EIB, SOS Faim Luxembourg Sign Up for Stake in EU Solidarity Financing Fund for Africa

The Luxembourg-based European Investment Bank (EIB) and non-profit organisation SOS Faim Luxembourg recently joined the new European solidarity financing fund for Africa, FEFISOL II.

This week saw the launch of FEFISOL II, with a first closing of €22.5 million and a technical support envelope of €1 million. Building on the success of the first FEFISOL fund, which closed in July 2021, its promoters, the social investors SIDI (Solidarité Internationale pour le Développement et l'Investissement) and Alterfin, have structured this new fund dedicated to financing rural microfinance and small family farms in Africa.

The EIB, Proparco via FISEA+, the Belgian investment company BIO, Alternative Swiss Bank, Crédit Coopératif, Banca Etica and SOS Faim Luxembourg recently signed up for a stake in the fund.

The FEFISOL II Fund is designed to respond to the challenges of financing vulnerable populations in rural areas in Africa and more particularly the financing of the agricultural sector. Today, the penetration rate of microfinance in rural areas in Africa remains very low: less than 5% of the loans disbursed by traditional financial institutions are intended for the agricultural sector and less than 10% of farmers have access to formal sources of credit. Nevertheless, the agricultural sector accounts for 23% of the continent's GDP and 55% of employment. Despite increasing urbanisation, almost 60% of the population of sub-Saharan Africa, lives in rural areas.

On the African continent, family farming plays a major role, whether in terms of the number of farms (100 million family farms are located in the 47 countries of sub-Saharan Africa) or in terms of employment (75% of the sub-Saharan population is involved either directly (production) or indirectly (processing) in agriculture) or as an important source of value added. Family farming is also key in terms of environmental issues and contributes directly to the preservation of biodiversity.

Financing the agricultural sector is therefore deemed of the utmost importance in terms of food security, employment, resilience in the face of climate change and in terms of the financial inclusion of women who, even though they represent more than half of the agricultural workforce, often do not have the same access to financing as men. Notwithstanding the fact that the agricultural sector makes a major contribution to many African economies and that its growth directly contributes to poverty reduction, it remains financially underserved because it is often perceived as too risky or not profitable enough.

Managed by Inpulse, a Brussels-based investment manager and subsidiary of Crédit Coopératif and SIDI, FEFISOL II is structured to financially and technically support locally designed solutions in response to these challenges.

The first FEFISOL fund successfully closed in 2021. FEFISOL I has had considerable impact over the past decade:

• €86,5 million disbursed, of which 93% in sub-Saharan Africa, 60% in low Human Development Index (HDI) countries and 90% in countries vulnerable to climate change;
• 75% of average outstanding loans in local currency;
• 92 clients financed in 25 countries;
• 139 technical support projects carried out with 51 clients.

The positive outcomes of the first fund have convinced investors to invest in the new FEFISOL II fund. In addition to SIDI and Alterfin, which are contributing €4.8 and €2 million respectively, the EIB and the private sector subsidiary of the French Development Agency, Proparco, are each investing €5 million. The French social bank Crédit Coopératif and the Italian Banca Etica have also renewed their commitment. Moreover, new investors have joined the initiative: the Belgian investment company for developing countries BIO, Alternative Swiss Bank and SOS Faim Luxembourg.

These commitments will allow the fund to pursue and deepen its social mission. FEFISOL II is expected to be able to build on the experience and the client base it has acquired, focus its efforts on the quality of the services to be provided and thus be even more ambitious in terms of social and environmental performance.

FEFISOL II will be implemented in more than 28 African countries and should eventually support 110 microfinance institutions or agricultural companies and cooperatives sourcing from smallholders, most of which are Fair Trade or organic certified.

The new fund will offer diversified and adapted financial products, in twelve to fifteen local currencies in order to avoid exposing partners to exchange rate risk and will implement specific assessment and monitoring tools for agro-ecological performance. Finally, FEFISOL II will propose a new technical assistance facility with a more in-depth scope and upgraded procedures. Its aim will be to support its partners in strengthening their institutions and their resilience to climate change.

FEFISOL II is making its first closing at €22.5 million and a technical assistance package of €1 million from Proparco via FISEA+ with the final objective of raising €6 million. The second closing will be launched in 2023, with the first disbursements to be made in July 2022.