AECF Impact Report 2015_lo res

THE AECF AT EIGHT

2015 IMPACT

REPORT

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The AECF is a special partnership initiative of the Alliance for a Green Revolution in Africa (AGRA). AGRA is a dynamic, African-led partner-ship working across the continent to help millions of small-scale farmers and their families lift themselves out of poverty and hunger. Through its programmes, AGRA develops practical solutions to significantly boost farm productivity and incomes whilst safeguarding the environment. AGRA, with initial support from the Rockerfeller Foundation and the Bill & Melinda Gates Foundation, maintains offices in Nairobi, Kenya and Accra, Ghana.

www.agra.org

This report is the outcome of close collaboration between KPMG IDAS and IPE Triple Line Consulting

KPMG International Development Advisory Services (IDAS) is the Fund Manager for the AECF. KPMG IDAS is a Centre of Excellence in devel-opment advisory work on the continent. It has adopted a pan-African approach to development, employing full-time development experts complemented by a network of champions across the continent to deliver services in programme and fund management, organisational assessment and development, rebuilding fragile and conflict affected states, renewable energy and adaptation to climate change, private sec-tor development, good governance and public healthcare.

www.kpmg.com

IPE Triple Line has worked with KPMG IDAS since the AECF was launched in the capacity of AECF’s monitoring, evaluation and learning partner. Its diverse international staff and network of consultants are experts in monitoring, evaluation and learning, particularly in support-ing the performance assessment of private-sector linked assistance and challenge funds. Other core service areas include: private sector development, governance and fragile stage, challenge fund design and management and social and economic empowerment.

www.tripleline.c mo

The views expressed in this report are those of the Fund Manager and do not necessarily reflect the views of AGRA or the AECF’s donors.

The AECF portfolio covers a wide variety of projects, many of which have particular methodological challenges as-sociated with impact assessment. The development impact data and analysis presented in this report represents the best endeavours of the Fund Manager and its Monitoring, Evaluation and Learning partner. It is important to note that assessing the development impact of the projects that the AECF funds is an ongoing process and that data may be further refined.

KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (‘KPMG International’), a Swiss entity.

All photos are from KMPG IDAS unless otherwise credited.

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AECF Impact Report 2015

Foreword from the ChairI was delighted to be appointed Chair of the AECF in early 2016. I was brought up in Ghana and as the grandson

of cocoa and cassava farmers in Akyem Tafo and the beneficiary myself of a Cocoa Marketing Board Scholar-

ship. I understand very well the transformative potential of the private sector on livelihoods and opportunities for

rural farming communities.

The AECF funds businesses in the areas of agriculture, agribusiness, rural financial services and communications

systems, renewable energy and adaptations to combat climate change that otherwise would not have access

to sufficient capital. The AECF has received support from governments (Australia, Canada, Denmark, The Neth-

erlands, Sweden and United Kingdom), and international financial institutions (Consultative Group to Assist the

Poor and IFAD)

Over the past eight years, the AECF has demonstrated the strength of the challenge fund mechanism, the ability

of the AECF to deliver, and the development impact of making catalytic investments in the private sector across

Sub-Saharan Africa. In 2015, the impact of the AECF was greater than ever before with over 10 million rural

people experiencing improvements in their livelihoods as a result of our support. Since 2008, the AECF has made

a significant impact by funding 257 projects in 23 Sub-Saharan African countries, which have generated $471

million in additional net benefit. AECF investments create change in market systems, encourage innovative busi-

nesses and deepen the impact of private sector investment on the rural poor. Moreover, the AECF helps builds

capacity and sustainable businesses by requiring successful applicants to contribute co-financing and have good

business practices.

Since last year, the AECF has been undergoing a change program aimed at increasing its reach and impact. Key

to this change has been the transition of the AECF to be a company limited by guarantee managed by a Board of

which I am Chair. We are a proudly Pan African Fund and the make-up of our newly constituted Board reflects a

commitment to expand the Funds reach beyond its existing areas of operation. During the transition all aspects

of AECF management will become the responsibility of AECF Limited while we continue to be part of the AGRA

family. This new structure will allow for greater efficiencies, agility and accountability, and will help ensure that the

AECF is able to innovate in the products it provides and better serve the needs of African businesses.

I would like to thank our donors for their generous support and the Fund Manager for their great work over the

past eight years. We are looking forward, as a Board, to taking the AECF onwards and upwards to meet new

challenges and opportunities in a changing global environment. Support for innovative and entrepreneurial ap-

proaches to rural development has never been more critical to unlocking the huge but too often neglected po-

tential of African rural communities. The AECF will play its full part with our partners in the business and develop-

ment communities to support this great cause so that yet more lives may be transformed.

Lord Paul Boateng, Chair of the AECF Board

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31

Small Medium Large

Over 70% of Africa’s poor people live in rural areas,

with 41% of sub Saharan Africa living on less than

US$1.25 per day in 2015i. The majority of these

depend on agricultural activity for their livelihoods but

this is hindered by systemic market failures result-

ing from a lack of access to infrastructure, financial

services and information.

The Africa Enterprise Challenge Fund is a multi donor funded challenge fund that seeks to ha nessr

governments, international policy makers and

donors to stimulate private sector African entrepre-

neurs. By providing grants and non-recourse loans

to projects focused on agriculture, renewable energy

and adaptation to climate change and access to

financial services, the Fund generates innovative and

profitable ways of improving how markets work for

the rural poor.

The Fund Manager identifies these new ideas by

running a series of thematically and geographically

targeted competitions requiring potential applicants

to initially submit their ideas and concepts. These are

investigated and analysed by an Investment Commit-

tee comprised of independent sector specialists with

those shortlisted subsequently developing compre-

hensive business plans. Further analysis and inter-

views lead to the selection of winners who are funded

with up to US$1.5m for a period of three years, with

a further three years of monitoring and support from

the Fund Manager.

What is the AECF?

The AECF targets primarily small and medium sized

enterprises operating in sectors where opportunities

for vibrant competition and market distortion thrive.

However, it also provides funding to larger compa-

nies seeking to implement projects targeting the poor

that would not otherwise offer sufficient returns to be

implemented

The majority of our grantees are well established firms

even if the projects that are funded are new ventures

for them. Only in the REACT Window, which focuses

on renewable energy and adaptation to climate, are

most grantees – more than 80% - start-ups, reflecting

the highly innovative and early starter nature of this

market.

Who is funded?

Non Start-up, 64%

Start up, 36%

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Introduction 9

The AECF’s Impact in 2015 13

Impact by sector in 2015 15

Business performance in 2015 22

The AECF’s Impact over the last eight years 25

Cumulative impact by sector 28

Cumulative impact by Window 30

The AECF’s impact from job creation 34

The AECF at Eight – What has been learned from managing the AECF 39

Core concepts – how we affected market systems impact, additionality and innovation 40

The AECF as a mechanism for inducing market systems change 40

Additionality 46

Innovation 48

Key tools for success 51

Grants and loans 51

Sharing risk with our grantees and other investors 53

AECF Connect: Supporting the transition to commercial funding 54

Implementation processes and experiences 57

Starting races between similar business models 57

Developing a cost-effective results measurement system 58

Learning from project failure 62

How AECF projects reach the poor – examples of poultry and seeds 64

Working towards addressing gender better 68

Wider public benefits in the REACT portfolio 71

Table of Contents

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Our greatest achievement has been to expand the toolbox of the smallholder farmer using new technologies and novel approaches.

“”

7


7

A note from the AECF DirectorDear readers,

As leader of the Fund Management Team† since its launch at the World Economic Forum in Cape Town in June 2008,

I have been privileged to have seen the AECF grow from a relatively small Challenge Fund of US$35m to the exciting,

innovative and transformative set of eight funds that it is today. The US$247m generously pledged by the AECF’s donors

has been committed to support over 250 business ideas across 23 countries in Sub-Saharan Africa. In 2015, we esti-

mate the impact was greater than ever before with over 10m rural people experiencing improvements in their lives and

their livelihoods. Whilst these numbers are impressive it is the human stories that bring the AECF’s work to light. In this,

the last of our annual portfolio reports, we offer some of these stories and lessons from our experience over the past

eight years, as well as an overview of the Fund’s impact in 2015.

The AECF’s greatest achievement has been to expand the toolbox of the smallholder farmer using new technologies

and novel approaches. AECF supported farmers can plant high yielding seeds protected by insurance using advice from television shows watched on devices powered by renewable energy. They can sell their output into ver callyti

integrated value chains and use the proceeds to invest through low collateral equipment leasing schemes. It is this

multi-faceted approach blending traditional farming and extension with 21st century technology that really sets the AECF

apart. It has also shown us the future for rural development – the development, capture and dissemination of data and

knowledge through modern media using mobile technology as the primary channel to promote financial and information

inclusion.

The AECF has been a terrific achievement that should make the AECF’s donors feel justifiably proud and I have all con-

fidence in the new team taking up the baton from next year. But this is for the future. To my colleagues, partner compa-

nies and individual consultants who have made the AECF such a success I offer my sincere thanks. Let us remember

that we started races rather than picked winners, that we supported disruptive innovation whenever we could find it, and

took as much risk as we dared but always in pursuit of our purpose of making Africa’s rural areas better places to live

and work for the majority of the population, and our particular target group, the rural poor.

Hugh Scott

AECF Director, KPMG International Development Advisory Services

† From 2008 to the present the AECF has been a special partnership initiative of AGRA and managed by a team (the “FM” team) from KPMG’s International Development Advisory Services practice (KPMG IDAS). The AECF is now in the process of being registered as a not-for-profit entity that will ensure its future.

8

When the AECF was launched in 2008, its mandate

was to invest just over US$35m in innovative projects

which would enable the rural poor to engage in more

meaningful economic activity. By the end of 2009, the

first 25 projects that the AECF funded had directly

benefited over 200,000 poor people through improv-

ing their access to agricultural markets and products.

Eight years on, the AECF has grown to a US$247m

multi-donor fund providing repayable and non-repay-

able grants to over 250 projects focused on agribusi-

ness, renewable energy and adaptation to climate

change, and access to information and financial

services for rural households across Africa. Our proj-

ects are spread across 23 countries in sub-Saharan

Africa, and impacted the lives of over 10 million poor

people in 2015 alone.

Despite this rapid growth in size and across sec-

tors, the AECF’s focus has always been the same: to

fund innovative business ideas in Africa, improve the

functioning of market systems, and ultimately enable

those living in rural areas to reap long lasting benefits

and lift themselves out of poverty.

The Africa Enterprise Challenge Fund

Introduction

8

We view our core objective as contributing to the growth of sub-

Saharan Africa’s agricultural, agribusiness and renewable energy

sectors resulting in sustainable benefits for the rural poor. “

”

9


Growth of Sub-Saharan Africa’s agricultural,

agribusiness, and renewable energy sectors resulting in sustainable benefits for the

rural poor

COREOBJECTIVE

Funding clusters of projects with similar business models

Selecting projects with maximum potential for market systems impact

Requirement to co-finance

Running targeted competitions

Proactive risk management

and compliance

Effective monitoring and results

measurement

impact rural households

Leveraging private Developing mar

kets

&

acce

ssib

le te

chnologies

with the potential to

facilitating mark

et e

ntry

for

sector investment

inno

vativ

e,

affordable &

rural households & b

usin

esse

s

deve

lopm

ent & use of

to maxim

ise impact

businesses & business ideas

working with

the

rura

l poo

r&

share risk

Stim

ulating th

eFunding innovative

STRATEGIC OBJECTIVES

The AECF’s Objectives

9

The AECF’s core objective is to contribute to the growth of sub-Saharan Africa’s agricultural, agri-

business and renewable energy sectors resulting in sustainable benefits for the rural poor. This is

based upon four further strategic objectives, all of which are central to decision making when awarding grants

and loans to businesses.

The Competitive Process

10

The first strategic objective is to fund innovative

and commercially sustainable business ideas

that have the potential to positively impact the

incomes of rural households. Yet we understand

that innovation is relative, and a project that is simply

new for a company in a specific country can have as

much impact on poor people as a global first.

Secondly, the AECF aims to improve the way ag-

ricultural and other market systems work, there-

by facilitating market entry for rural poor house-

holds and businesses. Improving the way market

systems function makes it more probable that the

resulting improvements in livelihoods are sustainable

and replicable, and paves the way for other players to

enter and deepen markets.

Thirdly, the AECF aims to stimulate the devel-

opment and use of affordable and accessible

technologies for the benefit of the rural poor.

Above all, we prioritise investments in business ideas

that utilise and test technologies with the potential to

scale.

Finally, ensuring AECF funds have a catalytic

effect by leveraging private sector investment is

a fundamental part of our strategy. This maximises

the impact of our investments and also ensures risks

are shared with recipient businesses and third

party funders.

In order to execute our strategic objectives, we utilise

a range of tools and levers when selecting, contract-

ing, managing and monitoring projects. Some of

these, like the competition format and requirement for

the businesses to match our investments, are typical

of almost all challenge funds. Others, such as funding

clusters of projects with similar business models in

order to “start races rather than pick winners”, are

more unique to the AECF.

10 Photo Credit: Esco Kivu

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The 2014 Impact Report was the first time we dissemi-

nated our results in this format. We provided infor-

mation about how the AECF is structured, where we

invested our donors money, and what impact these

funds had in 2014. We also explained how our invest-

ments are helping to address some of Africa’s most

urgent development challenges, and shared some of

the tools and techniques we learnt about running a

successful challenge fund.

This year, the theme of our report is The AECF at

Eight. The report comes at an exciting time for the

Fund, with the creation of The AECF as a new legal

entity, the appointment of a new Board and CEO and

with significant changes in the way we are set up and

managed. It is therefore timely to take stock of the

impact we have had over the last eight years and to

provide some thoughts on what has worked, what

could have been done better.

The first chapter looks specifically at the develop-

ment impact and financial performance of the AECF

portfolio in 2015, with analysis by sector, window and

region. The second chapter is an overview of our

performance since inception in 2008, identifying key

trends and patterns in impact over time. The final

chapter covers what has been learned from the pro-

cess of managing the AECF and from the projects that

the AECF has funded. We look at the critical success

factors for high impact projects, consider what types

of projects have the greatest market systems impact,

and ask why projects fail and how we could capture

gender better.

We hope that sharing these lessons will enable

other challenge funds, impact investors and mar-

ket systems programmes to be able to learn from,

and build upon, our successes and failures.

What’s in this report?

11Photo Credit: Solar Now

12

In 2015 the AECF generated a total net increase in income of US$153m for over two million beneficiary households, reaching more than 10 million poor and mostly rural people throughout sub Saharan Africa.

“”

12

13


13

The AECF’s impact in 2015In 2015 the AECF generated a total net increase in

income of US$153m for over two million beneficiary

households, reaching more than 10 million poor and

mostly rural people throughout sub Saharan Africa. This

continues our achievement of increasing impact in each

of the eight years that the AECF has been in operation.

The headline impact from the portfolio continues to rise

substantially year on year as more projects reach scale,

with the number of households increasing by 44% and

net benefit increasing by 36% since 2014. The average

net benefit per household is slightly lower than in 2014,

at US$73. This is also lower than the targeted amount

US$125 per household because a substantial proportion

of our impact has been generated by projects focused

on input supply and renewable energy, which affect a

very large number of households but at a relatively small

financial amount for each. For these projects welfare

impacts are significant but difficult to quantify in mon-

etary terms. Despite this, the total net benefitii generated

by the projects we funded is above target, due to the

high number of households reached and the continu-

ing contribution to impact by projects that have passed

beyond the six year management period.

The AECF measures its impact principally through a

calculation of the benefit generated for a poor house-

hold engaging in a project we fund, after taking out the

participation costs as well as the income that would

have been achieved without taking part in the project

(the opportunity cost). However, the AECF also mea-

sures performance at the level of the business in the

form of numbers of direct formal jobs created. In 2015

the number of jobs created and maintained in AECF-

funded projects increased to 8,000. This calculation

also does not take into consideration the quality of jobs

nor does it include other jobs created within the value

chain or in the local community as an indirect result of

our investments.

Number of jobscreated

Net WageBill

HOUSEHOLD LEVEL INDICATORS

BUSINESS LEVEL INDICATORS

Number ofhouseholds benefiting

Average net benefit per household

Total NetBenefit

DEVELOPMENTIMPACT

The AECF’s development impact indicators

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US$153M totalnet benefit to poor

households

205,000 tonnes ofCO2e emissions

displaced

An average of US$73 per household

Better quality agricultural inputs for over 825,000 farming

households

Improved access to clean, sustainable

energy for over 500,000 families

Over 2 million households in sub-Saharan Africa

reached - approximately 10 million people

$73

The AECF’s impact in 2015

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One of the AECF’s strategic objectives is to stimulate the development of large scale affordable technologies

for the benefit of the rural poor. AECF-funded input supply projects, which mainly consist of various models to

grow and disseminate high yielding seeds but also include improved fertilisers and livestock vaccines, led to

better quality inputs for over 825,000 farming households in 2015. Not only does this generate income from the

sale of surplus but, as most of these projects target staple food crops, there is a very positive impact on food

security.

Our efforts also stimulate the development of low cost clean energy solutions that help smallholder farmers

react to climate change and obtain access to energy. We have facilitated the development or roll out of new

technologies and business models that are revolutionising lifestyles in rural Africa. Cluster financing of a range

of initiatives in solar electricity has brought improved access to clean, sustainable energy for more than 500,000

households and tripled the installed clean energy capacity from 2014 to 7.26MW. As a consequence, we have

also tripled the amount of CO2e emissions displaced. In addition to the financial benefits of reducing household

energy costs, these technologies bring numerous quality of life impacts to rural households, from breathing in

less smoke to being able to study or socialise in the evenings.

The table below provides a breakdown by sector, household and project of net additional income created by the

AECF’s projects in 2015. It should be noted that a large proportion of grantees receive funding at various stages in

their development from a range of other donors and impact investors as well as from commercial finance or their

own funds. Issues of additionality are discussed later in this report, but it should be noted that where we cannot

establish a solid case for additionality we do not count the impact from that project. This is a critical aspect of the

AECF: our resources always represent the key transformational element in the project either in terms of de-risking

the project to allow it to happen or enabling it to grow faster than would otherwise have occurred.

The AECF consists of a series of Windows, each with up to four separate competitions. As these Windows affect a

number of different sectors, we have developed our analysis of impact on a sector basis – this is principally different

types of agribusiness but also adaptation to climate change, financial services, information and renewable energy.

Impact by sector in 2015

2015 development impact by sector (all active projects)

Sector Total number of households

Average number of

households per project

Total net benefit (US$)

Net benefit per household

(US$)

Adaptation 2,365 169 195,381 83

Agribusiness: agro-processing 51,687 2,154 21,598,365 418

Agribusiness: input supply 844,070 22,212 65,148,715 77

Agribusiness: marketing and distribution 15,049 2,150 4,920,044 327

Agribusiness: primary production 16,847 455 2,222,231 132

Financial services 192,957 12,864 14,168,987 73

Information 455,112 65,016 26,151,482 57

Renewable energy 509,915 19,612 19,042,070 37

TOTAL 2,088,002 12,429 153,447,274 73

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With the more recent focus on renewable energy,

financial services and information, the AECF has truly

become a multi-sectoral development platform.“

”

57% of the projects are in the agribusiness sector –

a reflection of the core objective of the AECF. In 2015,

44% of the impacted households and 64% of the

net benefit from projects accrue to this sector. As

the AECF has grown and evolved from a US$35m

agribusiness fund into a US$247m multi-sectoral

investment vehicle, our scope has changed to target

a wider range of needs for rural people including

a focus on renewable energy, financial services

and information.

Disaggregating the portfolio by the average net ben-

efit needs some care because of the small number

of projects in some sectors and the presence of

very high impact projects in others. Overall, projects

where households are consumers, such as input

supply, are easier to rapidly and substantially scale

but produce a more limited impact per household on

average whereas those with households as produc-

ers require greater management input but have the

potential to generate transformative levels of income.

Supporting farmers to adapt to the consequences of

climate change and become more resilient is a new

but increasingly important element of the AECF’s

work. At the end of 2015, the active adaptation proj-

ects in our portfolio were relatively new with a low

number of beneficiary households on average. The

total number of households is expected to signifi-

cantly increase as these projects begin to mature and

other more recently contracted projects in this sector

start implementation.

As noted above, agribusiness projects impacted by

far the largest number of households and gener-

ated the majority of the development impact for the

portfolio in 2015. Agro-processing and marketing and

distribution enterprises reach a smaller number of

farmers on average, but their business models tend

to involve a greater level of engagement with those

who produce for them, leading to the generation of

a higher average net benefit per household. Many of

these grantees use comprehensive management in-

formation systems to track individual farmer produc-

tion, sometimes in the context of organic certification

schemes. The further exploitation of these informa-

tion systems by the AECF in collecting additional data

on aspects such as gender represents an important

opportunity for the future.

A quarter of the projects funded by the AECF in 2015

are in the input supply sector. They consistently

engage a large average number of households but

at a lower level of benefit per household compared

to other agribusiness projects. Most comprise large

scale distribution of improved seed by established

Photo Credit: Esco Kivu


companies, principally of food crops such as maize.

Although significant yield increases can be generated,

overall production tends to be low in absolute terms

because of the small average size of plots farmed by

smallholder beneficiaries.

Primary production projects had a low average impact

in 2015 because many involve tree crops with long

establishment phases and because some with poten-

tially high impact were affected by the Ebola outbreak

in West Africa. With ongoing support, this is likely to

improve in the future.

Financial service projects include mobile payments sys-

tems, crop and livestock insurance and various novel

micro finance mechanisms such as leasing and hire

purchase. The average income and size of these proj-

ects are skewed by the contribution of mobile money

projects, which generated a low cost saving but for

large numbers of beneficiaries. This emphasis on small

transactions conceals potentially large development

impact that can be generated through access to micro-

finance projects. For example, the net benefit from two

schemes established in Somalia to promote Sharia

compliant lending was around US$1,000 per house-

hold in 2015 (see box). Some business models such as

crop insurance and equipment leasing are operational

but need further work whilst others have more proven

approaches that are starting to be replicated. Financial

tools are increasingly bundled with other services and

goods in collaborative arrangements between financial

services companies, input suppliers and technology

developers and here lies significant potential for the

future.

The AECF provides funding to two MFIs, Kaah

Express and Micro Dahab, in Somalia and Somalil-

and to support the development of Sharia compliant

loans to increase access to finance for the currently

unbanked and to drive regulatory change in the

banking sector. This enables previously excluded

SMEs to access reasonably priced finance and avoid

high interest rates from informal hagbad lenders. Al-

though the market is sometimes undercut by donors

offering no cost loans, both companies have estab-

lished networks and between them loaned money to

4,500 households in 2015 each generating around

US$1,000 in development impact. Despite the dif-

ficult economic conditions in Somaliland, repayment

rates are above 95%. 60% of Microdahab’s SME

clients are women.

Nuuru Maxamed has been running a retail shop in Downtown,

Hargeisa for the past three years and had been struggling to

increase her inventory. Prior to obtaining this first time credit

of US$500 from Kaah Express she had relied on funding from

her family who sent her money from abroad. She is particularly

pleased that she will be less of a burden to her children in the

future.

Hibo Ismail is a successful dressmaker based in Hargeisa,

averaging sales of at least US$3,000 per month in her busi-

ness. She is a second time borrower having repaid US$500

and is now repaying a US$1,000 loan, both over a six month

period. She intends to continue to grow her stock to increase

volumes and also hire other young women to help her expand

the business.

Strengthening formal financial services in Somaliland

17

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The strong performance in the information sector is

generated by the highly successful Shamba Shape

Up agricultural advisory television show in Kenya that

will be complemented in future with its successor,

iShamba, a mobile information platform. The sec-

tor has the second highest total impact in 2015 and

contributes 16% of the total net benefit of the portfo-

lio. The potential for information to make transforma-

tional change for very little cost per person reached

is tremendous and with the rapid spread of mobile

information technology and the development of the

culture to use it, this represents an opportunity for a

significant improvement in the effectiveness of aid.

The average benefit in the renewable energy sector

is initially low as most of the projects going to scale

involve households having to pay off initial invest-

ment in equipment. However four renewable energy

projects in East Africa are starting to achieve very

substantial reach. Overall development impact for

renewable energy is strong in 2015 with 12% of the

In addition to reaching over half a million households

in 2015, the renewable energy projects in our portfolio

have also improved the livelihoods of 5,148 agents by

US$516 on average – a total benefit of US$2.6m. The

majority of these work for PAYGO solar businesses,

which rely on incentivised agents in order to develop

and maintain their rural distribution networks.

As these agents sell solar home systems on commis-

sion and do not have permanent contracts with the

businesses, we do not count them as part of the jobs

created in the businesses we fund. Nevertheless, the

revenue these agents gain from selling solar home

systems can be transformative, and working as an

agent can often lead to a better quality job as a tech-

nician or manager within these companies.

Impact on agents in renewable energy projects

19


Total net benefit in 2015 (US$) by project, by sector (all active projects)

SectorAdaptationAgribusinessFinancial ServicesInformationRenewable Energy

Adaptation Agribusiness Financial Services Information Renewable Energy

Sector

portfolio total. Financing of a number of solar energy

projects by the AECF REACT window has generated

real market disruption with multiple business models

being developed. The potential market is huge, with 620

million people in sub Saharan Africa not connected to

the electricity grid of which we have reached 2.5 million

and, although not all projects have been successful, we

expect these initial investments to generate increasing

benefit in the years to come.

Each box represents a project in the AECF portfolio, with the area of the box demonstrating the total net benefit generated by that project

in 2015.

20

Across the portfolio, projects whose end beneficia-

ries are buyers of goods or services (referred to here

as ‘consumers’) from the AECF grantee reach a large

number of households and generate a relatively lower

net benefit per household. Projects whose end bene-

ficiaries are producing goods or services (or ‘produc-

ers’) for the grantee conversely have a smaller reach,

but generate an average net benefit per household

which is over five times greater.

Although the scale and benefit between beneficiaries

as consumers and producers varies between dif-

ferent windows, the portfolio as a whole is heavily

biased towards supporting projects that engage with

poor households as consumers. This has impor-

tant implications in the development context as it

means that while much of the funding provided by

the AECF can be expected to make only marginal

direct improvements in household livelihoods, it still

has significant potential to generate market system

change – particularly in factor markets such as finan-

cial services and information - as more of the market

is affected.

Projects which engage with poor households as pro-

ducers represent a greater potential for transforma-

tive change in welfare and economic capacity at the

household level, and the opportunity for really moving

people out of poverty over time. As the AECF looks to

both stimulate market system change and generate

benefit directly for the rural poor it seeks a balance

between these approaches to ensure both objectives

are adequately addressed.

This quantitative measurement of impact in terms

of monetary gain ignores many of the qualitative

benefits, especially for households as consumers.

In the REACT window for example, there are ex-

tensive quality of life improvements from using new

forms of energy that are not captured by the existing

quantitative reporting. Elaboration of this and further

discussion on market system change can be found in

chapter three of this report.

Consumer versus producer projects

19,227

877

CONSUMER

$68

$337

PRODUCER

Average number of households reached per project

Average net benefit per household (US$)

0<1 1 2 3 4 5 6

2

4

6

8

10

12

Adaptation

Agribusiness Marketing and distribution

Agribusiness Agro-processing

Agribusiness Primary production

Agribusiness Input supply

Financial Services

Renewable EnergyInformation

Project Age (Years)

Tota

l net

ben

efit (

US$

)

21


Different sectors generate benefit at different rates

depending on how long it takes the projects funded

to become established and move to scale. Taking a

snapshot of 2015 (see graph above) we can see the

benefit generated as projects get older within their

specific sectors, from a year or less up to the maxi-

mum of six years when the management involvement

of the AECF ends. Outliers and climatic effects on

production make some difference to annual figures

but broad trends can be identified. Some sectors

contain only younger projects and so do not have

figures for years five and six.

Within agribusiness, input supply projects demon-

strate a rapid growth in impact as projects quickly

scale through relatively easy replication to very large

numbers of beneficiaries. Climatic conditions and

disease in one major seed supplier caused some

variation recently, but successful recovery can be

seen in year six. Conversely, primary production proj-

ects benefits remain low in early years because of the

long term nature of establishing the production pro-

cess. Agro-processing projects in general take some

years of investment in facilities and structures before

starting to generate a return. This is evident in the net

benefit figures - only after year four does benefit in

the sector start to increase substantially.

The performance of projects focused on providing

information to the rural poor is influenced by the one

high impact project in the sector which came to scale

and is currently four years old. On average infor-

mation projects generate immediate benefits after

investment. Like input supplies, projects can rapidly

scale to large numbers of beneficiaries.

Finally, projects focused on providing renewable

energy solutions to the rural poor take several years

to generate benefit as end users pay off initial invest-

ment in solar systems, but then begin to provide

significant benefit through cost savings from year two

onwards.

Average net benefit per project, by sector and project age

0<1 1 2 3 4 5 6

2

4

6

8

10

12

Adaptation





Financial Services


Project Age (Years)

Tota

l net

ben

efit (

US$

)

0<1 1 2 3 4 5 6

2

4

6

8

10

12

Adaptation





Financial Services


Project Age (Years)

Tota

l net

ben

efit (

US$

)

22

The graph below illustrates the business performance

of grantees with average revenue by project age and

by sector in 2015. Financial scale gives an indication

of the strength of the business and its capacity to sus-

tain and grow operations and become profitable – and

consequently generate impact for beneficiaries. Lower

levels of revenue imply a greater reliance on the AECF

funding, especially at early stages of the project life,

even if impact generated is high.

The largest projects by revenue are within the agri-

business sectors which steadily increase in average

revenue as projects age, reflecting the broad levels of

success the AECF has had in its core business. Agro-

processing companies are generally larger from the

start of the project as these grantees tend to be well

established. Input supply companies rapidly scale and

revenue reaches a maximum in year five, reflecting

the cumulative growth of business since the start of

the large Africa Agribusiness Window. Profitability for

these companies varies significantly, with some major

contributors to the programme impact both making

substantial profits and losses during 2015. Marketing

and distribution are in general new businesses and

start small but rapidly grow to US$5m revenue by year

four – grantees here are mostly involved in cocoa and

whilst far from profitable are connected to multination-

als so medium term financial security is expected.

Renewable energy projects in the portfolio are mostly

start-ups with no initial revenue but rapidly move to

scale after the first year and generate an average

revenue of US$4m by the fourth year, the oldest that

these grantees have reached in 2015. This sector con-

Business performance in 2015

Average revenue per project, by sector and project age

Adaptation





Financial Services


2

4

6

8

Mill

ions

<1 1 2 3 4 5 6

Adaptation





Financial Services


2

4

6

8

Mill

ions

Business performance in 2015

<1 10 2 3 4 5 6

23


tains both highly successful solar and less successful

biomass projects so the average does not well reflect

the performance of the best projects that are likely to

survive into the medium term. All of the sector remains

some way from profit as upfront network investment

demands remain very high for several years.

The information sector produces some of the highest

impact projects for the AECF, but revenue remains low

as the operations of these grantees are in general small.

Information technology enables them to impact on very

large numbers of people at very low cost per person.

Projects in their sixth year in 2015 represent the earliest

of the AECF’s investments and are mainly in agribusi-

ness. Numbers are tailing off because grantees are

graduating from the monitoring process and we no lon-

ger gather their company performance data – although

we do still record impact where it is available.

Donor funds pledged to the AECF increased from US$36m at the end of 2009 to US$247m by December 2015.

“”

24

25

Impact Report 2016

The AECF’s impact over the last 8 yearsDonor funds pledged to the AECF increased from US$36m at the end of 2009 to US$247m by December 2015.

The AECF grew at an average annual rate of 70% up to 2012, with 17 competitions launched during this period.

However, only US$3m was pledged to the AECF in 2015.

The number of projects in our portfolio has grown at an average rate of 37% annually since the AECF’s inception

and totals 257 projects across 23 countries. 173 of these projects were actively managed by AECF at the end of

2015, with the remaining having finished their six year management period by AECF (though most of these remain

active businesses), been closed by the grantee or by AECF, or put on hold.

During the last eight years, the AECF has committed US$156m in repayable and non-repayable grants to the busi-

nesses implementing their projects. An additional US$426m has been committed by grantees in matching funds

in cash, in-kind contributions, and third party debt, equity or grants. This is equivalent to US$2.84 committed to

AECF-funded projects by the private sector for every US$1 committed by donors.

US$91m of these funds had been disbursed at the end of 2015, with a further US$427m provided by the grantees

to date. This represents US$4.69 actually invested or leveraged in AECF-funded projects by the private sector for

every US$1 we have provided. This high ratio of matching and third party funds committed to, and invested in, our

projects is indicative of our success in leveraging private sector investment as a means of sharing risk and maxi-

mising benefits for the rural poor.

The growth of the AECF

funds pledged

2009 2010 2011 2012 2013 2014 20150

50

100

150

200

250

300

0

50

100

150

200

250

300

2839

6790

179

208

257

36 36

47

35

59

27

40 3

83 118 176 203 244

Cumulative funding at year end

US$

Mill

ions

The growth of the AECF

Num

ber

of p

roje

cts

(all

proj

ects

)

New funding in year Projects

26

US$91M disbursed in grants and loans

Over 8,000 jobs created in AECF funded businesses, with a cumulative wage

bill of US$99M

320,000 tonnes of CO2e emissions displaced

Total net benefit of US$463M to poor

households

Over US$420M of private sector funds leveraged

257 projects funded in 23

countries

Idea announced at

Gleneagles

First country-specific

window (Zimbabwe)$25M of funds

disbursed0.5M households

reached

100 active

projects

US$50M of funds

disbursed

US$300M of cumaltive net

benefit

Formal launch at World Economic Forum—Africa

Summit Cape Town

First continent-wide competition (General Window—Early Bird)

Renewable energy and adaptation to climate

technologies window (REACT)

2005 2008 2008 2009 2010 2012 2013 2013 2013 2014

Impact Since 2008

27


The impact of our projects on poor people in sub-Saha-

ran Africa has increased exponentially since we began,

both in terms of the number of households reached and

the total net benefit to them. This steadily accelerating

growth rate is shown in the graph below. The dip in total

net benefit between 2011 and 2012 was caused by a

single input supply project in Kenya with a high aver-

age net benefit per household, which reached 100,000

fewer households in 2012 than it did in 2011 as a result

of a drought.

There are two key drivers for the AECF’s accelerating

impact at the portfolio level – the increasing number of

projects in the portfolio and the maturing and scaling of

these projects as they age. At the end of 2015, the aver-

age age of active AECF projects was 3.28 years. Given

that we measure the impact of AECF-funded projects

on an ongoing basis, we would expect the aggregate

impact of the fund at the household level to continue

increasing for at least two more years.

In total, our projects have enabled poor households to

generate US$462m of additional net benefit since 2008.

This can be added to the US$99m in net wages from

jobs created in the businesses we have funded to arrive

at the AECF’s total development impact of US$562m

since it started. We can divide this figure by the amount

invested in projects to calculate the development rate of

returniii of 6.15 - or US$6.15 of development impact for

every US$1 that we have invested to date.

The AECF’s annual impact

Our projects have enabled poor households to generate US$462m of additional income since 2008. “ ”

2009

40,230

200,925352,668 495,996

957,894 1,481,085 2,088,774

2010 2011 2012 2013 2014 2015

Households Total Net Benefit

The AECF’s impact year on year

$2,450,000

$29,487,000

$51,689,00$44,974,00

$63,501,000

$123,450,000

$153,474,000

28

US$299.6m, or 65% of the AECF’s total net benefit,

has been produced by agribusiness projects to date.

The weighting of the AECF towards agribusiness

projects is in line with the our core objective to sup-

port the growth of sub-Saharan Africa’s agricultural

and agribusiness sectors in order to generate sus-

tainable benefits for the rural poor.

A fifth of the net benefit over the last eight years has

been generated by information projects, despite only

4% of our projects being focused on this sector.

However, as is clear in the infographic below, this im-

pact was driven primarily by one project – Mediae’s

Shamba Shape Up.

Cumulative impact by sector

Total net benefit by project, by sector since inception

SectorAdaptationAgribusinessFinancial ServicesInformationRenewable Energy


Sector

29


Renewable energy projects have generated 8% of

the AECF’s total net benefit to date. However, this is a

relatively young area of the portfolio and we expect the

proportion of total impact generated by renewable en-

ergy to increase significantly over the coming years as

projects mature. Many poor households utilising solar

home systems provided by AECF-funded projects are

still within their “payback period”, and once they own

their systems outright the net benefit per household

from these projects will grow substantially. Less mature

is the adaptation portfolio, where projects are under

two years old on average and have had little impact

so far.

The financial services projects we have invested in have

produced 6% of the AECF’s total net benefit, despite

12% of our projects being focused on this area. As was

highlighted in the 2014 Impact Report, many of these

financial services projects have faced major challenges

in extending their reach into rural areas. In particular,

scale is essential and several of the mobile money proj-

ects we have funded have struggled to compete with

large telecom providers rolling out similar products –

companies which are not in need of AECF funds. These

businesses have the infrastructure, marketing budgets

and capacity to influence regulators and government

that are needed to provide services to very large num-

bers of customers but are too financially successful for

our funding to be sufficiently additional. Our, smaller,

beneficiaries have had problems with overcoming

regulatory and license issues, accessing software and

hardware platforms and being able to rapidly increase

to a sustainable size.

30

At the end of 2015, the AECF’s portfolio was split into eight window portfolios. As is clear from the chart be-

low, the majority of the AECF’s impact on poor households in the first four years of operation were generated

by projects in the General Window – our first competition Window, launched in 2008. As these projects have

finished in terms of their engagement with the AECF, the impact from that portfolio has decreased, although the

recovery of one large company, Western Seed, has seen a resurgence in the window’s 2015 impact.

Cumulative impact by Window

Impact by windows year on year

2009 2010 2011 2012 2013 2014 2015

The household impact delivered by the Africa Agribusiness and REACT portfolio has increased

0M

10M

20M

30M

40M

50M

60M

70M

80M

90M

100M

110M

120M

130M

140M

150M

160M

Tota

l Net

Ben

efit

Impact by windows year on year

YEAR

WindowAAWGWPCWREACTRIBSSWTZAWZIM

AAW GW PCW REACT RIB SSW ZIMTZAW

Window

The household impact delivered by the Africa Agribusiness and REACT portfolio has increased steadily since

2012. We expect the rate of impact in the REACT portfolio to continue to increase as more renewable energy proj-

ects scale up and adaptation projects move towards maturity.

2009 2010 2011 2012 2013 2014 2015Year

0M

50M

100M

150M

200M

250M

300M

350M

400M

450M

Cumulative Total Net Benefit

Window (group)AAWGWPCW & SSWREACTRIBTZAWZIM

31


Projects in the South Sudan and Post Conflict

Windows operate in extremely fragile and challeng-

ing environments. Unfortunately, the resurgence of

conflict in South Sudan has resulted in the failure

and closure of the majority of projects and a very

limited impact on poor households. Projects in

the Post Conflict Window have produced varying

impact for the rural poor as can be expected in

such operating conditions. Some very successful

projects in Somaliland and DRC have been able

to transform the lives of their beneficiaries in areas

where few other opportunities exist (see case box

on Esco Kivu on page 46). Other projects have

been constrained by the difficult environment, or

hindered by other external factors such as the

Ebola crisis in Sierra Leone and Liberia.

The Zimbabwe and Tanzania Windows are country

specific windows, and discussion of their perfor-

mance can be found in the following section on

impact by country.

We provide funding for the private sector in some of

the most difficult places in Africa, including Sierra

Leone, DRC, Somaliland and South Sudan. Operat-

ing in these environments requires both flexibility

and patience as companies generally take longer

to implement their projects and frequently have

to change their approaches. Our three remaining

companies operating in South Sudan for example

are facing post conflict instability, currency devalua-

tion and drought and all have moved away from their

initial plans to engage in other activities that will at

least keep their enterprises afloat. One of these three

is still providing significant development impact from

its new business model of selling seeds to aid agen-

cies for distribution to smallholders. Our companies

in Sierra Leone were just beginning implementation

when Ebola struck. One became a key supplier of

food to aid agencies within the quarantine zone. With

the passing of the epidemic, all of our enterprises are

re-engaging on their initial project objectives. Despite

these challenges, only two of 20 contracted projects

in these post conflict environments have failed.

The AECF in difficult places


32

Although we have funded projects in 23 different

countries since 2008, our impact on the rural poor

has been concentrated in a few of these countries (as

shown in the map to the right). Indeed, 69% of the

total net benefit generated by AECF-funded projects

over the last eight years has been in Kenya, Tanzania

and Zimbabwe.

47% of our total net benefit over the last eight years

has been generated in Kenya, which hosts one fifth

of the projects that have been funded. This is partially

explained by the business and political environment

being less challenging than other countries in which

we work, such as Zimbabwe, South Sudan and DRC.

Comparatively well-developed factor markets in

financial services and agricultural information, as well

as a nationwide infrastructure network, have enabled

many of the Kenyan projects to scale up, become

commercially sustainable, and have significant im-

pact on the rural poor. Although Kenya does not have

a specific country window, it benefits disproportion-

ately from some funds such as REACT and its gener-

ally more developed business environment enables

Kenya business applicants to be more successful in

writing winning applications for AECF financing.

AECF-funded projects in Tanzania and Zimbabwe

have generated 12% and 10% of the cumulative net

benefit since 2008 respectively. Both countries have

dedicated country windows as well as associated

technical support.

Up to US $1 Million Total Net Benefit

US $1 - 5 Million Total Net Benefit






Impact by region and country since 2008

33


The Tanzania Agribusiness Window has a specific

mandate to support the development of small

businesses, and therefore has funded a higher

proportion of small and medium size businesses

whose projects have not yet scaled. Projects in

Zimbabwe have been severely constrained by

the difficult economic environment in the country

since the hyperinflation crisis and the dollarization

of the economy.

Projects in the Horn of Africa region have also

had a substantial impact on poor households.

This was due principally to the Post Conflict Win-

dow funding that targeted this region and which

contained several high impact projects, as well

as the very successful AgFlow Poultry project in

Ethiopia (see case box on page 64) funded under

AAW.


34

8,000 salaried jobs have been created and maintained in AECF-funded businesses since 2008, generating

a cumulative net wage bill of US$99m. These roles are substantially in manual labour at the field or factory

worker level, but also includes some more professional grades such as extension officer or farm manager

positions. This is supported by the average annual salary for a job created in projects we have funded of

US$3,649. We estimate that more than 85% of jobs created as a result of AECF support have been at

worker level, which is maximising the impact on rural households.

The AECF’s impact on job creation

Jobs created and net wage bill since inception

The ratio of men to women in jobs created or maintained in our projects in 2015 was 1.6:1. Fewer women are

employed by the businesses implementing these projects as the majority of formal jobs in rural areas are still

taken by men. Despite this, the number of women employed by businesses we have funded has increased

since 2014, from 34% to 38%.

1,565,4023,092,853

6,886,8259,928,362

17,928,849

26,254,529

33,044,862

The AECF’s impact year on year

869

2,008

2,6842,927

5,612

4,893

8,061

US$ Net Wage Bill Jobs Created

35


Average number of jobs created per project per sector (all active projects)

Sub-Saharan Africa is facing a youth population bulge as still high fertility rates lag reductions in infant mortality,

with close to 70% of the continent’s population under the age of 30iv. By 2022, the proportion of the popula-

tion between the ages of 15 and 29 could reach 28% . This burgeoning youth population could become a de-

mographic dividend if sufficient productive employment is created, but equally could result in fragmented and

unstable societies if there are insufficient jobsv. With 65% of jobs in the AECF funded projects taken by those

under 35, the AECF is playing its role in providing productive employment for young people in the region.

As is clear from the graph below, the average number of jobs created per project varies considerably by

sector. Renewable energy projects have employed over twice as many staff as projects in other sectors on

average. This is driven by PAYGO solar companies, who employ large numbers people to service their rural

distribution networks. Other projects which provide goods or services for consumption by the rural poor, such

as those focused on financial services and input supply, are less labour intensive and therefore do not employ

as significant numbers of workers.

35%Over 35

Under 35 65%

33%Part-time

Full-time67%

38%Female

Male62%

0

20

40

60

80

100

120

140

160

Average number of jobs created per project per sector (all active projects)

Adaptation Agribusiness Marketing and distribution Information

Agribusiness Agro-processing Agribusiness Primary production Renewable Energy

Agribusiness Input supply Financial Services

41

52

32

53 50

24 23

136

36

Jobs are central to fostering inclusive growth in de-

veloping countries, and the creation of jobs is neces-

sary to boost living standards, raise productivity, and

foster social cohesion. Yet pervasive underemploy-

ment is characteristic of rural sub-Saharan Africa,

with millions of households who are engaged in infor-

mal agricultural work earning enough to subsist but

not lift themselves out of poverty. In addition, there

are also 10 million entrants per year to the labour

force, driven by a burgeoning youth population.

Better, more productive jobs that allow people to earn

higher incomes and provide a sense of purpose and

self-worth are therefore needed. Challenge funds

operating in the private sector development space

have the potential to create a substantial number of

jobs, both in the businesses that they directly fund

and along these businesses’ value chains.

However, the way in which we measure development

impact across the AECF portfolio results in mod-

est job creation numbers. This is because improved

livelihoods for the rural poor as a result of selling

commodities to AECF projects, or consuming the

products they produced, are measured as increased

household income rather than new jobs created.

Indeed, the 8,000 jobs that have been directly cre-

ated by businesses that we have funded since 2008

generate only 17% of our cumulative development

impact. While the creation of jobs is an important fea-

ture of the AECF, the fund has played a much larger

role in stimulating rural incomes of farm households.

The AECF’s role in creating opportunities for decent work

37


SeedCo is an AECF-funded project in Tanzania which

develops and markets certified crop seeds. In 2015,

SeedCo’s hybrid maize seeds have been used by

67,193 households to increase their maize yields.

Each household benefited by US$50.36 on average

from increased yields once additional costs of seed,

fertilizer and pesticide costs were subtracted, giving

the project a total net benefit of US$3,383,799. This

was based on an average increase in yield of 314kg

on an average farm size of 1.2 acres.

Improved crop yields are an example of an increase

in marginal productivity which can push smallholder

farmers and their families further above subsistence

levels and the poverty line, therefore going some way

to address the issue of underemployment. Instead

of reporting this as benefit per households, we could

equally aggregate the benefit and convert it into the

following jobs figures:

Average yield per hour for smallholder maize

farmer in Tanzaniavi = 1.6kg per hour

314kg ÷ 1.6kg per hour = 196.25 hours or 24.53 FTE

days (assuming 8 working hours per day)

24.53 × 67,193 = 1,648,328 FTE days

1,648,328 FTE days ÷ 240 days per year =

6,868 FTE jobs created

Addressing underemployment in Tanzania: SeedCo

Yet the impact our projects have had on improving

smallholder productivity through provision of better

inputs, or enabling the expansion of smallholder farm

enterprises by acting as a guaranteed buyer, moves

beneficiaries from under employment closer to full

employment. Indeed, outgrower projects such as

Esco Kivu (see case study on page 46) have cre-

ated jobs directly and indirectly in areas where there

were few opportunities previously, transforming the

entire employment environment in the area. Further-

more, the provision of training in farm management

or financial literacy conceptually shifts something

that is done for subsistence into a profession. In the

future, the AECF will look to convert our development

impact figures into the equivalent jobs created by

valuing the additional output or income in the form of

number of jobs rather than value of income.

There are a number of methodological approaches

to this and we intend to explore them more com-

prehensively in a learning paper during 2016. As an

example, the case study to the right converts the

increased household income generated by a single

AECF project into a jobs figure by estimating the ad-

ditional full time equivalent (FTE) hours worked on the

farm as the result of an increase in yield.

38

We have learned from our mistakes and built on our successes to improve the process of identifying commercially viable projects that target the needs of the rural poor.

“”

39


The AECF at Eight - what has been learned from managing the AECFIn the eight years since we began developing the

first competitions, the AECF has learned from our

mistakes and built on our successes to improve

the process of identifying commercially viable

projects that target the needs of the rural poor.

We have been successful in identifying business-

es across a wide range of technical areas and

with a broad geographic scope, utilising a variety

of competition designs to challenge the market

to develop novel and innovative solutions. In this

chapter we look at how we have implemented the

process of competitions, grant management, and

results measurement, what changes we identi-

fied and adopted along the way to improve how

we spend and manage donor funds and what this

means in terms of efficiency and value for money.

We highlight some of the experiences that we

have gained, from how projects have targeted

market systems to what types of projects do best

and why. Finally, where relevant, we identify those

areas where we could do things better.

The remainder of the report considers the AECF

core concepts and how it affected market sys-

tems; some key tools we use; and finally an

elaboration of processes and experiences from

implementation. We also look at how we affected

sectors of seeds and poultry, how we deal with

the increasingly important issue of gender and

wider public benefits from renewable energy

investments.

40

FINANCIAL SERVICES

ECONOMIC GOVERNANCE

INFRASTRUCTUREACCESS TO INFORMATION

BUSINESS ASSOCIATIONS

SUPPLY CHAIN

REGULATORY REGIME

Changes in factor markets: this refers to shifts in the availability of land, labour, capital, �nancial services, and information as a result of the AECF project e.g. land prices increase or access to �nance becomes more widespread.

Crowding in: Other businesses have entered a sector or value chain as a result of the improved incentives and business environment created by the AECF project.

Copying of the business model by other businesses: Replication of the grantee’s business model by other businesses or investors. Successful businesses, by their very nature, have a demonstration e�ect on others. Whilst this is likely to have a larger impact in more volatile markets there will be some systemic impact in any market – particularly from projects of a su�cient scale. Naturally, the private sector would like to crowd-out the competition by creating a monopoly situation while, in contrast, the AECF is interested in business model replication across sectors and geography.

Copying successful practice: Other rural households not engaged with the AECF project copy or adopt project behaviours or technologies as a result of seeing project bene�ciaries improved livelihoods.

Adapted from: Spring�eld Centre for Business Development

Changes in the business regulatory environment: Changes in laws and regulations, or implementation of laws and regulations as a result of the AECF project. Rather than being risk averse and avoiding business ideas that may struggle to get legal and regulatory approval, the AECF may decide to deliberately select such business ideas based on the logic that (a) the regulations/regulatory process in question is considered to be holding back investment and growth of a sector and (b) where the prospects of changing the approval process seem reasonable.

Core market:Supply and

demand

One of strategic purposes of the AECF is to improve the way agricultural and other market systems work,

thereby facilitating market entry for rural poor households and businesses. Some Challenge Fund mecha-

nisms intended to disburse donor funds efficiently and effectively to the private sector are limited in their

ability in being to generate wider impact on market systems. It has been important to adapt the AECF to

achieve this purpose. We also recognise that the size of the AECF means market systems change is often

limited to the local economic environment

Core concepts – market systems impact, additionality and innovationThe AECF as a mechanism for inducing market systems change

41


Over the past eight years, the AECF has identified the

types of business ideas that are most likely to lead to

systemic change, to run competitions which challenge

the market to develop these ideas, and then manage the

performance of our grantees to ensure that they deliver.

We identify here a number of key factors that contribute

to inducing market systems change.

Selecting business ideas that have the greatest potential for market systems change

Focus on innovation and commercial potential:

Evidence of commercial viability drives investment and

growth, which are essential for sustaining business

models. Innovation is a key indicator of systemic change

potential: a business that is simply doing more of the

same will be unlikely to change the way others operate,

while the introduction of a new technology or business

model will, if successful, force others to adapt to remain

competitive. The key here is to recognise when an in-

novation could be or has been genuinely ‘disruptive’ and

will actually affect the way others in the market behave.

Selecting enterprises which have a potential to

impact on other businesses: Certain types of business

activity have a greater potential to impact on other busi-

nesses. Those enterprises working to provide services

to other businesses are more likely, intuitively, to affect

other businesses and thereby have an impact on the

market system. There has been greater market systems

impact from businesses which deliver financial services,

agricultural input supplies, information and media when

compared to those focused on smallholder out-growing

or manufacturing.

Selecting business ideas that have the potential to

be copied and replicated: The private sector naturally

crowds out competition and creates unique competitive

advantage, whilst in contrast, the AECF looks to crowd

in others and replicate business ideas across sectors

and geographical regions. We have specifically avoided

supporting one player in a market where this may have a

distorting effect on competition.

It also means that we try and support ‘open platforms’

that encourage a variety of players to compete as op-

posed to single user systems. An area where this is par-

ticularly relevant is in information technology and mobile

banking services.

Targeting businesses that face legal and regulatory

constraints: The AECF actively supports enterprises

at the early stage of development, including those for

whom regulatory approvals are either challenging or

which have not yet been granted. These projects may

offer potentially good impact but will struggle to attract

the financial support necessary to sustain them until

the regulatory hurdles have been overcome. Regulatory

delays affecting one company may be affecting a sector

as a whole and by supporting one player to overcome

a regulatory barrier we can bring sector wide improve-

ments to the regulatory ecosystem. For example, we

specifically funded three companies in Kenya all press-

ing for Pest Controls Products Board approval, of which

two of the three were approved. Although the product of

the third company was not approved, this led to the sub-

sequent development of a successful seed treatment.

Cluster financing business ideas in the same sec-

tor or region: From the outset we recognised that the

AECF should be in the business of ‘starting races’ and

not ‘picking winners’. The hypothesis was that by select-

ing a number of business ideas from the same sector or

region, the AECF would be able promote competition,

trigger innovation and induce market system change.

Our biggest success story has been contributing to the

development of a competitive market in PAYGO solar

products, but we have also actively funded clusters of

seed, poultry and biomass projects.

42

Holding more focused competitions

Competitions limited to sub-sector or geographies: Country based competitions for Zimbabwe, Tanzania

and South Sudan have been designed to address the specific market system issues faced by businesses in

these very different countries.

Competitions designed to solve a particular problem: Whilst the geographical funds address specific

country level issues, we have also designed competitions to address particular market challenges. Our Re-

search into Business Window addressed the challenge of commercializing ready-for-market technologies and

products that were “stuck” in research stations. We also used competitions to more effectively target specific

project environment, such as the Post Conflict Window. Our experiences from PCW suggest that the potential

for wider systemic impacts from investments is high as we are frequently supporting the first investors moving

in after conflict and additionality is often stronger than elsewhere.

43


Managing, learning and linking

Working closely with grantees to identify and ad-

dress market system challenges: Businesses often

find challenges in understanding the information we

are seeking on defining market systems change. We

worked with each business to identify one or two key

strategic issues with systemic change potential and

then agreed a budget with the grantee to allow them to

work on these issues.

Knowledge management and learning: The AECF

was initially limited in its aspirations for learning but

this has changed over the years. Dissemination of this

learning, such as through this report, is now a corner-

stone of our business. We have recognised the poten-

tial for business to business learning platforms for our

grantees and also provide an annual event to facilitate

this. Although in some cases grantee businesses com-

pete with each other, they have found areas of common

interest in technical, operational and regulatory areas.

The poultry sector is a good example which is dis-

cussed also elsewhere in the report.

Developing appropriate links and handing over to

others: As suggested above, the AECF has a role to

play in taking systemic constraints from the grantees

to those better placed to deal with the e.g. legal and

regulatory issues. In addition to linking grantees opera-

tionally, the AECF has recognised that many need help

to transition from subsidised financing to more com-

mercial funding in order to effect and sustain market

system change. As part of this, we have developed the

AECF Connect, where graduates of the main AECF

operational windows are connected with venture capital

and other commercial sources of funding. See below

for further information on AECF Connect.

We monitor annually whether our projects are im-

pacting on the five categories of market systems out-

lined above. The following chart illustrates how many

times each are mentioned in our monitoring reports:

Are our projects making changes to market systems?

Systemic Change Types

0 10 20 30 40 50 60 70

# of observations made

Copying of theBusiness Model

Crowding In

CopyingSuccessful

Practice

BusinessRegulatory

Environment

Factor andOther Markets

44

We noted above that market systems change, focused around our five categories, was often difficult

to both define and achieve especially on a broader scale. Here we provide an analysis of the systemic

change that has been achieved at a more localised level, through our operations in Zimbabwe.

In Zimbabwe, the AECF aims “to contribute to the rehabilitation and regeneration of the...market sys-

tems...” by investing across a broad range of agricultural sub-sectors and other support sectors, with

priority given to provision of financial services to the poor. 13 of the 21 grantees analysed were sufficiently

successful to generate 16 systemic changes, of which six were predicted and ten were unplanned. Only

one, Profeeds contributed substantially to change in the poultry sector. The table below shows the five

types of systemic change for AECF grantees – firstly those predicted in the project design documents

and subsequently those actually observed. Only six of the 42 predicted outcomes actually materialised, il-

lustrating the difficulties in generating market system change with relatively limited funding focused at the

company rather than the sector level.

Supporting market systems change - an example from Zimbabwe

Copying of business model by other businesses

Although 12 out of the 21 grantees analysed predicted that their business model would be copied, this

occurred in two only cases, both grantees involved in the poultry sector. There are a range of reasons why

other business models have not been copied including that the model itself was copied from other compa-

nies, it was not successful, the barriers to entry were too high or that competitors has already developed

better business models

# of grantees predicting changevs.

# of business models for which change has been observed

0

2

4

6

8

10

12

14


Crowding In CopyingSuccessfulPractice

RegulatoryFactor markets

Predicted Observed Predicted & Observed

Number of grantees predicting change vs number of business models for which change has been observed

# of grantees predicting changevs.

# of business models for which change has been observed

0

2

4

6

8

10

12

14


Crowding In CopyingSuccessfulPractice

RegulatoryFactor markets

Predicted Observed Predicted & Observed

45


Crowding in of other businesses into the value chain

This is the most successful systemic change, with six grantees having crowded in other companies. It is important to dis-

tinguish between crowding in that is inherent to a grantee’s business model (e.g. CABS crowding in a remittance company

for its mobile platform), and crowding in that results from the model crowding in of other businesses into the value chain.

Only the latter has been considered. The smaller businesses (revenues of less than US$900,000) have been most suc-

cessful in crowding in other businesses.

Copying of successful smallholder practice

Copying of successful practice occurred in the case of three grantees, all involved in the poultry sector. Profeeds’

business model has transformed small-scale poultry production, with a rapidly increasing number of farmers having

switched to exotic breeds and fixed feeding programmes. In the case of Yelo Egg, there is some copying of its produc-

tion model by neighbouring farmers in the limited geographical areas where it is active. With Sondelani, the copying is

not related to the original business model (tomato processing) but to its small scale broiler contracting scheme, on which

Sable’s production model is based.

Successful practice implies a successful business model, although in the case of financial services, copying is directly

correlated with market growth, i.e. more consumers using the services. In addition, when beneficiaries are producers,

high levels of input costs, and in some cases investment, often preclude copying. When they are consumers, successful

practice can only be copied if the supplier offers the beneficiary training, as well as a competitive advantage, such as is

the case with Profeeds.

Changes in the business and regulatory environment

Predictions for changes in the business and regulatory environment were modest, made by only two grantees. Although

there have been many other changes in the business and regulatory environment, both positive and negative, only two

grantees have meaningfully contributed. Yelo Egg successfully lobbied for the removal of VAT on live chicken sales

through the Zimbabwe Poultry Association, thereby contributing to a reduction in production costs. While not predicted,

TAMI contributed to regulations for weather-indexed insurance.

Changes in factor markets (primarily land, infrastructure, finance and information)

Nine companies predicted changes in factor markets, of which five predicted improved access to rural finance. This has

not happened, apart from improved access to mobile financial services which is not attributable to the AECF, but due in

large part to the external economic conditions prevailing in the country. The other four companies predicted improved

access to infrastructure, of which two were inherent to the business model and one lacks a clear attribution pathway.

Although not predicted, Profeeds and the numerous competitors that have copied its business model have substantially

contributed to the revival of rural retail centres.

This summary is generated from a more comprehensive learning study on systemic change in Zimbabwe which will be

publicly available on the AECF website in late 2016.

46

The AECF seeks to place its funds in challenging

environments where financial resources are scarce

or expensive, in difficult sectors that are unappealing

to investors or at early stages in product or company

development where technologies need to be proven

to attract further development funds. We seek to sup-

port activities and generate results that are additional

to what the recipient would have achieved anyway.

Grantees need to be able to answer the question:

why do you need the AECF funding and what would

you do without the AECF support?

Input additionality is defined as the resources provid-

ed which are in addition to what the recipient could

provide from its own funds or from other sources of

commercial or donor finance. Development addition-

ality looks at what outcomes and impacts the project

achieved with the AECF funds over and above what

they would have achieved without.

Investing public funds into the private sector risks

crowding out other forms of funding that, whilst more

expensive, represent a source of long term capital

that business models need to be able to access to be

sustainable. To ensure that we do not compete with

these sources, we allocate funding through com-

petitions which require applicants to show both the

availability of alternative resources and what addi-

tional benefit they will provide for the rural poor by the

end of the project which they could not provide with

commercial finance. We test this by visiting potential

grantees and interrogating their proposed business

models prior to awarding grants, in order to ensure

that we are balancing taking risks with generating

development impact returns for our donors.

Since 2000, Esco Kivu has been promoting the culti-

vation of cocoa to smallholders as an alternative cash

crop to coffee which was decimated by disease. Its

area of operations in Eastern DRC saw armed conflict

during 2013 with widespread displacement of people

and destruction of property. Although most people

have returned, road travel between this area and the

company processing facilities in Beni remains dan-

gerous with armed groups active throughout the area

and some regions still considered inaccessible. Esco

Kivu is the only sizeable buyer in the region with large

numbers of smallholders relying on it for their sole

source of cash income.

The AECF provided funds to develop a factory in

Nobili near to the Ugandan border, create additional

collection centres throughout the region and expand

the storage facilities in Beni itself. AECF funding

de-risked the investment decision for Esco Kivu,

who would otherwise not have been able to com-

mit funding to the conflict region. Without adequate

buying capacity, smallholders would rapidly abandon

cocoa production and lose substantial investments.

The AECF investment allowed Esco Kivu to buy an

additional 4,656 tonnes of cocoa from 26,102 house-

holds in 2015 and generate an additional US6.7m of

development impact for smallholder farmers. With all

facilities coming on stream for the 2016 season, we

anticipate even higher benefit for poor households in

the future.

Conflict Mitigation through cocoa in Eastern DRC

Additionality

47


Conflict Mitigation through cocoa in Eastern DRC Provides funds where no

others are available or accessible

Generates benefit that otherwise would not be

delivered

PROJECT

INPUTADDITIONALITY

DEVELOPMENTADDITIONALITY

BIGGER

FAST

ER

MOREINCLUSIVE

WID

ER

SCOPE

AECF financing provides additionality where risk and cost

make accessing the private capital markets impossible.

We identify, target and track both input and development

additionality throughout the project life cycle but principally

during the project selection phase.

We capture information, select projects and measure their

performance through qualitative information around four

principles of development additionality:

Faster – the company could be expected to make the

investment from other sources but not for several years,

meaning development impact is lost

Bigger – the company could be expected to make the in-

vestment from other sources but it would not be as large and

supporting the scaling multiplies the development impact

that can be generated

More inclusive – the company will be able to access people

closer to the bottom of the pyramid than it would otherwise

do, enhancing the benefit to very poor people. Poor people

tend to be difficult and expensive to reach, requiring physi-

cal networks, smaller packages of goods, longer repayment

terms or greater payment default

Wider scope - the company could be expected to make the

investment from other sources but AECF resources will en-

able it to expand the scope of the good or service to multiply

the development impact.

Over the past eight years we have provided systems for

tracking development additionality in an effort to capture

where and how we benefit places or people who would not

have otherwise been reached. This is principally qualitative

in nature as development additionality cannot be accu-

rately measured quantitatively and falls broadly in line with

DCEDVii (see page 59 for more on DECD) criteria for reliably

assessing additionality. Our current approach is to identify

additionalities within individual projects during the annual

site visit process, but this does not allow us to realisti-

cally consolidate findings on additionality at the Window or

Portfolio level. More research is planned during 2016 on the

different kinds of additionality, how they are generated by

different types of project and the extent to which the benefit

accrues to the grantee and the rural poor, both directly and

indirectly. The objective is to determine which projects are

most additional for the rural poor to improve the targeting

of future funding. There are clear dangers in retrospective

assessments of additionality, especially from a third party

perspective where full information of the complex prevailing

conditions at the time of contracting is rarely available.

With a minimum AECF project size of US$250,000 and maxi-

mum US$1.5m for most Windows, we focus funding on me-

dium and large companies. This raises the question whether

our funding is additional or whether the grantee itself could

have provided the funds themselves. A good example is the

funding of cocoa buyer Esco Kivo in DRC (see box on page

46). Looking back at the success of this business, one could

assume that our funding was not additional as they could

have self-funded the infrastructure investments. However,

given the political and economic conditions prevailing in

2013 they would not have done so in the near term and many

thousands of households would have missed out on addi-

tional income.

48

How do we select for innovation?

The AECF’s objective is ‘funding innovation in Africa’

and this is an important focus for our competitions.

We seek to fund new ideas in traditional sectors, new

ideas in new sectors and both new and existing ideas

in new regions – all of which should improve the lives

of the rural poor. Individual windows and the competi-

tions within those windows either leave applicants to

propose innovative solutions to general problems or

target specific areas of innovation. These are deter-

mined, in some instances, by the lessons that we have

learned from our implementation of earlier competi-

tions or as a natural evolution from them. For example,

PAYGO solar projects funded under REACT Rounds 1

and 2 are considered innovative under Round 3 only

if they are being expanded to reach the ‘base of the

pyramid’ or to new geographical areas. Innovation

is also assessed in relation to supporting the policy

objectives of AECF’s funders. For example, REACT

Round 3 sought companies with innovative approach-

es to climate change adaptation in arid and semi arid

areas of Kenya in support of the policy objectives of

DFID, one of the funders of this competition.

We prioritise innovation in competitions by allocating

a score during the application process. This is then

applied as a criterion for selection together with other

criteria which include, for example, capacity to imple-

ment, reach to the rural poor and additionality. Weight-

ings applied to different criteria are adjusted according

to the context and objectives of the competion. For

innovation, this proportion is normally in the order of 20-

30%, but ranges down to 0% for some windows such

as Post Conflict where all investments are considered

innovative because of the nascent condition of the local

economic environment. It is generally higher in conti-

nent wide competitions where we are seeking the ‘best

of the best’ and lower in smaller, regional or country,

competitions where innovation is likely to be lower

and other objectives are also important. Scoring leads

to a shortlisting. Final selection is undertaken by an

independent Investment Committee based on, in part,

a business plan that includes a more comprehensive

elaboration of the innovative nature of the project.

How innovative are we?

We score projects at the contracting stage based on a

seven point ranking

Almost 90% of the portfolio is either very or highly in-

novative. Over 80% of projects are either new for the

company in Africa or worldwide or new for the country

where they will take place. 15 projects, or around 7%

of the portfolio, are rated at 5 or 6 on this scale and

can be considered highly innovative. This includes four

projects that are introducing a new technology globally

and a further eleven where the project is new for the

sector in Africa.

At the other end of the scale, a similar proportion (23

projects or 10% of the portfolio) are either not innova-

tive at all – four projects – or score 1 on our innovation

scale. The four projects that are not considered in-

novative have other benefits of additionality in the local

economic space that justifies their inclusion.

Innovation

Innovation is the market introduction of a technical or organisational novelty, not just its invention

- Joseph Schumpeter

“”

0 Project is not considered innovative

1Project is new for the company in the country of implementation

2 Project is new for the company in Africa

3 Project is new for the company globally

4 Project is new for the country in which it will take place

5 Project is new for the sector in Africa

6 Project is new globally (a world first)

49


Intuitively, we would expect that more inno-

vative projects would have a greater failure

rate and those that are less innovative would

be more likely to succeed. Three of the four

global firsts funded by the AECF failed, but

in only one of these cases was this because

of problems with the business model. 40%

of the projects in category 5 and 6 of our in-

novation ranking scale performed as expected

or better than originally intended, with half

of these projects in the area of PAYGO solar

energy systems. Clearly, this is an innovation

that works (see page 57 for an overview of

how we funded several projects in this sec-

tor to promote competition). In 2015 60% of

projects scoring high on the innovation scale

had either failed or were performing below

the levels expected when they were con-

tracted. These projects covered a range of

activities and Windows and failed mainly due

to external reasons – inability to change the

regulatory environment, illegal competition or

security issues.

At the other end of the scale are those projects which

are not particularly innovative. We could expect that

these, as they implement known technologies with per-

haps some local variations, should be in the most part

successful. Of the 22 projects included in the 0 and 1

categories of innovation, a surprisingly high proportion of

55% either failed or were performing less than expected.

Two thirds of these projects were in Zimbabwe and again

usually failed due to external factors including the lack of

a compliant economic and regulatory environment and

drought. Only 9% of the low innovation projects exceed-

ed expectations – Western Seeds and Tanga Fresh – but

these were both very successful in 2015. Of the less-

innovative projects, 75% were performing as expected.

The performance of projects has been considered here

as a snap shot in 2015, with projects of different ages

and facing challenges that take differing timescales to

resolve. It is therefore possible that many of the projects

currently not performing as well as expected will improve

as they come to scale or constraints are overcome. Un-

surprisingly, highly innovative projects are less success-

ful than non-innovative, but projects of either high or low

innovation face challenging implementing environments

and have broadly equal chances of success.

Do innovative projects work?

Failed

Slower/less than expected

As expected

Exceeded expectations

20%

20%40%

36%

23%

32%

9%20%

High Innovation Low Innovation

Failed


As expected


20%

20%40%

36%

23%

32%

9%20%


Failed


As expected


20%

20%40%

36%

23%

32%

9%20%


50

51


Challenge funds operating in the private sector space have

been used to target a broad range of objectives: funding inno-

vative business ideas which catalyse market systems change,

providing risk capital where others will not, or as a feeder fund

for impact and commercial investors. The type of fund de-

termines the most appropriate financial instruments brought

into play. The AECF primarily seeks increased income and

better access to markets for rural households in sub-Saharan

Africa, and initially used a competition mechanism to provide

grants and loans for projects focused on agriculture and rural

finance. Providing funds through returnable capital as well

as grants has clear benefits for challenge funds, enabling

resources to be recycled to invest in new projects and used to

finance fund operations have worked.

Whilst the objectives of the AECF have not changed since

its inception, its growth and evolution has led it to become a

competition platform to identify business ideas in a broader

range of sectors, a feeder fund for commercial investors and

a provider of risk capital for over 200 projects in 23 countries.

Key tools for success

Grants and loans

Grants – non-repayable cash awards

provided in staged payments against

contractually mandated performance tar-

gets and contribution of matching fund,

or co-finance.

Repayable grants, or no-interest

loans – interest free repayable cash

awards secured on the grantee busi-

ness assets becoming due either on a

fixed timetable following a grace period,

or once mutually agreed project perfor-

mance targets begin to be met.

52

In order to ensure the additionality of our funding, we

target companies who are unable to access commer-

cial finance because financial returns are too low or the

business idea is at an early stage. Loans to these en-

terprises inevitably have higher repayment difficulties.

Grants, in some cases mixed with soft loans, encour-

age businesses to take more risks and innovate, puts

less stress on businesses’ finance, allows the firms to

raise more debt on the back of the grant and makes the

donor funds truly additional. Providing grants means

that companies can commit greater levels of matching

funding to the project rather than having to preserve

cash to repay loans.

Successful businesses often face cash flow problems

just when loans become due, leading to pressure to re-

schedule payments and enable grantees to use these

funds to leverage commercial capital. A requirement to

repay the principal which applies to returnable grants,

rather than just continue to pay interest, can limit devel-

opment impact when repayments become due when

business related trigger points are reached. Non-re-

course loans for which repayments are based can pro-

vide a perverse incentive for companies not to achieve,

or not to report progress against targets, as these will

trigger repayments. It is for this reason the AECF loans

are no longer linked to grantee performance.

The challenge for the AECF is to find those private sec-

tor solutions that generate impact for the poor, have

longer term potential for financial sustainability yet

which cannot find funds from other sources. Although

the AECF continues to offer loans we have also devel-

oped other approaches. We have opened specific win-

dows that provide grant only assistance – such as the

Post Conflict Window - and we have established AECF

Connect, which links former grantees with opportuni-

ties for commercial finance. In future, AECF will actively

work to develop financing solutions that are consistent

with its objectives.

53


Sharing risk with our grantees and other investorsThe AECF has always had a requirement for recipients of funding to share project risk by contributing financially

at least as much as the AECF provides, either from their own money or from other sources of grant, debt or equity

investments that they raise. Having ‘skin in the game’ is important in any development or private investment context

as it ensures ownership and stimulates performance.

At the beginning, only readily available cash assets that could be committed into the project were considered as

matched funding. As the AECF grew and the range of grantees increased, this became more difficult to manage as

the verification process became increasingly long and cumbersome. In the African investment context, and par-

ticularly in the agribusiness sector, financial mechanisms readily available in higher-income countries are not easy

for businesses to access. Bank debt and third party loans are difficult to obtain and expensive and grantees rely on

bank overdrafts, supplier credit and other mechanisms. Funding availability varies throughout the year depending on

the agricultural seasonality.

To address this, in 2012 we broadened the scope of what could be considered as matching funds to include existing

investments, land and equipment being used by the project and reinvested profits as well as more formal bank and

third party credit facilities. This has made it easier for grantees to provide matching funds, but has not eliminated the

process of verification.

We currently measure all of the matching funds brought into the business from either their own sources or third

parties for the first three years of the project lifecycle. Beyond this point, whilst development impact is recorded we

have not, so far, gathered information on additional funding that the grantee brings into the business. In some cases

this can be significant, with a number of grantees generating subsequent external investment of more than US$10m.

In 2015, the levels of matching and third party funds provided to ongoing projects by sector (as illustrated in the

graph above) were more than double the amount provided by the AECF.

$17M $17M $17M

$5M $5M

$89M

$118M

$101M

$16M$21M

$78M

$14M

$6M

$32M

$49M


Total AECF funds 3rd party funding Matched funding

$17M $17M $17M

$5M $5M

$89M

$118M

$101M

$16M$21M

$78M

$14M

$6M

$32M

$49M



$17M $17M $17M

$5M $5M

$89M

$118M

$101M

$16M$21M

$78M

$14M

$6M

$32M

$49M



$17M $17M $17M

$5M $5M

$89M

$118M

$101M

$16M$21M

$78M

$14M

$6M

$32M

$49M



54

Once grantees have completed their AECF funded projects, we continue providing technical support to enable them to identify new sources of more com-mercial capital. AECF Connect - funded by SIDA - has been a pilot initiative to support AECF grantees in raising capital from investors and lenders to ex-tend project impact by ensuring continued financial support from other investors.

AECF Connect not only finds investors and matches funders to grantees, but also aims to help business-es scale up by providing expert advice and strategic input surrounding the fundraising process. It ar-ranges fundraising workshops that bring together investors and grantee companies. AECF Connect enhances the AECF’s position as a feeder fund for other investors, by not only providing capital to initi-ate projects but also leveraging more private sector capital into these projects over time. This activity allows the AECF to demonstrate an increased return on its grant programme.

AECF Connect leveraged support of US$6.53m by the end of 2015 with a total of US$16.2m expected to be finalised by mid-2016 for nine AECF portfolio companies – including taking many through a num-ber of funding rounds. In offering this support, AECF Connect delivered a range of services from provid-ing a fundraising toolkit and investor introductions to a more active support through the entire fundraising process.

The goal of truly having scale across Africa can only be achieved by working in partnership with other investors, ensuring that the AECF selects business likely to be of interest to them and helping projects in the portfolio connect with these investors in a meaningful way.

AECF Connect as currently designed is a pilot project with modest resourcing and a narrow scope of capabilities. Whilst its effect on the companies with which it has worked has been significant, its impact has been narrow when considering the size of the portfolio. To have a portfolio wide effect thought should be given to increasing the amount of resources and the breadth of services offered to help companies prepare better for the fundraising process, seek other sources of finance and mitigate weaknesses in their businesses where possible.

AECF Connect: Supporting the transition to commercial funding

Impact Investment: Barriers still exist

Though the impact investment market in Africa is maturing,

there still exists significant untapped potential. AECF has

been filling the gaps that exist with different products but

much still remains to be done.

Awareness around impact investment – AECF grantees

are often unaware of the large pool of impact investors that

can provide capital aligned to their needs. On the other

hand, impact investors find it difficult to find opportunities

aligned to their strategy potentially as a result of conflict

between these institutions’ financial and social interests.

AECF Connect’s matchmaking service has served to bridge

this gap

Mismatch between the AECF portfolio and appetite of investor community - e.g. Post Conflict, early stage pri-

mary agriculture and small investments, which is the case

for many companies in the portfolio especially in agriculture,

are underfinanced. There exists a gap between some of

the projects that the AECF finances and what investors are

looking for although there has been a shift in the recent past

towards ‘impact first’ investments.

Availability of Capacity Building and Technical Assis-tance Facilities – A good number of AECF grantees are

early stage and lack experience required to operate in chal-

lenging markets. There is limited availability of support to

enable them to thrive. The recent REACT and TZAW funding

has come with a pool of resources for provision of these

services to grantees in those Windows.

Entrepreneur resistance to giving up equity – Many

grantees are wary of equity investments as they do not fully

understand the implications of taking on equity and fear

losing control of their companies. This results in them seek-

ing debt finance even if this is not the best course for the

business. AECF Connect has been providing deal structur-

ing advice and creating awareness on the different funding

types and their implications.

The changing priorities of grantees – Fundraising is a

time consuming activity and a lot of management teams do

not have the capacity to devote enough time to this pro-

cess. Connect supports management teams to prioritise

activities and provides an additional resource to ensure

momentum with investors is not lost.

55


AECF Connect supported Meru Greens Horticulture

Ltd in Kenya, a grantee under the Africa Agribusi-

ness Window, in raising $1.05 million. Meru Greens

is a private company formed in 1996 to produce and

market fruits and vegetables, both in the domestic

and export markets. It works extensively with small-

holder farmers, training in best farming techniques

and aggregating produce. The company is now inte-

grating up the value chain, processing and packing

green beans in glass jars for export. AECF Connect

provided a range of services to Meru Greens includ-

ing introduction to investors, advice on fundraising

strategy, management of investor communication

and advice on terms.

“Our expansion had not put in place technical

advice considerations in many fields of investment.

Our Partnership with AECF Connect has assisted us

to acquire more knowledge in technical aspects of

investing and the benefits to the Company are now

evident. Our disagreements with a Fund Manager

was well mediated by AECF Connect and an amica-

ble resolution was realized. This enabled us to move

forward amidst the hostilities that had developed.”

– Gerald Muthomi, MD

Meru Greens: Value Chain Integration

The AECF is one of the leading providers of catalytic

financing to the dynamic and fast growing market for

off-grid renewable energy in East Africa through its

REACT Window. AECF Connect has been actively

involved in two fundraising rounds for SolarNow in

Uganda which distributes a range of solar home

systems and electrical appliances to households and

entrepreneurs living off the grid through a 24-month

pay plan. Through this business model, the company

makes solar products affordable for BoP house-

holds while at the same time making the business

extremely cash intensive due to the huge volume of

receivables.

AECF Connect provided support in creating an SPV

to split SolarNow’s credit assets from other company

operations enabling the two to be funded sepa-

rately. This ultimately led to a $2 million debt funding

through SunFunder’s newest financial product, the

Structured Asset Finance Instrument (SAFI) into So-

larNow’s SPV. The SPV reduces the risk of providing

loans to SolarNow by using receivables as loan col-

lateral. Lenders also benefit from transparency and

reduced operational risk arising from other company

operations. This is a key market innovation now being

used by other operators.

AECF Connect is also currently supporting a number

of other renewable energy businesses which are at

different stages of the fundraising process.

SolarNow: Innovations in Solar Financing

56 Photo Credit: Future Pump

57


Implementation processes and experiences

The AECF challenges the market to develop novel solutions to systemic development problems. We achieve this by developing competitions in a number of different ways in order to stimulate private sector ac-tors – by defining the geographical or technical scope, offering various options for grants and loans and by including specific impact objectives in the selection criteria.

Another method that has been used to generate more effective market responses and to leverage knowledge is to concentrate on a specific issue and stimulate multiple actors into offering a range of options to ad-dress it. In the REACT Window we could see a large number of applications in the field of PAYGO and biomass and saw the potential for driving the develop-ment of these sectors. We ran competitions which has led to healthy competition that is driving market system change in the household solar energy sector as well as accelerating momentum and innovation towards energy access. In the biomass sector, whilst clustering within the competition process drove the development of a range of innovative approaches, wid-er success has been limited by external factors – for example competition from the unregulated, untaxed firewood and charcoal fuel industry.

For the development of pay as you go solar systems, we provided investment funds of US$6.2m to seven companies who have thus far generated almost US$65m in counterpart financing and an impact for over half a million households. Conversely in the biomass sector we funded projects offering a range of technologies and business models to address a number of different models in biogas, biofuels, power generation (from biomass and agricultural wastes) and

the production of briquettes for industrial and domes-tic use. There has been limited success with these business models so far, demonstrating the continued difficulties, especially in externalities, that impede the sector.

The AECF also funds projects of a similar type or affecting a similar field without being specifically selected to address a technical issue. Input suppliers focused on seeds and poultry are two such examples where a large number of projects have been funded across the portfolio, developing a range of business models. The more disparate nature of this funding, with different models being implemented in different countries at different scales limits the extent to which the AECF drives sectoral innovation. However, it does enable the AECF to generate sectoral level lessons through ongoing, in depth, verification studies which help identify the more successful business models. In addition grantees, especially within the poultry sector, have established collaboration mechanisms to ex-change knowledge.

Clustering of applications in a single area can therefore be an effective tool when the target sector or action is sufficiently homogenous and different proposals can target the same issue. The market will, in time, choose the model most appropriate to the beneficiaries in a specific local context. This doesn’t have to be a tech-nical problem like solar power, it can be a systemic is-sue such as promoting women in business. Even when the sector is not homogenous, there is merit in funding a number of interventions in the same field because there will be aspects within projects that are comple-mentary to each other.

Starting races between similar business models

58

The AECF was originally designed to have the

majority of development impact data collected

through grantee self-reporting. In common with

other challenge funds operating in the private

sector development space, this approach concen-

trated on low cost disbursing of funds to busi-

nesses and a ‘light touch’ oversight, particularly on

due diligence and development impact. Much of

the management resources were concentrated on

contractual and financial compliance.

There were two key drivers for making the moni-

toring and results measurement processes more

robust. First, we needed a better understand-

ing of which AECF-funded projects were having

a significant impact on the rural poor and why,

in order to ensure future competitions were well

designed and the best potential projects selected.

Secondly, it was necessary to have more oversight

over the projects we invested in, to ensure they

were executing the business plans agreed during

the contracting stage or that any changes to their

business plans still benefited the rural poor.

While challenge funds facilitate demand-led solu-

tions to development problems, these problems

need to be precise and well framed in order to

ensure that high quality applications are received.

Equally, investment committees need to have

information about the types of projects that are

successful, as well as the factors which have

contributed to their success, in order to inform their

decision making. Businesses intending to target

the base-of-the-pyramid often find that their plans

are not as commercially sustainable as they had

hoped. Oversight is required to ensure that revised

business plans still benefit the challenge fund’s

target group or continue to work towards improving

market systems that benefit the poor.

These experiences from our early projects have

helped to shape our current systems and pro-

cesses. We have also had to balance ensuring that

the AECF remains ‘business friendly’ and low on

administration with generating the minimum level

of information for management and monitoring.

Our approaches have to cover a broad spectrum

of projects with varied business models, many of

which have specific methodological challenges

regarding assessment of impact. It has to be cost-

effective and deliver donors value for money.

Developing a cost-effective results measurement system

The AECF’s monitoring and results measurement system

59


The diagram on page 58 presents an

overview of the AECF’s monitoring

and results measurement system,

which is two tiered to provide high-

impact projects with an additional

level of verification. All AECF-funded

projects are required to self-report,

submitting project progress reports

biannually containing the self-mea-

surement of key development impact

and financial performance metrics.

Our project managers and results

measurement team review this data

and validate it during site and field

visits, which include a small number

of beneficiary interviews. Project

results measurement tools – results

chains, beneficiary models and indi-

cator tables – are also updated bi-an-

nually once site visits are completed.

Our results measurement tools have

been developed in line with the Donor

Committee for Enterprise Develop-

ment (DCED) Standard for Results

Measurement (see to the right).

We use the tools outlined below to measure the development impact

of our projects. In line with the DCED Standard, all projects have Re-

sults Chains to articulate the logic of their intervention. All our projects

also have beneficiary models to calculate the household benefit num-

ber. Projects in windows with additional funds to work towards DCED

compliance have indicator tables, and we plan to roll these out across

all projects in the future.

• Results Chain: A flow diagram which maps the activities, out-

puts, and outcomes of each project, showing how the project is

expected to lead to development impact.

• Beneficiary model: A cost/benefit model which calculates the

number of households benefiting from the project and net benefit

per household. Net benefit is defined as: Revenue or savings

made by beneficiary as a result of participating in the project –

(costs of participating in the project + opportunity cost of partici-

pating in the project)

• Indicator table: A table of KPIs used to measure each key

change in described in the project’s results chain. The indicators

are both quantitative and qualitative, and the table also specifies

how these indicators will be measured and who is responsible for

collecting the data.

The AECF’s results measurement tools

The Donor Committee for Enterprise Development’s Standard for

Results Measurement provides a framework and the tools necessary

to enable systematic and credible results measurement of private sec-

tor development programmes. Applying the Standard is recognised

as good practice by donors and implementing organisations and as

a result it has become increasingly used since its launch in 2008.

The benefits of applying the Standard include enhanced clarity of an

intervention’s logic and results chains, enhanced quality and value of

performance management data, and improved credibility of reported

impact including systemic change.

We have worked toward compliance with the DCED Standard across

the Africa Agribusiness, Research In Business, Tanzania and Zimbabwe

Windows. This has involved review and improvements of project results

chains, development of comprehensive indicator tables, and commis-

sioning independent verification studies. At time of printing, 11 verifica-

tion studies have been completed and a further six are commissioned

and in progress. Additionally, DCED audits on the Tanzania and Zimba-

bwe Windows will be carried out in the second half of 2016.

The DCED Standard for Results Measurement

60

Our reporting focus is on how much impact we

have on the incomes and employment of the

rural poor. To use our monitoring resources in

the most efficient manner we concentrate on

those projects that are most likely to generate

high returns in the form of development impact

or the number of households affected. High

impact projects, or those expected to have high

impact in the future, are subject to a higher level

of interrogation of the data they report. Results

measurement tools are updated more regularly

and triangulated against external sources. An

additional level of quality assurance is under-

taken when projects have scaled with technical

consultants hired to conduct impact verification

studies which enables us to bring both quality

and independence to the analysis.

This two tiered system enables us to take a

pragmatic and cost-effective approach to

monitoring and results measurement in a large

portfolio. While high impact projects only make

up approximately 15% of the active portfolio,

they accounted for 79% of the AECF’s impact

(by total net benefit) in 2015. Commission-

ing impact verification studies for all projects,

rather than just the high impact projects, would

not be cost effective.

Focusing additional management resources on

the high impact projects enables us to maxi-

mise the percentage of our portfolio that has

had its impact independently verified while

holding costs down. However, it is not always

the big projects that have the most to teach us

and broadening the impact verification mecha-

nism in the future would be a useful way of

generating knowledge from all aspects of the

AECF activities.

The last hard number is a key component of the

beneficiary model the AECF uses to calculate the

development impact of each project. It is a number

(or small set of numbers) that a business uses as an

integral part of its operations and which it is able to

report directly from its own management records that

is the nearest number to the development impact

number we seek. An example of a last hard number is

the volume of hybrid seed sold in a year by one of our

input supply companies.

Having extracted the last hard number from a busi-

ness, the AECF then identifies the causal relationship

between the last hard number and the development

impact. For example, our team will establish in the

field the average amount of hybrid seed used per

farmer per year. The last hard number can then be

divided by this average to enable us to establish the

number of households reached by the input supply

project.

The concept is a valuable one because it means

businesses report actual data that they collect in the

normal course of doing business, helping ensure high

quality data, minimising data collection costs, and

making it possible for the data to be effectively veri-

fied by the AECF.

The Last Hard Number

61


The AECF provided funding to the Central African

Building Society to develop its mobile banking plat-

form, Textacash, which enables users in Zimbabwe to

safely transfer money, send and receive remittances,

and pay bills. In 2014, we commissioned an impact

verification study to measure the impact that Texta-

cash has on its users.

The AECF’s projects are designed to target poor

communities and are required to include 60% of their

beneficiaries as households living on under US$2 per

day. The study used a series of measures such as as-

set ownership, house sizes and building materials as

proxies for the household income of Textacash users,

and found that only approximately 10% of users met

the AECF’s definition of ‘poor’. With the information

gathered from the verification study, the AECF MRM

team can convert the number of Textacash users

in any given year to beneficiaries who fall within the

AECF’s target group and therefore generate an over-

all figure for impact.

Assuming one user per household, in 2015 Textacash

had approximately 227,000 users. 22,700 of these

(10%) were assumed to live on under US$2 per day.

As the AECF requires only 60% of project beneficia-

ries to live on under US$2 per day, we can include an

additional 40% - a further 15,100 users - to get a total

of 37,800 households benefiting in 2015.

This highlights the importance of conducting impact

verification studies and extrapolating impact based

on their findings and is part of our drive to report

credible results and ensure that the AECF’s impact is

not overstated.

Case study: CABS Textacash

We provide funding over three years and collect perfor-

mance data for a further three years. At that point, proj-

ects graduate from our supervision and we collect only

development impact on an ad hoc basis where companies

are willing to continue to engage with us. It takes many

of our companies most of this period of supervision to

come fully to scale and so stopping the monitoring of their

performance after year six not only fails to capture the

true benefits we provide but also limits what we can learn.

Although the monitoring and especially learning require

budgets, concentrating resources on a limited number of

projects over a ten year period would enable full economic

cost benefit analysis and longitudinal surveys to be under-

taken and greatly improve our understanding of how we

impact on the rural poor.

62

In order to demonstrate additionality, the AECF

needs to invest in businesses that have difficulty

in raising funding elsewhere, despite having in-

novative and commercially viable business plans.

As we explore elsewhere in this report, this may

be because business models are too novel or

immature for commercial financing, the project

environment is too challenging, the repayment

period too long or, especially for grant funding, the

type of activity does not fit the objectives of the

donor. Funding unproven projects in challenging

environments means that we can expect some to

fail – indeed having projects fail is a key indicator

that tells us whether we’re taking enough risk in

our investment decisions.

Both before and after contracting our grants

teams undertake extensive due diligence on the

projects we fund, including a detailed analysis of

the likelihood of project success. This does not

mean that we will not fund risky projects, but it

gives us a better understanding of the risks that

we and the grantee are likely to experience during

implementation. Once contracted, we carry out

regular monitoring and disburse funds in tranches

against both financial and development perfor-

mance indicators, which gives us a degree of

management control.

As the projects we invest in operate in difficult

environments or are testing new and innovative

technologies and business models, we recognise

that they need time to succeed. Revising targets

in recognition of challenges in implementation

provides important flexibility to the businesses we

fund. However, projects do in some cases fail or

Learning from project failure

A person who never made a mistake never tried anything new

- Abraham Lincoln

“”

What is failure?

For the purposes of this report we consider ‘failure’ to be when a project is closed before achieving its

intended (or revised) project goals. This could be because the business model proved not to work, the

grantee decided to terminate the activities (such as if the company was sold), the AECF decided to termi-

nate or the project (usually for administrative non-compliance) or external factors meant the project could

otherwise not proceed (for example, regulatory permission was not provided).

63


A total of US$18m of AECF money was committed to

these failed projects, of which US$8m was actually dis-

bursed before contracts were terminated. Risk sharing

with the grantees brought an additional US$20m invest-

ment. Although the AECF also spends money on due

diligence and management for failed projects, the overall

proportion by value of donor funds to the total committed

remains below 4%. In addition, many of these projects

which do not ultimately succeed do generate benefit dur-

ing their lifetime – Olam Nigeria ultimately did not survive

but provided over US$6m of benefit to more than 3,500

households.

Reasons for failure

are terminated and remaining funds reallocated.

Over the course of the past eight years rates of

project failure have been very low. As individual

projects age and the scale and scope of the

portfolio as a whole increases, the likelihood of

failure also grows. Equally, funding smaller and

more innovative projects as happened during

2015 increases the failure rate.

By the end of 2015 a total of 29 projects – or

about 12% of the portfolio - have failed (an addi-

tional six were closed after successfully com-

pleting their project) since the start of the AECF,

with 21 of these in 2015 alone. The AECF has

a target failure rate of 30% and coming close

to this rate is a key indicator that we are taking

sufficiently risky investments. As the portfolio

matures we expect more projects to fail and our

overall rate to move towards this target level.

Of these 29 failed projects, six were closed at

the request of the grantee because of changes

in business circumstances or the inability to

achieve regulatory or financial pre-conditions.

Three were closed by the AECF due to non-

compliance with procedures or reporting. The

remaining projects failed because the business

model was not viable. All AECF windows have

had projects fail. The General Window (at 11

projects) has had the highest failure rate, driven

by the fact that it is the oldest window and so

most likely to have had failing projects closed.

The Zimbabwe Window unsurprisingly has had

a large number of bankruptcies in its total of six

failures.

Non compliance

External factors

Business plan failed

64

The AECF has provided funding for a broad scope of

projects including food crops and cash crops, inputs of

seed, feed, fertilizer and finance, investment in infra-

structure and equipment and covering goats, sheep,

camels, cattle, fish, fowl and even flies. The competi-

tions do not target specific crops or processes but

challenge the market to define what can best be done

to reach the rural poor.

Although sub-Saharan African agricultural sectors vary

tremendously in physical, political and economic envi-

ronment, there are a number of areas that have been

particularly attractive for investors. Both poultry and

high yielding seeds have generated successful applica-

tions from a range of business models and both have

experienced varying levels of success. With several

years of implementation experience impacts are start-

ing to be seen and lessons learned that will improve

both the future AECF, but also the broader knowledge

of private sector development in these areas. In both

sectors, important impact verification studies will be

undertaken during 2016 for some of the key projects.

Poultry

Poultry is seen as being an ideal enterprise for the

rural poor because it requires limited amounts of

capital and knowledge, can be readily delivered to out

growers in complete packages of animals and feed,

has a well-defined production schedule and financial

return and creates a homogenous product that can be

readily integrated into a wider value chain.

The AECF has attracted investment in the poultry

sector from feed manufacturers wishing to create a

broader market base, egg and meat producers wish-

ing to establish a broader production system, and day

old chick producers wishing to expand their markets.

It involves both introducing new business models and

changing existing production systems and working

with high numbers of very small producers and small

numbers of larger producers.

How AECF projects reach the

poor – examples of poultry

and seedsOf all the AECF funded poultry projects, one has been

a stand out success and has truly disrupted the market

in which it operates. AgFlow Poultry in Ethiopia, trading

under the brand Ethio chicken, imported exotic breeds

that perform well in backyard conditions and sells

packages of day old chicks and feed using a similar

approach to other companies targeting smallholders.

But instead of dealing directly with end beneficiaries,

it sells day old chicks to intermediaries who then sell

on grow out packages once the birds reach six weeks.

This enables the company to concentrate on what it

does best – producing chicks and feed - and to rapidly

scale. The number of households benefiting grew from

23,000 in 2013 to 242,000 in 2015. In 2013, it produced

220,000 day-old chicks per year; in 2015 the business

sold over 3m, and has a target of 20m by 2018. In 2015

the company generated an average of US $68 for over

240,000 households. Other grantees who have at-

tempted to establish vertically integrated businesses

throughout the poultry supply chain have substantially

failed as the table on page 65 illustrates: identifying,

recruiting, training and managing large numbers of

smallholder farmers has proved to be too difficult.

In 2016, the AECF will be conducting both impact veri-

fication studies on Agflow Poultry and a detailed learn-

ing study on outgrower models and how they affect

both end beneficiaries and the grantees themselves.

AgFlow Poultry - Ethiopia

65


Projects range geographically from Ethiopia in the

north to Mozambique in the south, Tanzania in the

east and Sierra Leone in the west. Most grantees

are well established and substantially vertically

integrated in the feed and poultry production pro-

cess. A total of eight projects are funded through

Africa Agribusiness and Post Conflict Windows as

well as through the country windows of Zimbabwe

and Tanzania, with a total funding commitment of

US$5m from the AECF and US$10m from matching

funds. Only two were start-ups and the remainder

existing small and medium enterprises.

Problems of poor husbandry, theft, poor facilities,

side selling and disease have led a number of the

AECF beneficiaries to move to the Brazilian model

of a smaller number of farmers with much bigger

flocks of birds. As we discuss in the market sys-

tems change section of this report, in Zimbabwe the

poultry sector has gone through significant change

due to well reported factors in the wider economy

and the increase in poultry as a meat source over

beef. Traditional large commercial producers

struggled to cope with land reform and the ensuing

economic crisis and whilst new entrants appeared,

both needed protection from low cost imports.

With the growth of smallholder producers moving

into the space, AECF has supported innovators in

both the out grower and feed sectors. Profeeds es-

tablished a network of retail outlets to sell 100 bird

broiler packs including feed and veterinary drugs,

supporting the small scale production of 12 million

birds in 2015. Sable Farms scaled up this innovation

to produce a small scale commercial poultry pack

- after starting with 500 bird packs they now work

with 52 contracted farmers who must be able to

produce batches of at least 20,000 birds to stan-

dards of the formal market. This model is now being

copied both by Profeeds themselves through a new

entity and another AECF grantee in Mozambique,

who also started with smallholder farmers before

revising their approach.

AECF funding, together with other investors, has

been critical in enabling companies to innovate and

disrupt markets. Some key lessons that we dis-

seminate to all our poultry grantees is that models

have to be tested and if necessary revised to the lo-

cal context, scaling of funding beyond the AECF is

imperative from an early stage and grantees should

concentrate on their core business and bring in oth-

ers for important but peripheral tasks.

Impact of poultry projects in 2015

2015 development impact by sector (all active projects)

Sector Number of households

Net benefit per household (US$)

Cumulative benefit (US$)

Yelo Egg (Pvt) Ltd 2,530 458 3,940,604

Agflow (Ethio chicken) 242,200 48 23,154,335

New Horizons Mozambique Limitada 0 0 96,895

Mozambique Fresh Eggs, Lda 18 147 15,210

South Farmers Company Ltd 0 0 23,300

Pajah & I.J (SL) Ltd 4,200 65 482,600

Misenani Agri Services Ltd 1,255 198 274,950

Sable Park Enterprises 52 1,778 92,456

66

High yielding seed varieties have potential to

generate significant development impact - usually

for very large numbers of households but in small

amounts. They are also important to the rural poor

for food security as most crops targeted by AECF

grantees are also part of the subsistence ration of

the household. Business models include selling

seeds to farmers, recruiting farmers as out grow-

ers of seed, and providing seed for growing out

of crops for the grantee. The majority of grantees

produce high yielding maize, but we also fund

project focused on the production of potatoes,

groundnuts, sorghum, cow peas and other short

season crops.

12 seed supply companies generated an average

benefit of US$121 for over 400,000 households

in 2015 and have generated over US$119m in net

benefit to poor families since the start of the AECF,

with 95% of this benefit coming from the top five

grantees. In total the AECF committed US$7.5m

and generated US$14m in commitments from

grantees. Measurement of benefit does not include

the incremental benefit for existing farmers who

gain access to better seeds or benefit that can ac-

crue to other farmers from open pollination.

As most grantees are existing companies, funds

are used principally to expand existing production

or distribution infrastructure and to promote seeds

amongst harder to reach smallholders. Although

the projects have reached a large number of bene-

ficiaries, innovations have been difficult to achieve.

The establishment of a one stop shop for inputs by

Dryland Seed has not materialized after funds ran

out and attempts by commercial maize producers

in Zimbabwe to reach the smallholder have proved

too complex to manage. Establishment of networks

of retail outlets or comprehensive extension efforts

to engage with the smallholder are expensive,

costs are not likely to be recoverable and it remains

to be seen whether they can be continued after

AECF money is exhausted – especially as most of

the grantees are still reporting cumulative losses.

None of the AECF projects that generate the most

impact are disruptive to the market or particularly

innovative. The poultry sector, which has seen new

business models and the packaging of inputs to

effectively target smallholders, perhaps has some

lessons for seed producers.

Although producing large development impact,

most of the seed production grantees are medium

scale businesses which include government sup-

port programmes as major clients and often rely

on donors for investment and research capital.

Backing very small seed companies does not work

and the target for investment should be medium

sized local companies that have good varieties and

which are likely to be buy out targets for multina-

tionals. Syngenta, Monsanto, Du Pont and Groupe

Limagrain have all begun to engage in the African

seed industry in recent years, including buying a

stake in one of our companies. In addition, future

AECF funding of the seeds sector needs to target

companies that are proposing truly innovative or

disruptive models. We are seeing some evidence

of this, with financial services providers linking with

input providers to offer bundled inputs and ser-

vices such as crop insurance.

Seeds

67


Input suppliers - seeds

Weste

rn Se

ed

Drylan

d Seed Lt

d

Kisima F

arm Li

mited

ExAgr

is Afri

ca Li

mited

Seed Co Ta

nzania

Limite

d

Century

Seed Co. L

td

Kenya H

ighlan

d Seed Co. L

td

Kilimo M

arke

ts

Phoenix Lim

itada

Leldet L

td

Kencor M

anag

ement Servi

ces (

PVT) Ltd

Proge

ne Seeds

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

0

50

100

150

200

250

300

350

400

450

Number of additional household Net benefit per household

Input suppliers - seeds

We’ve shown through the clustering of similar projects under the REACT Window and the financing of specific

industries across multiple windows that concentrating funding has the potential to generate both competitive

innovation and knowledge. This can lead to market system change and be truly transformational for the rural

poor. Developing funding mechanisms for a specific industry or crop, either within a geographical region or

more broadly, should be a priority for the future but should also be accompanied by the knowledge manage-

ment tools needed to identify, operationalise and disseminate lessons back into the industry.

68

Although there are no projects in the AECF

portfolio that explicitly target a specific gender,

the majority of beneficiary households contain

both genders and project impact is measured as

increased household income or savings. Since the

household is the unit of analysis, it is challeng-

ing to disaggregate these dollar benefits between

the female and male household members. For

many of our projects, we are reliant on the busi-

nesses we fund providing the ‘last hard number’

(see page 60) and in most cases they do not keep

gender disaggregated data on their customers or

they sell or buy through intermediaries and do not

know who their end beneficiaries are.

The DCED Standard for Results Measurement

(see page 59), which several AECF Windows are

moving towards compliance with, requires pro-

grammes to have a mechanism for assessing and

understanding differentiated results by gender,

and programmes should, as a minimum, disaggre-

gate impact data by gender in order to understand

any variations in benefits for men and women.

Working towards addressing gender better

When women do better, economies do better

- Christine Lagarde, Managing Director, International Monetary Fund, Davos, addressing the issue of inclusive growth.

“”

How does the AECF target and monitor impact gender?

Photo Credit: New Light Africa

69


Does the AECF benefit women?

Although there are no projects in the AECF

portfolio that explicitly target a specific gen-

der, there are projects in the portfolio that due

to the nature of their business have targeted

or benefited women specifically. For example,

growers of Stokman Rozen Kenya prefer to

employ more women than men on the flower

farms because “women generally tend to be

more careful, are faster and keen in terms of

spotting diseases”. We counted a total of 25

projects, most in agribusiness, which target-

ed or benefitted women specifically.

There are also projects within the portfolio

that have a difference in how men and women

benefit or are engaged by the projects. Lima

Limited reports that “men and women are

hired for different casual labour positions.

“Men do most of the grass cutting and hole-

digging for planting seedlings on the Elton

farm, while women do fine weeding and

working in the nursery”

Over time the AECF has sought to better

understand the differences in project impacts

on men and women, and has worked towards

integrating gender concerns into its ongoing

monitoring and results measurement activities.

At the level of the business, we disaggregate

jobs created or maintained for men and women

as a result of our funding. However, we still do

not systematically disaggregate quantitative

impacts by gender at the household level. In

the AAW Round 2 window funded by Cana-

dian DFATD that was contracted in early 2016,

emphasis will be put in the evaluation on the

inclusion of gender.

We use a mixture of grantee self-reporting and

site visits to gain qualitative insights into any

specific ways that the business models ben-

efit women and men as well as more in-depth

examinations of projects and sectors to gener-

ate gender specific findings. Within the site visit

reporting exercise we seek to identify whether

women have been targeted and whether there

are differences in the way that women are en-

gaged by, or benefit from, the project compared

to men. We aim to meet with men and women

beneficiaries in the field to develop an under-

standing of how they are affected differently.

70

An analysis of the gender impact of the AECF would require detailed household level data to review impacts

on gender roles, control of assets and behaviour at household level. Projects in the AECF portfolio target rural

households and it is assumed that the household is receiving the benefit whether it enters via the male or fe-

male member. The graph below highlights the benefits that were reported as accruing to women explicitly as a

result of AECF projects in 2015.

Gender impact of AECF projects in 2015

Frequency of benefits for women from AECF projects

Women employed by the projects as other staff

Agribusiness Financial Services Information Renewable Energy

Women employed by the projects as board members

Access to knowledge and training

Improved income

Improved health and lightening women’s burden

Increase in savings

Access to credit

Increased study hours for children and increased working hours

Ability to use or purchase own assets

50

23

23

21

16

7

9

6 3

3

2

5

2 6

7

5 3 11

3 1

22

3

Frequency of benefits for women from AECF projects

The most frequently cited benefit to women in the portfolio is job creation, both in management positions

(board members) and also as other staff (e.g suppliers, direct employment). The majority of these jobs are fo-

cused on agriculture, due to the weighting of the AECF portfolio towards the agribusiness sector. Nevertheless,

only 37% of the positions created by AECF funded projects in 2015 were filled by women, due to conservative

traditional cultures prioritising male employment and the physical demands of manual labour in the sector.

Qualitative analysis of the portfolio (see below) does suggest that that a number of our projects have delivered

important benefits to women, particularly through improvements to women’s health and lightening their burden

and workload. Women are traditionally responsible for the collection of fuel for cooking and household energy

consumption, frequently using inefficient cook stoves in unventilated homes. These tasks are both physically

demanding and time consuming, and disproportionately affect the health of women. Projects in the REACT

Window specifically provide a range of alternative fuel heating systems that have the potential to benefit women

in their domestic roles.

71


With monitoring still substantially based on infor-

mation generated by the management information

systems of the grantees, our challenge is to, on the

one hand, prescribe methodologies and indicators to

capture gender data that are achievable for grant-

ees and, on the other, to increase the engagement

of grantees in gender issues within the scope of

their commercial activities. As noted above, we have

already changed the way we score grant applications

under Africa Agribusiness 2. Further approaches to

be developed over the next year include:

• Further revise our reporting format to better

understand whether and how women are eco-

nomically empowered by the project. Questions

will be developed to identify the ways of access-

ing resources and the enhancement of power

and agency as well as increases in income, skills

development and employment opportunities,

time-use, decision making abilities and physical

mobility. Although we already interview benefi-

ciaries in the field, this needs a more specific

approach to generate a better profile of how men

and women interact in the household.

• Analyse through a learning study the strengths

and limitations of the current approaches to

gender, including a review of the likely gender

issues that could be expected from the type of

projects that the AECF finances. We would like

to know more on women owned businesses,

women managed businesses, women employed

in AECF businesses, women involved in AECF

value chains and women as beneficiaries either

as producers or consumers.

• Mainstreaming gender into verification stud-

ies: We have a number of verification studies due

to be undertaken on high impact projects during

2016 that will involve primary data collection from

beneficiaries in the form of field surveys. This

represents an ideal opportunity to enhance our

understanding of gender impacts at the house-

hold level.

• Strengthen the management systems to

better include gender: Whilst we cannot force

companies to change their business processes,

we can and should make awareness of the im-

portance of gender in business a central theme

of future competitions. In a practical sense,

this means better mainstreaming of gender in

the design, promotion and evaluation as well as

enhancing knowledge of gender within the staff

of AECF.

Improving how the AECF measures gender impacts

72

The method which the AECF uses to calculate the

benefit that it generates for poor people focuses

on financial returns through a simple cost benefit

analysis of a typical beneficiary household, as well

as the counting of jobs created directly in AECF

funded-businesses. The REACT portfolio gener-

ates non-income environmental benefits to society

as well as other public benefits including electric-

ity generation for the national grid.

By looking at the AECF’s (REACT) window we can

develop an understanding of the kind of non-mon-

etary benefits that the AECF generates. REACT

businesses which produce innovative solutions to

climate change mitigation, adaptation, and rural

energy access, with projects in solar, biomass,

forestry and other alternatives to fossil fuels.

Biomass and biofuels projects take organic feed-

stocks, frequently wastes, and convert them to

energy products by a range of physical processes.

Non-monetary benefits include the removal of

waste from the local environment and consequent

reduction in disease and improvement in hygiene;

reduction in the gender based drudgery of fuel

wood collection; and recirculation of important

agricultural nutrients that would be otherwise lost

to the farming system.

Introducing technical know-how in climate change

adaptation and novel approaches to agriculture

(climate smart agriculture) at the smallholder level

offers a wide range of non-monetary benefits. This

includes improved resilience in the face of climate

change from consistency in the production of food

and better educational performance due to im-

proved nutrition throughout the year.

Accessing electricity through off grid solar provides

a wealth of benefits in addition to those gained

directly from economic endeavour – the ability to

charge mobile phones brings a host of both direct

and indirect benefits from accessing information

including information on crop prices and planting

to maintaining social ties with distant relatives and

learning from the Internet. The use of electrical

cooking and heating devices reduces fire hazards

in the house and local environment, and improves

health by reducing exposure to particulate matter

and accidental consumption of kerosene. Lighting

improves education, safety, security for people and

property and enhances leisure quality and social

networks.

Finally, promoting forestry not only creates income

and jobs but also improves oxygen levels, induces

local rainfall and maintains a regular rainfall pattern,

prevents soil erosion and flooding, combats de-

sertification and provides both scenic beauty and

biodiversity preservation for future generations.

Wider public benefits in the REACT portfolio

73


Reach to the Bottom of the Pyramid

With some REACT companies now reaching up to four

years in their six year AECF terms, it is interesting to

look deeper into the characteristics of the beneficiaries

(customers or suppliers) that they are reaching and

the impacts seen beyond the benefits that the AECF

characterises in its models. Questions include:

• Are REACT companies reaching the poorest

customers (i.e. people earning less than US$2

a day)?

• How deep are the market segments that, in

particular, off-grid solar home system provid-

ers really reach?

• Given the relationship between gender, energy

and poverty reduction, to what extent are

women benefiting from the products and ser-

vices offered by REACT companies and how

are these benefits manifesting themselves?

There are several notable insights from the portfolio:

1. Pay-as-you-go for solar may well be considered

a “silver bullet” solution for electrifying previously

unserved off-grid rural populations. The perfor-

mance of REACT pay-as-you-go solar companies

so far indicate that this is a business model with

the potential to be as transformative for the elec-

tricity sector as mobile money has been for the

financial sector.

2. From observation of the portfolio so far, it is very

difficult (and perhaps unrealistic to expect) the

private sector to reach the “subsistence” segment

of the BOP market, that is, people who eke out

a living on less than a dollar a day . This segment

is highly vulnerable and needs other intervention,

for example, through specific government pro-

grammes.

3. Companies such as Nuru Energy in Rwanda,

Gesto Energy and Fortune CP in Mozambique are

attempting to address the poorest segments of

the market by using centralised charging stations

to reach their customers. This model involves the

customer purchasing either lights or batteries for

a low upfront cost. These are then brought to the

station and charged for a small fee. The models

are yet to prove themselvesix, major constraints

lie in the convenience (travel time and distance

to the station) and utility (flexibility of use) for the

customers. More recently Heya! (Newlight Africa)

is introducing a pay-as-you-go payment system

for an entry level solar lantern to also try and ad-

dress this market segmentviii, but once again they

are in the early stages of developing their business

model.

4. However, other companies where business

models are already showing traction in the market

present a possible cost-effective and efficient

channel for delivering high quality services to

poorer market segments, provided they are incen-

tivised to do so. Companies, such as SolarNow in

Uganda, would be willing, for example, to provide

their solar systems, warranties and after-sales

support to targeted poor and vulnerable custom-

ers e.g. single mothers; widows; grandmothers

raising grandchildren in rural poor areas, if there

were government subsidies available to support

such groups. Evidence in other parts of the world

has shown that subsidies of this kind, especially to

utilities in providing connections to the poor and

vulnerable, have been effective . Utilities have lim-

ited reach; the private sector, with its rural off-grid

distribution networks and know how may provide

an alternative option for such programmes, if they

can secure support to do so.

74

5. Whilst it is natural for the REACT

companies to continue to pursue their

easy-to-reach target markets, evi-

dence is beginning to emerge on how

some REACT portfolio companies are

trying to extend to harder-to-reach

customers, whether these are custom-

ers who are very poor or simply more

dispersed than their existing distribu-

tion chains can reach.

One way is through the use of specialist

last-mile distributors who are beginning

to enter the market. Another way is by

harnessing group micro-lending networks

(“table-banking”), in particular of women

groupsx. During 2016 it has been inter-

esting to observe several companies in

the REACT portfolio (e.g. BBOXX, Azuri

Technnologies, Microenergy Credits,

Ecosmart and M-KOPA) starting to reach

out to such groups not only to increase

their customer outreach but also to provide

an additional level of security when con-

sidering how to strengthen credit checks

and minimise default rates by new custom-

ersXi. This is a very interesting use of social

rather than physical collateral, to enable a

customer to get their foot onto both energy

and financial ladders. The evidence so far

is anecdotal but this potentially an area

of research to look into, both the extent

to which table banking is being used and

whether there are possibilities to promote

it in a more structured and systemic way.

The case study below provides a powerful

example of how an exciting and ambitious

entrepreneur has managed to use the sys-

tem to raise financing for her business.

End user financing that allows customers to pay for

clean energy assets in affordable increments is a

key factor in the rapid uptake of off-grid solar home

systems and other clean energy products (e.g. cook-

stoves). Pay-as-you-go solar is a digital technology

based end-user financing solution that has shown

tremendous success so far, particularly in parts of

Kenya, Tanzania and Uganda. It is bringing many

people into the “net” of institutional credit facilities,

who otherwise do not have adequate collateral or

documented credit histories to secure loans. How-

ever, the solution is not widespread as yet: it depends

upon mobile phone network access and reliability;

companies offering the solution are young rapidly

expanding start-ups (and therefore risky, in an overall

business context); companies have yet to build out

comprehensive distribution structures; and so far,

the products offered are proprietary and do not offer

flexibility of use or consumer choice.

REACT companies such as Microenergy Credits

(MEC) and Suntransfer Kenya (STKE) might not be

achieving as rapid growth as some of their pay-as-

you-go competitors, but are steadily building end-

user financing mechanisms and distribution networks

through partnerships with microfinance organisations

and rural banks. Both MEC and STKE can be cred-

ited with building awareness, interest and markets for

renewable energy products in a previously reticent

rural finance sector. For example, MEC has worked

with Equity Bank to develop and roll out the Eco Moto

loan, specifically for clean energy products. So far,

the repayment rates of such loans have been prom-

ising, but the financial sector in Kenya is yet to fully

embrace such lending. Should it do so, it has the po-

tential to provide a viable and interesting complement

(and competitor) to digital pay-as-you-go financing,

with the advantages that such organisations are al-

ready present throughout the country, are known and

From a customer to an entrepre-neur: how table-banking has helped Aileen Chemng’etich to scale the energy and financial ladder

75


trusted brands, and are able to offer flexible loans

that aren’t restricted to a limited range of products.

Further, they are likely to be able to offer far more

attractive interest rates to consumers than the 20 –

30% currently observed within the pay-as-you-go

solar companies in the REACT portfolio.

However, the potential benefits go further. “Table

banking” (also known as group micro-lending) is

a way in which asset poor people are able to get

together, for example as a women’s group, and ac-

cess formal credit from rural financial institutions,

using social collateral rather than physical collateral.

This was an approach that was pioneered in Ban-

gladesh in the 1970s by Grameen Bank and subse-

quently has shown successes in India and in Kenya,

as a way of expanding the reach of microcredit

programmes for both asset and business financing.

Take, for example, Aileen Chemng’etich, a member

of the Taunet Nelel women’s group in the Nandi

Hills region of Kenya. Aileen started off as a MEC

/ Equity Bank customer, using an Ecomoto loan to

purchase energy saving cook stoves and a solar

lighting system. These products helped her to

reduce her household energy expenses by more

than a half. Quickly spotting an opportunity, Ai-

leen decided to start a clean energy business as a

stockist of the same tried and tested products she

was using in her own home.

In 2012, she secured a group social collateral guar-

antee from her women’s group and collateralised

her household energy assets to access a loan of

Kshs 250,000 (US$2,500) from Equity Bank. Aileen

used the loan to stock up her business in Kaptumo

market. Her business has grown rapidly - Aileen has

repaid the loan completely and she has now applied

for a new loan to further increase her stock and

expand her business to another branch. From an

unbanked rural woman to a clean energy customer

and then into a clean energy entrepreneur with an

expanding business and a well performing business

loan, Aileen is an example of how clean technology

and creative end-user financing mechanisms can

unleash potential in rural areas.

“The Ecomoto loan enabled me to access a low cost energy saving cooker that has re-duced my energy expenses for cooking by more than a half. I have always wanted to start and manage a business that improves the living standards of women in rural areas and now my dream has come true as a result.”

Photo Credit: Micro Energy Credit

76 Photo Credit: Esco Kivu

77


i http://www.pewresearch.org/fact-tank/2015/09/24/sub-saharan-africa-makes-progress-against-pover-ty-but-has-long-way-to-go/

ii Through household cost savings or through in-creased household income

iii A crude measure of the overall value for money delivered by the AECF (cost effectiveness), calcu-lated by dividing the total net benefit plus wages for the period by the total AECF funds disbursed for the same period.

iv http://blogs.worldbank.org/developmenttalk/youth-bulge-a-demographic-dividend-or-a-demographic-bomb-in-developing-countries

v World Bank. 2012. World Development Report 2013: Jobs. Washington DC.

vi http://www.africapay.org/tanzania/home/salary/minimum-wages

vii http://www.enterprise-development.org/wp-con-tent/uploads/DCED_Reader_March2016.pdf

viii https://hbr.org/2011/06/the-globe-segmenting-thebase-of-the-pyramid

ix EGG-Energy, a R1 company with a similar model in Tanzania has now closed down

x Plenty of references, toolkits and case studies avail-able here, ESMAP publications on gender and social inclusion in the energy sector: http://www.esmap.org/node/1161

xi See for example: http://www.dobequity.nl/east-af-rica-fund/copia-global-kenya/; http://www.inclusive-businesshub.org/know-how-last-mile-distribution/; https://sokowatch.com/; http://livelyhoods.org/sale-snetwork/ismart-kenya

End Notes

78

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