Solidaridad has facilitated US$3.15mn of financing for Ugandan tea processor Kayonza Tea Factory in the form of a long-term loan from social impact investor Oikocredit.
The investment will allow Kayonza to build a second factory to process the soaring tea yields for the benefit of the 7,500 smallholder farmers who own the tea processor.
Kayonza is the first UNDP Equator Prize winner and the first project in Solidaridad’s impact investment pipeline to win financing.
The new plant in nearby Mpungu will more than double Kayonza’s capacity to 38,000 metric tonnes per year, allowing the processor to make the most of growing international demand and government support of the tea industry. Construction will begin in January 2020.
“As soon as we get the funds, we will roll into action,” confirms Christopher Turyatemba, General Manager of Kayonza Tea Factory. “In two years’ time, the satellite factory will be a reality for the Mpungu community.”
Kayonza is currently running at full capacity. Deliveries to the processing plant in the highlands of southwestern Uganda have risen by 60% since 2016. Its suppliers – smallholders mostly farming one and two hectare plots – are achieving higher yields.
Solidaridad’s tea experts from East Africa and India assessed whether Kayonza’s yields warranted a second factory. They also ensured that the projected machinery costs were realistic. Using sophisticated financial modelling, Solidaridad then worked with Kayonza’s management team to develop the business plan and investment proposition, before introducing the project to potential investors.
Kayonza’s focus on social impact and its strong business plan appealed to Oikocredit. The latter worked with both parties on a loan proposal that would meet the specific needs of the project.
Kayonza won the United Nations Development Programme’s (UNDP) Equator Prize in 2015. UNDP selected Kayonza for its efforts to help its local community to adapt to climate change, drive back deforestation and soil degradation, and encourage local people to adopt land management techniques and diversify their crops.
Solidaridad supports farmers around the world to become financially robust. Developing a strong supply chain including reliable agricultural service companies is a crucial part of its mission. Businesses like Kayonza are key to delivering services to smallholder farmers.
Frederik Claasen, Global Head of Policy at Solidaridad, says: “It has been exciting to see the different parties contribute their expertise to help this deal come to fruition. Leveraging 50 years of working with farmers around the world, we are now seeking to partner with impact investors and have already built a pipeline of 67 projects we are developing to get ready for investments.”
Geoffrey K. Musyoki, Agriculture Loans Specialist at Oikocredit, says: “Our investments prioritize social impact while safeguarding the environment and generating fair financial returns. In this regard, Kayonza is an excellent match for Oikocredit. Our investment will allow Kayonza to boost its position in the global tea trade, giving the new factory the potential to be a huge catalyst for development in the area.”
Martin Sommerschuh, Coordinator of the Equator initiative at UNDP, says: “At Kayonza, we saw there was both a need and an opportunity, but we did not have the capacity in-house to move it to investor readiness. It is here that Solidaridad stepped in and provided crucial support. Excitingly, it’s the first time an Equator Prize winner has secured external financing since it was established in 2002.”
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