working our way toward launching the fund with the CC Facility.
Trang: What do you plan to use the grant and the acceleration support from the catalytic Climate Finance Facility for SRV?
Jeremy: The most important thing for us is to use the CC Facility to find a Partner Fund Manager. The experience with blended finance, attracting private capital, and making different kinds of investors comfortable is really important. So we're looking for someone who has our ambitions and values that complement the skills of One Acre Fund.
The first step is putting out a Request for Proposal (RFP) and interviewing fund managers. The second will be finalizing our structure, financial modeling, and investor pitch. Then, we will focus on strengthening our gender strategy to be more transformative.
The ultimate goal is to launch a vehicle and raise private capital. That's what the milestones for the CC Facility are based on. The experts at Convergence and CPI really helped us just narrow our options. The teams have been very direct, allowing us to be both bold and wise in a way that we would not be able to do without the facility.
Trang: Let's learn a bit more about the reaction from the market. So far, you've mentioned that you've been in touch with a few fund managers to test this concept, and I would love to hear the response.
Jeremy: I think the response from the market has been positive. Based on the kind of guardrails and points that this CC Facility has given us have helped us bounce things off the market pretty quickly and improve the concept. People are excited about it. We're taking a phased approach with a smaller fund one and then hopefully a larger fund two or partnering with someone on a fund.
Trang: What are some challenges you face so far when it comes to structuring the vehicle and making it a blended vehicle that will be sustainable over the long term, given the really challenging segment that you're targeting?
Jeremy: The very real challenge of smallholder agriculture is climate change. We want to work with very scalable, small and medium enterprises, which are smaller ticket sizes and can result in some inefficiency and risk.
To mitigate this, we have taken a phased approach, starting with a smaller fund and making it a little bit less risky by showing its viability with concessional capital. Then, over time, attracting more commercial capital by showing the model is less risky because we've been experimenting on various scales, and then also by strengthening a cohort of really strong companies. Those companies will be attractive investments and can also attract private capital.
We are doing this by taking a phased approach by leveraging the CC Facility and bringing on an experienced Fund Manager to accelerate the learning process.
Trang: Do you have any advice for someone who is interested in applying to the facility?
Jeremy: Two things jumped out from the process. One is to embrace the application process and use it as a strategic tool to refine your approach and proposal.
Second, be specific about your plans and needs. For us, the most important thing was finding an experienced Fund Manager, which is a core competency of Convergence and CPI. So it was perfect.
Focus on concrete actions and consider how the CC Facility and its support fit into the larger plan.
Trang: What were some of the components that stood out for SRV that made your application stand out?
Jeremy: I think the number one thing that made us stand out is our unique selling point and what our additionality is. One Acre Fund brings this local presence. We bring a special pipeline of SMEs that work with vetted smallholder farmers and a farmer network that serves as a supply base for these SMEs.
Secondly, reflecting on what makes you different is important. Our specificity and readiness to hit the ground running, demonstrated by our ability to immediately utilize the technical assistance and funding made us stand out. I think just being ready to go is important. What you want to do next is very valuable, and knowing you can do that is important.