The IDH Farmfit Fund was launched to address a long-standing but deceptively simple question: can finance that includes smallholders be both impactful and commercially viable? Finding an answer required moving beyond conventional investment approaches and testing a new model in practice.
The IDH Farmfit Fund is a EUR 100 million closed-end blended finance vehicle that brings together public and private capital to attract corporate and institutional investors into high-impact yet underserved segments of smallholder value chains. With an intentionally broad mandate, the Fund invests in agri-SMEs, microfinance institutions, agtechs, fintechs, and other value chain actors that serve smallholders. It deploys a range of tailored financial instruments, including debt, mezzanine finance, guarantees, and equity, while offering longer tenors, flexible repayment schedules, and grace periods that reflect the realities of agriculture.
This flexibility was a deliberate design choice. It stemmed from the recognition that traditional financial products—often short-term, rigid, and collateral-heavy—rarely work for businesses operating in smallholder contexts. To be effective, finance needed to adapt to the uneven cash flows, risks, and long investment cycles common in agricultural value chains.
Over the past six years, the Fund has deployed more than EUR 50 million, mobilised over EUR 150 million in co-investment, and supported business models expected to reach millions of farmers. At the same time, the journey has been complex and resource-intensive, marked by constant trade-offs between impact, scale, risk, and operational efficiency.
These realities form the foundation of the publication Cultivating Capital for Smallholder Finance. Rather than relying on theory, the publication is grounded in hands-on experience gained through deploying capital in imperfect conditions, adapting assumptions, and learning alongside investees and partners over six years.
In the spirit of shared learning, Cultivating Capital for Smallholder Finance reflects on several design dilemmas faced by the Fund. It examines the tension between risk-sharing and flexibility, where co-investment requirements strengthened mobilisation and risk distribution but often slowed down smaller or more complex deals. It highlights the misalignment between traditional technical assistance models and investor requirements, noting that technical assistance frequently prioritises impact or post-investment support over investment readiness, and arguing for more integrated approaches that combine capital and technical support from the outset.
The publication also explores the balance between impact depth and operational efficiency. While high-impact, flexible approaches enable meaningful change at the smallholder level, they are resource-intensive and require fund structures that support high-touch engagement, adjusted fee models, and complementary grant funding for post-investment support. Another key insight relates to the trade-off between smallholder-centric business models and institutional finance, where agri-SMEs enable deep engagement with farmers despite lower readiness and returns, while tech-enabled MFIs and fintechs offer faster scale and stronger commercial upside. Traditional financial institutions, by contrast, require different tools, vehicles, and regulatory interventions to unlock comparable impact.
Finally, the Fund’s experience sheds light on the tension between risk diversification and systemic change. Diversifying across sectors and geographies has strengthened portfolio resilience and opened opportunities in underfinanced markets, but it may also dilute impact depth. More concentrated strategies could drive deeper systemic change, though at the cost of higher concentration risk and reduced flexibility.
Together, these lessons offer valuable insights for investors, donors, and practitioners seeking to make smallholder finance both impactful and commercially sustainable.
