N3F: A blended finance model to increase the consumption of nutritious foods

What is N3F?

The Nutritious Foods Financing Facility “N3F” is a programme that combines an impact investment fund focused on improving nutrition by responding to challenges faced by Small and Medium Enterprises (SMEs) in Sub-Saharan Africa and a technical assistance arm aimed to support these SMEs. The financing arm will provide financing opportunities that are not available from local banks to SMEs in the agricultural value chains, specifically those that contribute to access and availability of affordable safe and nutritious foods. N3F is a partnership between two organizations with complementary expertise, GAIN and Incofin Investment Management (Incofin): GAIN has worked for more than 10 years providing technical assistance and grants to SMEs in Africa in the agricultural and nutrition sectors; Incofin is a leading international impact fund manager focused on investing in enterprises in emerging countries in a financially sustainable way.

The N3F includes 3 components:

1. The N3F Fund, managed by Incofin, an impact-first fund with consumer nutrition at its core and a blended finance structure, which will provide debt financing to SMEs providing safe and nutritious foods to local consumers in Sub-Saharan Africa,
2. Technical assistance to the Fund's investee SMEs, managed by GAIN, which will focus on i) general business management practices and performance, to support SMEs to becoming more efficient and financially sustainable, such as business planning and strategy development; and ii) impact enhancement and food safety, such as product formulation, labelling and supply chain strengthening, to ensure, improve and oversee SMEs’ nutrition impact, as well as gender and environment; and 
3. Monitoring, Evaluation and Learning (MEL): This component will focus on convening and influencing stakeholders, knowledge dissemination and the development and validation of metrics for targeting nutrition-sensitive investments and will be managed by GAIN.  

Why is N3F so important to GAIN?

In low- and middle-income countries, most food consumed is purchased through the private sector, mainly from SMEs. In Africa, for example, they produce over half of calories and over 80% of animal-source foods, fruits, and vegetables, while processing or handling about 65% of food in later stages of the value chain. Throughout the food value chain, SMEs are key drivers of food supply, job creation and regional economic growth.

We understand that most SMEs fall in the missing middle (too big for microfinance and too small for banks), accessing insufficient/inadequate financing from commercial banks​. Commercial banks consider agrifood SMEs as very risky (due to thin profit margins and high exposure to climate shocks and changes) and ask for strict collateral.​ Besides, other agro Funds prioritize export-oriented business financing ​than domestic market and provide financing usually in hard currencies such as USD. All these constraints affect the ability of SMEs to access capital to grow and therefore increase the consumption of nutritious foods among low-income earners.

Tell us about SMEs that N3F will support. Is it all SMEs in the agricultural value chains?

N3F will support agrifood SMEs with positive financial track record, not start-ups but rather established businesses seeking capital to grow and scale. The ideal SME must produce/process/deliver/market or otherwise support nutritious foods and comply with local safety standards. It should be producing mainly for the local or regional consumption and primarily targeting low and middle-income consumers.

The major focus is on foods of high nutritional value, such as unprocessed and minimally processed fruits and vegetables, legumes, nuts and seeds, unsweetened dairy products, eggs, fish and seafood; organ meats; fortified grains/flours and related products; biofortified crops; grain products that mitigate loss of germ and dietary fibre; sprouted grains; micronutrient powders (MNPs); lipid-based nutrient supplements (LNS); minimally sweetened dairy products; minimally processed poultry and fish; nutrient-dense whole grains (e.g., teff, millet, sorghum, fonio). We will also support input and service providers that contribute indirectly to the availability of these foods.

How will you roll out N3F? What are the achievements and current activities?

We started with pipeline development for N3F in 2020 and so far, have identified more than 300 businesses across 18 countries, which make the database of candidates for investment. Among those, we have started collecting insights on technical gaps and provided a few pre-investments technical assistances to most promising candidates in 3 countries. The pipeline development is ongoing, and we continue to identify SMEs which are interested in N3F and fulfil the eligibility criteria.

What value addition does N3F provide to SMEs?

The Fund will customise the debt terms (i.e., collateral, grace periods, repayment flexibility, etc.) for its clients, which are normally fixed and standardized in local banks and therefore, are major constraints for such SMEs to access debt financing. By providing technical assistance alongside debt financing to these businesses, N3F will address the root causes of SMEs' barriers to growth, enabling these enterprises to scale and build a track record for sustainable growth.

How does N3F sustainability look like?

From a financial perspective, N3F sustainability will mainly depends on two factors:

1. scale meaning that the fund has sufficient size to generate incomes and cover its costs and
2. portfolio quality which means that the loan provided are of good quality.

From an impart perspective, the sustainability of N3F relies on a two-pronged approach. We will provide debt to SMEs in cycles (an SME can apply for another debt after clearing the first debt), which means that one dollar can be invested several times throughout the lifetime of the Fund, thus generating a variety of nutritious foods. Secondly, our MEL component will generate metrics and track impact to prove the business case for nutrition investment.

Overall, we believe that the proof of concept will attract more investors towards nutrition, to increase access to safe and nutritious foods for low-income local population.

Related Resources

• The Nutritious Foods Financing Facility (N3F): Pioneering nutrition financing
• Nutritious Food Financing Programme: Investment Opportunities in Food Value Chains
• Blended finance: A Promising Approach to Unleash Private Investments in Nutritious Food Value Chains in Frontier Markets
• Impact Investing Holds Promise for Nutrition If Guided by Evidence
• IFSS Guide to Finding Funding for SMEs
• Sankalp Africa Summit 2023: Highlights from GAIN’s Scaling Nutrition Impact Session
• GAIN working paper Series 13: Supporting gender equitable systems through access to finance for SMEs
• Fueling the Business of Nutrition

Headline Image Credit: GAIN