MFI Report

Juhudi Kilimo LLC is a newly established for-profit enterprise with a strong social mission that provides investors with an opportunity to contribute to the socially responsible economic development of rural Kenya. It has a unique approach to supporting economic activity across the agribusiness value chain, from production of raw products to processing and delivery of finished goods: by providing asset financing and linkages to technical assistance funding to smallholder farmers as well as to rural small and medium enterprises. Juhudi also benefits from an established five-year track record as a spin-off program from the K-Rep Development Agency, an antipoverty NGO that performs research and product development for the microfinance sector. This initiative provided financing to over 7,000 smallholder farmers, 46% of them women. On April 1, 2009, all of the program’s assets ere transferred to Juhudi Kilimo LLC. With the K-Rep Group as one of its sponsors, Juhudi has the opportunity to access the broad knowledge network and potential synergies within the Group’s companies, including KDA as well as a microfinance bank and a village bank management service. Juhudi was supported in its restructuring by the Grassroots Business Fund, a US-based social investment organization, formerly part of the World Bank’s International Finance Corporation. Juhudi has access to GBF’s (like K-Rep Group’s) broad network of leaders in the field of social enterprise. GBF is providing loan funding to expand Juhudi’s portfolio, as well as grants to support an extensive program of capacity building, including improvements in efficiency, expansion of management staff, staff training, and diversification of products and services offered. GBF is also helping with fundraising, tapping into its network of partners, donors and socially minded investors. GBF is working closely with Juhudi to pursue their shared focus on providing business development services to rural farmers and enterprises, helping rural value-addition, and supply chain improvement. Challenges: Financing: Juhudi is seeking approximately $5-$7 million in debt, equity, quasi-equity and grants over the next three years to fund operations and build the loan portfolio. Collection rate: The KDA Asset Finance Program had historic collection rates around 97%, although in 2008 it went down to 92% due to the combination of social unrest in the rural areas and the fact the Program didn’t have a Manager during that period. Juhudi will maintain the high collection rates already demonstrated in the past by strengthening its management and providing training for its staff. Margins: As a program within a non-profit organization, the Asset Finance activity was mainly fueled by grants or subsidized loans. As a for profit entity, Juhudi will have an increase amount of commercial debt. With higher funding costs than KDA and operating costs high at first due to the size of its portfolio, it is important for Juhudi to keep a sufficient Operating Margin in order to achieve profitability. Size / Viability: Juhudi needs to get to a $6 million portfolio to break even. The timing and the total availability of funds will determine how fast Juhudi grows to a sustainable size. An initial equity base, a continuing inflow of debt for significant portfolio growth, and grants to cover early technical assistance will support the rapid expansion of Juhudi’s operations. Cacher