Since early 2017, Development Connect, represented by its director Diana Brandes, works together with The Agricultural Business Initiative Trust (aBi), a multi-donor entity, a Corporate Business, that is one of the components of the U-Growth programme aimed at supporting private sector in achieving the objective of the government of Uganda’s Competitiveness and Investment Climate Strategy.
Development Connect helps to improve aBi Finance and aBi’s Trust Agribusiness Financing, Investment, Grant and Fund management policing, guidelines, criteria.
aBi invest in projects in two core sectors, rural financial services and agribusiness, the latter mainly concentrated in six (6) value chains; Coffee, Dairy, Cereals, Oilseeds, Pulses and Horticulture. aBi invests in fund projects within these two sectors that provide and improve information services in rural areas, but only where such services relate directly to rural financial services and agribusiness. Examples are media and extension services. Risk management strategies to enhance business units’ performance monitoring are looked at as well as the nature & kind of future Agribusiness financial instruments (concessional loans, portable guarantees and guarantees from the endowment fund).
aBi Finance manages its endowment fund primarily through lines of credit (direct financing under the clean technology fund, indirect financing through partner Financial Institutions (FIs) and guarantees (direct guarantees through portable guarantees, indirect guarantees via partner FIs), and Government securities and fixed deposit placements. It also provides fund management services to the Agricultural Bond Company and the Debt Fund as well as provide hosting functions (mainly legal and administrative) for the Crossroads Guarantee Fund and the KFW Rural Challenge Fund. It is increasingly involved in matching grants and concessional loans on behalf of aBi Trust (in a bid to move away from grants). Financial Services Development (FSD) is under aBi Finance to reinforce synergies between the guarantees and credit that aBi Finance provides to Financial Institutions and the capacity development and technical assistance that FSD provides to (often the same) FIs. The aim is to use these instruments to stimulate and support FIs to build agricultural expertise and capacity in-house and start lending to agribusinesses at better terms and conditions.
The structure for aBi Finance allows for essentially three distinct sets of products and services:
- Direct financing and capacity development of businesses and financial institutions (mainly financed with aBi Trust funds);
- Indirect financing of agribusinesses (mainly from the endowment fund) and;
- Fund management (against a fee). In some cases, projects that are supported under the Fund Management service can lead to either direct or indirect financing, such as the maturing portfolio of the Rural Challenge Fund or the Debt Fund that may be seen as a revolving fund for the concessional loans.
The aBi Finance financial instruments are:
- Lines of Credit (LoC) – aBi Finance wholesales funds to Financial Institutions for on-lending to agribusiness with the aim of increasing access to finance for agribusiness SMEs and commercial agricultural producers.
- Agribusiness Loan Guarantees (ALG) – aBi Finance partners with Financial Institutions to provide 50% cover for loans provided to agribusiness SMEs, in a bid to lay off inherent risks in the sector. The FIs pay a premium to aBi Finance for the service, which also generates income for the endowment fund.
The management of the financial instruments is guided by different Funding Policy Manuals, Investment and Guarantee Manuals, and which sets the rules and procedures for aBi to extend varied instruments to participating FIs, and for FIs it sets the criteria for extending aBi backed loans to their clients, the rules for managing claims and the monitoring and reporting requirements to aBi.
aBi Finance has an advisory role in the mixed aBi teams that deal with direct financing of agribusinesses, farmer organizations etc. when it comes to drawing on the funds of aBi Trust. However, the nature of this kind of financing is changing and may very well consist of various financial instruments including full or matching grants, concessional loans and portable guarantees (in the latter case, the funder may still be aBi finance). The finance is accompanied by non-financial support such as capacity building and technical assistance, in order to make sure that the finance is utilized effectively, sustainably and fully accounted for. This approach may also lead to leveraging agri-lending from FIs, where aBi takes the highest risks and low or no return on its investment, while a FI may cover the less risky elements of the project such as equipment financing, insurance, trade financing, input financing. This way, aBi’s investments provide stronger “Value for Money” and additionality. Under this set of activities, aBi Finance bears full management responsibility for the “indirect” financing of agribusiness by engaging with FIs allowing aBi Finance to provide a mix of instruments and support to each FI with the aim of achieving two objectives:
- Maintaining and growing the value of the Endowment Fund;
- Generating development impact.
To reach both objectives, aBi’s generous LOCs and Guarantees (from the Endowment Fund) are combined with Capacity Development and TA (from aBi Trust funds).
Diana works closely together with aBi’s senior management, the board (of trustees, directors) and government, dealing with the above, briefly explained, complex governance and business structure, to develop clear process descriptions and workflow information between aBi’s Finance and aBi Trust Governance, Corporate Operations, HR, Finance & Accounting, Procurement, Risks and Compliance, Grant, Investment and Fund Management, Monitoring, Evaluation and Learning, Communication and ICT functions to ensure that operations are following a clear path, where there are no deviations in the process and where audit trails are clear and reconcilable with having manuals in place and approved procedures.
The different guidelines and procedures developed support the realization of Agribusiness objectives of the Government of Uganda tempering the development imperative with aBi’s agricultural enterprise development and business objectives to ensure integrity, transparency and accountability in programming, project grant disbursement implementation, monitoring, learning and evaluation leveraging to strengthen procurement, risk, compliance and finance and fund management capacity. The key purpose of all governance policies/manual is to provide guidance in national implementation modalities and also addresses the capacity development imperative, partner engagement, programming and project processes, human resource management to scale aBi’s provision of both financing and technical support in selected agricultural value chains and offerings on more integrated approaches on value chain development.