Featured Image: Horamama Coffee Dry Mill in Ntarambo, Burundi was the first investment in Kampani’s portfolio. Set up in January 2016 by the Fairtrade certified Burundian coffee exporter COCOCA, a union of smallholder cooperatives, the hulling plant was acquired, financed by Kampani, to hull and store coffee beans – an activity which up to that point was outsourced to third parties. In the 2020 season, they processed just under 4 million kilograms of coffee parchment from the cooperative and independent clients (Image: Kampani).
Wouter Vandersypen and Mariah Grubb, Executive Director and Investment Officer, respectively at Kampani share how the organization's innovative finance approach improves their investees' balance sheets and promotes social impact.
- What kind of innovative financial instruments does your organisation use?
Kampani exclusively provides equity and quasi-equity investments for amounts ranging from 100K EUR to 500K EUR and exclusively in the agro-food sector. Our quasi-equity investments take the form of long-term uncollateralized subordinated loans - in other words, patient growth capital for capex heavy investments. Using these instruments only, we always strengthen the balance sheets of our investees. With a stronger balance sheet and using the assets financed by Kampani as collateral, our investees can in turn attract additional senior debt. In this manner, Kampani unlocks growth. Our investees tend to be unable to accumulate retained earnings. The members of the farmer cooperatives in question tend to be poor, so the pressure to upstream profits is very high, leaving the cooperative forever with a weak balance sheet.
- What have you learned through the course of designing and implementing these structures? What's working, what's not?
When Kampani set out to address the ‘missing middle’ of agricultural finance, the founders envisioned an equity heavy portfolio, recognizing the value of cash infusions without immediate repayment structures. Of our nine current investees, we are minority shareholders in only two, however. We have learned that our primary targets, small-holder farmer organizations, are often not equipped to take on equity investors. There often are legal constraints and negotiating a shareholder agreement proves too complex for most of our investees. Our quasi-equity model has proven more popular and better able to meet the needs of investees seeking to grow their businesses, strengthen their balance sheets, and enhance governance practices. We continue to offer equity investments but no longer seek to make them the majority of our portfolio.
- How does innovative finance help you maximize impact?
Our targeted strategy prioritizes the well-being of small-holder farmers above all else. By providing uncollateralized junior debt or equity for capital expenses (land, buildings, equipment), Kampani accomplishes a number of things that maximize an investee’s social impact in their community. The assets acquired by Kampani’s funding can be used as collateral for other loans. Our flexible repayment schedule, including an initial two year grace period, is developed with the investee, allowing repayments to align with annual revenue streams. All capital we provide is patient, with loan horizons averaging over 7 years. Furthermore, we are open to add-on investments. This provides additional security for investees that may need additional time to reach their goals or who have reached a milestone and are ready to progress to their next growth stage. Each of these components maximizes the reach of our investees to small-holder farmers in their community, supporting further economic development in the region.
- If you use blended finance, tell us about some of the innovative partnerships you have employed.
Kampani has its own, but small, Technical Assistance facility. Our blended financing approach, however, tends to take the form of partnering with grant financed partners. Indeed, our unique shareholder-partnership network is one of the key elements that sets Kampani apart from other impact investors. With foundations, institutions, NGOs, and private individuals counted among our investors, we have unique access to a variety of services and expertise. Our NGO network, with presence on the ground, not only acts as a deal-sourcing vehicle but further provides technical support to investees, both to make them investment ready and to maximize their growth capacity. Shareholder Alterfin, a social lender, often partners with Kampani to provide operating expense financing for investees, allowing the infrastructure financed by Kampani to be adequately utilized. We have also entered co-investments with similar-minded funds such as The Yield Lab and Grameen Credit Agricole Foundation. These and other partnerships make Kampani’s model successful. With nine investments in our portfolio and no failed businesses, Kampani has made the strategic decision to significantly scale up our fund to 20M, instead of the originally envisioned 8M EUR goal. Our strategic agenda will further grow our partnership network and maximize social impact across the agriculture sector of the developing world.
Kampani is a social impact investment fund working to unlock the potential of entrepreneurial farming in the South. It is a pioneering way to fight poverty and promote development by investing in businesses of producer organisations of smallholder farmers in the South. The investment targets can be businesses or cooperatives which produce, process, trade and/or market agro supply, farming products and their derivatives.
Kampani stands out from other social investors thanks to an audacious combination of strategic choices:
- Investing directly and strengthening the balance sheet of the investee through the use of equity or quasi-equity
- A long investment horizon of up to 10 years
- Only in the agro-food value chain
- Active involvement in the governance of the investee
- Small investment amounts (100k to 500k euros); add-on investments for successful partnerships can lead to a total investment of up to 1M euros
By targeting this part of the missing middle, Kampani aims to:
- increase the farmers’ income
- improve the farmers’ position in agricultural product chains
- contribute to the development of their communities
The social impact is a crucial part of the investment decision-making. Kampani gives equal weight to the social impact on smallholder farmers and to the financial return on investment.
