Challenge funds: Financing agribusiness for sustainable development

Enterprise challenge funds in Africa are matching grant funding with agribusinesses that have the potential to grow and create impact for rural populations. By mitigating against market risk, challenge funds are boosting the development of investable and sustainable businesses.

A long-life, fridge-free margarine called Sunspread has been produced in Malawi by Sunseed Oil Limited – a beneficiary of the Malawi Innovation Challenge Fund © Charles Mkoka

Innovative financing mechanisms in Africa, known as enterprise challenge funds, are channelling public funds to private businesses with a focus on sustainable development. A pre-defined development ‘challenge’ is widely promoted in the public domain with clear eligibility criteria, and is open to all who are willing to bid. Through this competitive and transparent process, challenge funds ensure that only commercially viable businesses with the best solutions to development problems receive funding. At the same time, grantees are provided with additional services, such as market risk mitigation support to help package their enterprises for donor investment.

Eligibility varies from fund to fund. Some, like the Africa Enterprise Challenge Fund (AECF) and the Malawi Innovation Challenge Fund (MICF) are only open to private companies and require grantees to cover at least half of project costs. AECF’s competitions target economic sectors such as agribusiness, renewable energy and rural financial services, and award loans of between €210,000 and €1.3 million. “We look for companies large and small but they must have two things: an innovative idea that will impact on the rural poor, and commercial viability,” says Dr Paul Greener, AECF CEO. To date, 257 projects have received funding from AECF since its launch in 2008, resulting in around 9,000 salaried jobs and generating a cumulative net wage of €85 million.

In March 2017, Malawi saw the opening of its first margarine and baking fat processing plant in Kanengo, Lilongwe, which will produce a long-life, fridge-free margarine called Sunspread. The owners of the plant – Sunseed Oil Limited – are one of MICF’s grantees. The project is expected to improve value addition in sunflower production and will require 14,000 t of sunflower seed every year, expanding market access for over 10,000 rural smallholder farmers. Sunspread margarine has a ready market locally and there is a growing demand regionally, especially in Mozambique and Zambia.

AACE Food Processing and Distribution Ltd. (AACE Foods) is a private, for-profit company that secured €408,000 in funding from AECF in January 2013. Conceived as a social enterprise in 2009, AACE Foods sources grains, herbs, cereals and vegetables from smallholders in Nigeria to produce a range of spices, spreads and sauces, and is focused on improving farmers’ livelihoods by offering microfinance and support services. With funding from AECF, AACE Foods was able to cover a portion of its start-up and farmer cluster development and training costs, and new product innovation. “It has been a tough task to build a local supply chain and change mindsets about locally-made products. However, we have been able to surmount many of these encounters through the support of development partners such as AECF,” says Juliet Fejiro, AACE Foods sales and marketing associate.

Sophie Reeve

The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint international institution of the African, Caribbean and Pacific (ACP) Group of States and the European Union (EU). CTA operates under the framework of the Cotonou Agreement and is funded by the EU.