ResponsAbility, a Swiss firm specializing in development investments, has purchased a significant minority stake in Samunnati, an Indian company offering cash-flow loans to small- and medium-sized businesses across the agricultural value chain.
Rik Vyverman, ResponsAbility’s head of agriculture equity investments, told Agri Investor that capital for the investment came from the firm’s agriculture equity fund, which held a first close on $50 million in June and is targeting a final close on $200 million by the end of 2018. With investors including high-net-worth individuals, foundations, private pensions and at least one bank, Vyverman said ResponsAbility’s agriculture equity fund will offer IRRs of more than 20 percent.
Chennai-headquartered Samunnati was established in 2014 and offers credit to lenders including farmers, traders, wholesalers, input manufacturers, coops, processors and exporters. The company has established relationships with 12 banks and other non-bank financial institutions that lend to Samunnati, which, in turn, offers its customers loans on terms ranging from 15 days to four years. The average loan size is $1,650 and interest rates follow local markets, typically ranging between 20 and 25 percent, according to Vyverman.
Samunnati has disbursed $80 million to lenders engaged in value chains for 12 commodities located across 10 states over the past two years, ResponsAbility said. Vyverman added that the value chains Samunnati lends to include those for dairy, poultry, fruit and vegetable production and were chosen for the low weather sensitivities, short cropping cycles and minimal government interference the firm thinks most supportive of returns.
Metrics that will be used to measure Samunnati’s social impact, according to Vyverman, will include number of clients, the number of those clients which are rural and female, and average loan size.
India’s agricultural sector requires $50 billion in credit annually, the firm pointed out, but the nation’s smallholder farmers are disadvantaged in a market where loans are inequitably distributed and expensive. Vyverman highlighted that agriculture is the principle source of livelihood for more than half of India’s 1.3 billion population, despite accounting for just 17 percent of GDP.
He added that the country is an important market for his firm’s concentration on mainstream financial investments that deliver value and also social impact. Given that dual mandate, he said, ResponsAbility often finds itself investing in markets where developmental finance institutions are also active.
“In some cases they [DFIs] are competition, in some cases they provide us an exit and in other cases they are partners,” he said.
In March, ResponsAbility teamed with Belgian impact investor Incofin for a $20 million investment in Sohan Lal Commodity Management, an Indian post-harvest logistics and financing company that operates a network of 1,500 warehouses and 19 cold storage facilities located throughout India.