Cultivating capital for smallholder finance: Reflections from six years of the IDH Farmfit Fund

The IDH Farmfit Fund was launched to answer an unresolved but straightforward question: Can smallholder-inclusive finance be both impactful and commercially viable? 

Answering this question required a novel approach.  

The IDH Farmfit Fund (the Fund) is a EUR 100 million, closed-end blended finance vehicle that combines public and private capital to attract corporate and institutional investors into high-impact, underserved segments of smallholder value chains.  

Its mandate is intentionally broad. The Fund invests across agri-SMEs, MFIs, agtechs, fintechs and other value chain actors that serve smallholders, using tailored financial instruments, ranging from debt and mezzanine finance to guarantees and equity. Longer tenors, flexible repayment profiles and grace periods are built in, reflecting agricultural realities. 

This flexibility was not accidental. It was a recognition that conventional products - short-term, rigid and collateral-heavy - rarely work for businesses that serve smallholders. 

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, resource-intensive and full of trade-offs.  

These realities sit at the heart of this publication: Cultivating Capital for Smallholder Finance. 

Cultivating Capital for Smallholder Finance is grounded in practical experience rather than theoretical concepts. It reflects six years of deploying capital in imperfect conditions, adapting assumptions, and learning alongside investees and partners.  

In the spirit of shared learning, Cultivating Capital for Smallholder Finance reflects on a number of design dilemmas faced by the Fund: 

• Risk-sharing vs. Flexibility. The Fund’s requirement for co-investment enhanced risk sharing and mobilisation by taking higher-risk positions, but also delayed smaller or complex deals, as aligning co-investors in a high-risk sector proved challenging, pointing to portfolio-level mobilisation targets as a more flexible approach. 

• Traditional TA vs Investor Requirements. Current TA prioritises impact or post-investment support rather than investment readiness, creating misalignment with investor needs; bridging this gap requires integrated TA–investment models and dedicated funding for pre-investment engagement where commercial incentives are insufficient.

• Impact Depth vs Operational Efficiency. Impact-centric flexibility enables deep change but is resource intensive; balancing depth and efficiency requires fund structures that support high-touch engagement, including adjusted fee models and complementary grant funding for post-investment technical assistance. 

• Smallholder-Centric Models vs Institutional Finance. Agri-SMEs enable deep smallholder engagement despite lower readiness and returns, while tech-enabled MFIs and fintechs scale faster with stronger upside; the Fund is less suited to traditional financial institutions, which require different tools, vehicles and regulatory interventions to unlock impact. 

• Risk Diversification vs Systemic Change. Diversifying across sectors and geographies strengthened portfolio resilience and created opportunities in underfinanced areas, but may dilute depth. More concentrated strategies could enable the Fund to drive a more systemic change, but may increase concentration risk and reduce flexibility.  

Read the Full Report or the shorter Executive Summary + Design Dilemmas to find out more.