Funding Sustainable Agriculture in Latin America

Monday, August 22, 2011

Recently, the Inter-American Development Bank Group (IDB) through its Multilateral Investment Fund (MIF) approved a loan and technical assistance of $4.9 million to Root Capital, a non-profit social investment fund. Root Capital provides finance for cooperatives, producers’ associations, and small and medium-sized enterprises in rural areas producing under sustainable agricultural schemes in Honduras, Guatemala and Nicaragua.

This project is aimed at providing an innovative financing scheme for small grassroots businesses such as organic coffee, cocoa, sugar and other high value crops cooperatives. The target group is cooperatives because they are often left out of the provision of financial services. Being too small and risky for mainstream banks and too large for microfinance institutions, these farmers cooperatives have not been able to receive adequate financial services.

In the $4.9 million loan, $3 million is reimbursable financing for organizations in Honduras, Guatemala and Nicaragua. The project will include a non-reimbursable technical assistance component of $1.9 million to strengthen the financial management of the entities receiving the loans, create partnerships and developing advisory services for financial institutions. Through the loan provided by MIF, Root Capital is expected to mobilize an extra $13 million in funding by linking up with local banks and microfinance institutions (MFIs).

“The last 10 years have seen a great expansion in exports by coops and growers’ associations in Latin America to higher-value markets such as organic and fair-trade. Consumers are demanding sustainably-grown, ethically-sourced products and those in the developed world are willing to pay a premium price but without access to adequate finance, rural communities are unable to capitalize on this booming demand for their specialty products,” MIF Team Leader Alejandro Escobar said.

The objective of MIF is to empower rural communities to access to wealth and opportunities to be financial independent and build sustainable livelihoods.

Source: Microfinance Focus (link opens in a new window)