Soros development fund helps Ugandan agbiz vehicle close on €20m

Soros Economic Development Fund principal Jocelyn Songco says the first-loss tranche provided to the Yield Uganda Investment Fund shows how impact finance can adapt to unorthodox strategies in high-risk sectors.

A development arm of the Soros Foundation has invested €4 million into an agribusiness vehicle managed by Uganda-based Pearl Capital Partners (PCP) that subsequently closed on €20 million.

Jocelyn Songco, a principal at both the Soros Economic Development Fund (SEDF) and the Open Society Foundation, a philanthropic organization established by George Soros, told Agri Investor the commitment was part of the $20 million her unit aims to invest into agriculture annually.

PCP reached a €12 million first close on its fourth fund, the Yield Uganda Investment Fund, in February 2017, with commitments from the European Union and the International Fund for Agricultural Development (IFAD).

The vehicle’s strategy focuses on debt and equity investments of around €1 million in small and growing agribusinesses in Uganda. Key crops the fund will support include flowers, French beans, moringa, coffee, tea and a variety of fruit.

SEDF’s investment will help PCP close the Yield Uganda Fund on €20 million; below its  target of €25 million but at the level the firm had established as the minimum necessary to carry out its strategy.

Edward Isingoma Matsiko, PCP’s managing partner, told Agri Investor the Yield Uganda Fund will look to make about 60 percent of its investments in equity, with the remainder focused on loans with tenors of between five and seven years and annual interest rates of 9-12 percent.

While fertile soils, two growing seasons and supportive policies do help attract some investors to Ugandan agriculture, Matsiko said a variety of risks often discourage commercial finance and vehicles like the Yield Uganda Fund gaining more traction among impact-minded investors.

Matsiko added that the vehicle was too small for some potential investors.

“The single-country focus of the fund – on agriculture in Uganda only – was a bit unacceptable for many large foundations and government financiers,” he said.

Songco added that by providing an anchor investment that allows the SEDF to be paid back first, the EU and the IFAD have provided an example of how to improve impact investing models that have not been working.

“We can’t expect to invest in a high-risk sector with a very difficult investment strategy and mandate and assume that you make investments, they perform, you get your money back and pay your investors,” said Songco. “When you have a very particular investment strategy that is as unorthodox as this one, you have to accommodate that pragmatically and that is what the first-loss tranche does.”

PCP partner and investment director Wanjohi Ndagu told Agri Investor the social impact of investments from the Yield Uganda Fund will be measured separately for small and medium-sized enterprises and households.

For SMEs, PCP will collect data to measure developments such as probability, percentage of raw materials purchased from smallholders and employment, with a focus on women and youth, Ndagu said.

At the household level, the firm will use third parties to help track more than 300 metrics designed to provide a broad view of a community’s economic well-being, including income diversification, food security and asset-ownership, among others.