NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Willie Foote, founder and CEO of the social investment fund Root Capital, said it is poised for significant growth in the next five years. The challenge, he said, will be in managing that growth.

Speaking last month at the University of Michigan’s Ross School of Business as part of the William Davidson Institute’s (WDI) Global Impact Speaker Series, Foote said Root expects to triple its portfolio in the next five years to $170 million and build credit up so that it can disburse $284 million in one year. By 2016, Root expects to finance 550 agriculture businesses representing about 700,000 households and 4 million people.

You can view his presentation here. Foote also sat down for a one-on-one interview with WDI Executive Director (and NextBillion Advisory Board member) Bob Kennedy. Watch the full interview here.

Last year, Root made 240 transactions totaling more than $110 million that represent 230,000 small-scale producers. It has nearly 100 employees – with almost half of them based in regional offices around the world.

Africa will continue to be an accelerated growth area, Foote said. In fact, Foote said they are ratcheting back the growth in Africa to keep it manageable. Foote said Root expects to grow in Africa about 36 percent over the next five years, making up about 40 percent of Root’s portfolio – compared to the 15 percent it represents now.

Finally, Foote said Root hopes to break even in four years.

“What do we want to be when we grow up?” Foote asked. “We want to achieve scale, be financially sustainable, and demonstrate an effect in our core lending.”

That is one part of Root’s DNA, Foote said. The second strand of Root’s DNA is to “push the frontier” to expand to new geographies, industries, and financial products.

Still, he is realistic about Root’s impact on poverty.

“We haven’t even scratched the surface yet, and we won’t ever really scratch the surface in terms of our absolute impact,” Foote said.

Regardless, Root will continue to make a difference for the 2.6 billion Foote said live on less than $2 a day. About three-quarters of those 2.6 billion work in agriculture, Foote said, and most are mired in subsistence farming.

That is why Root focuses on farming cooperatives and small and growing businesses. Both, Foote said, lack access to capital, access to qualified employees, and access to markets.

“I belong to a movement,” Foote told the students. “A movement that believes small and growing businesses can propel a significant number of those 2.6 billion people to prosperity.”

Roots’ clients are those “at the end of dirt roads, deep in the countryside doing their best to live off the land,” Foote said. “Across Africa and Latin America, agriculture can get them out of poverty only if they have reliable access to well-paying markets.”

Foote said they have potential but are locked out.

“That’s why we launched Root Capital,” Foote said. “Our mission is to grow rural prosperity by investing in agriculture businesses that build sustainable livelihoods in Latin America and Africa.”

Root was launched to fill the “missing middle,” Foote said. That is, farming cooperatives and small businesses that are too big for microfinance loans but too small and risky for banks.

Foote said rural businesses and farmers have difficulty getting loans because they are often based in remote, unstable areas. They often have few assets to use as collateral, agriculture is considered “risky” by banks, and co-op leaders are not part of a “network” with business leaders.

But what Root sees, Foote said, is committed farmers, trustworthy leadership, and a high-valued product.

Root’s financial model is triangular. A business’s purchase order serves as the loan collateral. Root then makes the loan and the business ships the goods. The buyer – Root currently has about 120 buyers such as Starbucks, Whole Foods, and Marks & Spencer – then pays Root for the goods. The final step is when Root remits payment to the business.

“We really do believe it’s at best a silver buckshot, not a silver bullet,” Foote said. “There’s a lot of other things – there’s government, there’s citizen sector, there’s private business. There are a lot of pieces of the economic engine of small and growing businesses and agriculture. This is truly a sweet spot, and I’d invite you to get involved if you can.”

Related story: Check out a NextBillion interview with Foote from 2010.