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Transforming Capital for Agriculture Adaptation

Updated: Nov 30, 2021



 

Kenya's agricultural sector represents 34% of GDP, employs 60% of its rural population, and is responsible for 50+% of exports. Given its crucial role in its socio-economic development agenda, the Government of Kenya has made Food Security and Nutrition one of its Big Four agenda areas. The sector, however, faces several challenges, including COVID-19, but none more severe than climate variability and change. Climate change has resulted in prolonged droughts and excessive rains, increasing water stress, and declining soil health. The key climate change derived risks include reduced crop productivity associated with heat and drought stress, increased pest and disease damage, and flood impacts on food system infrastructure, resulting in serious adverse effects on food security and livelihoods at the national, regional, and individual household levels. The Kenyan Government has identified climate adaptation as critical to lift people out of poverty, ensure food security and nutrition, and enhance the climate change resilience of food systems. Its challenge: how to prioritize financial flows to adaptation.


Climate-smart agriculture (CSA) practices and evidence have advanced considerably over the last decade, providing solutions that can help farmers adapt to climate change while enhancing productivity and income when selected, targeted, and supported appropriately. Unfortunately, despite the many efforts by public and private sector institutions, the adoption of CSA technologies and services remains limited in Kenya and the region. Two key reasons are limited access to finance and technical assistance, and they need to come together. For example, in Kenya, commercial banks remain hesitant to lend to the agricultural sector, especially activities supporting the primary production stage, with less than 5% of total lending going to the sector. This limits the potential for acquiring climate-smart agriculture inputs and strengthening climate-smart ag value chains. The data from neighboring countries is even worse.

A paradigm shift is required to transform the agriculture sector's risk-return profile and increase financing available for adaptation. Part of the solution lies in filling information gaps to support both the assessment and management of weather and climate risk in the sector. ADAPTA will become the region’s first climate adaptation credit facility directed to the agriculture sector. It seeks to transform the way lenders and investors assess the sector's risks by introducing weather and climate data, Ag-technologies, soil, and hydrology assessments, etc., to develop climate scores and adaptation plans that can help ADAPTA and other commercial banks make informed credit decisions and proactively manage agriculture portfolios for climate resilience. The same way credit scoring algorithms transformed consumer and corporate finance globally, climate scoring algorithms, supported by these new technologies, may unlock millions of dollars for climate-smart agriculture.


This innovative credit facility seeks to strengthen producers’ and Agri-SMEs' financial standing and expansion plans but, just as importantly, enhance their climate resilience. ADAPTA plans to use an innovative structure that combines blended finance and a climate-smart model (CSM) to address adaptation finance barriers. Phase I focuses on the development and testing of the CSM to strengthen the traditional credit underwriting process. Phase I is central to a Phase 2 US$40Mn+ non-bank financial intermediary. German Vegarra, ADAPTA's CEO said "Unless we mobilize large of pools of capital to climate adaptation, the fight against climate change will get harder. We hope commercial lenders and investors can adopt ADAPTA's CSM to strengthen their risk management process and increase their exposure to this critical sector."


Manager: Tiserin Capital will manage the facility. CGIAR will co-develop the CSM.


TCA Principals are experienced in SME and agribusiness lending, risk management, and blended finance. They are also experienced in developing and launching multi-stakeholder and innovative initiatives within the last 10-15 years. They are all based in Kenya:


German Vegarra, an IFC veteran, was IFC’s Global Head Agribusiness where he developed and launched the world’s first blended finance fund for agriculture (GAFSP) in 2012. He led IFC’s manufacturing, agribusiness, and services (MAS) operations in Africa and launched the G-20 endorsed Global Trade Liquidity Program (GTLP) during the Global Financial Crisis. German will lead ADAPTA.


Madleine Mwithiga-Njuguna, a Standard Chartered Bank veteran, headed SCB's SME operations in Kenya and Africa, supporting its growth over her ten-year career. She also won several awards at the bank, including recognition among the top SME units globally and the fastest growing. Madleine will be ADAPTA's Chief Operating Officer.

Aida Kimemia, also an IFC veteran, managed IFC’s East Africa region, quadrupling its operations. She led investments across IFC MAS sectors, most notably in agribusiness, health, and education in Africa. Aida will chair the Blended Finance and Credit Committee.


Impact: ADAPTA will measure jobs protected and new jobs, especially for women and youth; and energy and water efficiency. It will ensure all borrowers meet best practice E&S standards and SME governance plans. ADAPTA is also expected to develop a novel and replicable credit assessment process that takes into to account climate resilience and competitiveness; thereby, mitigating systemic risks.


If you are looking to join ADAPTA as a funder or borrower, please send inquiries to: info@adapta.earth

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