USAID support catalyzes new MCE fund focused on sustainable agriculture

MCE Social Capital
8 min readMar 7, 2023

By Camilla Nestor and Catherine Covington

MCE Social Capital (MCE) is a catalytic, impact-first investor that provides flexible and timely capital to social enterprises, with a focus on women and the environment. We’ve deployed over $300 million in capital since our first loan in 2006, and we’ve been fortunate throughout our history to work with a range of like-minded partners who share a similar vision for supporting sustainable livelihoods in emerging markets.

In 2021, as MCE set out to launch a new debt fund focused on sustainable agriculture, one of the first partners we thought of was the U.S. Agency for International Development (USAID), who at the time had just launched a competitive process to support agriculture-focused funds. We were thrilled to be awarded catalytic funding to design and prepare for the launch of the MCE Empowering Sustainable Agriculture (MESA) Fund, which just celebrated a first close of $19.5M with anchor support from U.S. International Development Finance Corporation (DFC) and Ceniarth alongside six other investors including MCE, with a second close of a similar size expected to follow in late Q2 2023. MESA seeks to scale economic opportunities within local communities, enhance the climate resilience of smallholder farmers, and empower women throughout the agricultural sector in emerging markets.

Emmanuel tending to his crops. He is a partner of Natural Extracts Industries, a social enterprise promoting sustainable agriculture and market access for smallholder famers in Tanzania.

The timing and depth of this partnership with USAID, possible through its private sector engagement initiative INVEST, was critically important to MCE. While we have a long and successful track record of being an impact-forward asset manager using our nonprofit balance sheet to make loans, this was technically our first fund structure, and we were eager to partner with organizations like USAID with tremendous experience and an invaluable 30,000-foot perspective on the fund market. We’re keen to share our top learnings from the process in the event that other impact funds might benefit from our experience.

First things first- why a fund?

As an investor known for being willing to take smart risk in service of outsized impact, MCE decided to take a step back in 2021 to determine where its capital could be most catalytic in the coming years. We landed on one of the most persistent and well-documented challenges in the impact space: the lack of capital for smallholder farmers and their communities. We’re not alone in seeking to address this major capital gap — many of our peers in CSAF are also committed to this challenge, and thoughtfully-designed initiatives like Aceli (of which MCE is a current member) are playing important roles.

MCE has a 16-year track record of investing in rural communities through small and growing agribusinesses and rural financial service providers, but the demand for our capital exceeds the supply. We made a strategic decision to develop an impact-first debt fund that sits side-by-side with MCE’s current, on-balance-sheet model to allow us to bridge that capital gap faster than we could with our current model alone. Thus, the MESA Fund concept was born, with the goal of providing transformative debt capital to agribusinesses throughout their lifecycle, either through direct lending to “missing middle” enterprises or to financial services providers, partnering with these companies as they grow.

Greenhouse run by a client of Credicampo, a financial service provider in El Salvador.

A fund structure also made sense in the context of MCE’s current capital sourcing structure, which essentially functions as an evergreen model- where capital sourcing is gradual and ongoing as opposed to the one-time infusion of capital that a fund structure provides. Designing a closed-end fund structure, a separate LLC with the nonprofit MCE as the sole owner, allowed us to diversify our funding model and crowd in new investor partners that were comfortable with such a well-known structure.

Top learnings from fund feasibility and design to first close:

  1. Don’t underestimate the value of external advisors and experienced partners, especially in the early stages. External advisors can be invaluable, bringing different perspectives and market intelligence, and being a core partner in the work (especially important for a lean team like MCE’s). The USAID partnership allowed us to engage Open Capital Advisors, an African-focused consulting and financial advisory firm that led us through the portfolio construction, fund financial model, and investor teaser deck development processes. The OCA team was excellent, and the support from USAID enabled MCE to hire a firm much sooner and at a higher caliber than we could have done otherwise, which therefore allowed us to kickstart our fundraising process more quickly as well.
  2. Involve potential anchor investors early. MCE engaged our potential anchor investors from the get-go, including them in an initial fund design workshop, and keeping them apprised throughout the process. We were extremely fortunate to have two long-time MCE partners excited to play an anchor role: the DFC as the anchor in the senior tranche, and Ceniarth in the subordinated tranche.
  3. Keep it simple. Based on advice from our anchor partners and others in the market, we opted for a simple two-tier debt fund structure, a Delaware LLC, which allowed our investors to come in as senior and subordinated lenders vs. as limited partners and allowed for a much more straightforward set of credit decisions and negotiations. Even so, the process was lengthier and more complex than we had anticipated.
  4. Allow enough time and be prepared for market conditions to change. Allow enough time. Several players we talked to before deciding to launch a fund told us to expect 18–24 months, especially for a first fund. Even though we thought we could do it faster, especially with some of our current investors coming into the new structure, it was roughly 18 months from kickoff of the process to first closing. We learned that capacity constraints, primarily human resource constraints, affect organizations of all sizes! Be ready for market conditions to change over the time you’re structuring your fund and raising capital — and be nimble in adapting your fund strategy to respond to said changes. For example, during our fundraising process, the US federal funds rate went from under 0.5% to close to 4.0%. Our impact-forward investors stuck with us, but we lost one of our commercial investors who simply couldn’t make the economics work.
  5. Build momentum because FOMO is real. Especially as we neared our first close, a few investors who had been non-committal jumped on the bandwagon when they saw the roster of senior and subordinated investors in the fund. Our advice is to communicate frequently with your pipeline of investors- share small wins like “another family office expressed serious interest just this week” or “we held a series of key meetings last week and here are the outcomes” and big ones- particularly as other investors commit and the timeline to a first close becomes palpable. The DFC commitment of $10M and Ceniarth’s commitment of $3M, which MCE received within a month of one another, were particularly helpful in spurring action among the rest of our investor pipeline.
  6. Don’t hesitate to showcase your unique assets. For example, our all-female leadership team has been a standout during the fundraising and negotiation process. That characteristic paired with the MESA fund itself having a strong gender focus was a win-win for investors seeking to apply a gender lens, particularly as many seek to address the historic imbalance in capital flows to women-controlled entities (for example, in the US, women make up just 8% of venture capital partners in the US, and female founders secured just 2% of venture capital). Looking back on the fundraising conversations we’ve had with our most serious prospective investors, only three of the eighteen people on the other side of the table have been women.

How was the USAID partnership catalytic?

At MCE, we’re partial to Tideline’s definition of “catalytic”: instruments that accept disproportionate risk and/or concessionary returns relative to a conventional investment in order to generate positive impact and enable third-party investment that otherwise would not be possible.

USAID INVEST awarded MCE $200,000 through a competitive process with the objective of supporting the fund design and structuring phase. This funding and the non-financial support, like introductions and field knowledge, provided by the USAID team has been truly catalytic to MCE’s efforts to launch a fund. It has allowed us to make the necessary investments in the typically-unappealing costs — including fund design and structuring, legal consultations, and support with fund model development.

As we reflected on the role the USAID played, and how it contributed to our ability to design and launch MESA, there were three primary benefits:

  1. The award served as a stamp of approval in the early stages of the fund design process, making it easier to bring some of our initial anchor investors to the table.
  2. MCE had access to top notch advice and guidance from USAID that helped bring a sector-wide view, which was important as we worked to define our unique value proposition.
  3. The timing of the award was important: it helped us jumpstart the process and brought us right up to the first close.

In addition to this award, our history with USAID includes a grant from the Partnering to Accelerate Entrepreneurship (PACE) Initiative that was a principal component in the launch of MCE’s Small and Growing Business (SGB) portfolio, and a guarantee from USAID’s Development Credit Authority (DCA) that has helped us take even more measured risk in favor of impact.

There are many ways to catalyze impact-forward capital. The route USAID took with this award, to help MCE leapfrog from a fund concept to fruition by supporting the design and structuring phases, is a unique one. More of this type of catalytic support in the marketplace could have a profound effect in terms of encouraging more first-time fund managers with high impact concepts.

Clients of One Acre Fund, a social enterprise serving smallholder farmers in East Africa.

MCE Social Capital (MCE) is a nonprofit impact investing firm that invests flexible debt capital in enterprises committed to generating sustainable livelihoods, with a focus on women and environmental and climate, to allow these enterprises to scale and better serve their customers, their employees, and their communities. Since 2006, MCE has disbursed over $300 million in debt capital to 140+ institutions in 50+ countries throughout the developing world with a less than 3% default rate. As of December 30, 2022, MCE’s total portfolio was $64.5M, with 85% dedicated to financial service providers (FSPs) with an average initial loan size of $1.5M and tenor of 36 months, and 15% to small and growing businesses (SGBs) with an average initial loan size of $900k and a tenor of 16 months. For more information, check out our latest Impact Report.



MCE Social Capital

MCE is a nonprofit impact investing firm that mobilizes capital to generate economic opportunity for women and rural families living in poverty.