October 5, 2011 | seedstock

With unprecedented drought resulting in strife, famine and sky high food prices in East Africa, prominent foundation investors have joined with the US Agency for International Development (USAID) and the Global Impact Investing Network to create a first-of-its-kind private investment fund that will focus exclusively on developing small and medium-sized agricultural businesses in the region.

Global Impact Investing Network members, including the Rockefeller Foundation and the Bill & Melinda Gates Foundation and the Gatsby Foundation, have teamed up with USAID and JP Morgan to create the $25 million African Agriculture Capital Fund (AACF).

Kampala, Uganda-based Pearl Capital Partners, which specializes in African agricultural investments, will invest and manage the fund’s initial $25 million of capital, allocating it across at least 20 agriculture-related businesses.

“This unique collaboration between diverse investors will result in increased capital to the sustainable African agricultural sector and a more rigorous focus on generating social and environmental benefits,” said Luther Ragin, Jr., CEO of the Global Impact Investing Network. “We hope that other impact investors are encouraged to seek out similar opportunities that enable parties to more effectively address some of the world’s most pressing problems through investment.”

In addition to providing capital to enhance the productivity and profitability of the region’s under-capitalized agricultural sector, Pearl Capital will provide management and technical expertise with the aim of building up a local base of knowledge and expertise in sustainable, environmentally friendly agricultural practices and technology.

These activities are projected to help better the lives of at least 250,000 smallhold farmers and others across the region, according to a press release issued jointly by the participating organizations.

“Achieving food security in Africa requires public and private players working and investing together. This transaction is a testament to that kind of collaboration,” said USAID Administrator Rajiv Shah. “Investors increasingly see the promise of Africa’s agriculture sector, but the transaction risks are often perceived to be too high. That’s why we’re leveraging our development dollars and using innovative tools like the Development Credit Authority to lower the investment hurdles for private partners that want to invest with us.”

The Bill & Melinda Gates Foundation, the Gatsby Charitable Foundation and the Rockefeller Foundation are providing $17 million of equity capital. USAID’s Development Credit Authority is guaranteeing half of an $8 million commercial loan from JP Morgan’s Social Finance Unit.

The fund will also benefit from being able to tap into $1.5 million in  USAID-funded business development services, that were provided to the organization by President Obama’s “Feed the Future” program.

“The African Agricultural Capital Fund is a prime example of how government, civil society and the private sector can work together to provide innovative solutions to the pressing challenges facing the African continent,” said Dr. Judith Rodin, president of the Rockefeller Foundation.