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Project Context
Objectives, Activities, and Results
Providers
Third parties
Challenges faced
SHFs must have access to upfront and ongoing inputs. SHF orgs. must have the capacity to source and deliver appropriate inputs.
Solution
Root Capital only selects SHF orgs. that are able to manage selection and application of adequate farm input. A Root Capital approved agronomist assists SHF orgs. with preparing their input delivery plan for SHFs.
Providers
Various (cf. previous slide)
Challenges faced
Understanding risk and bringing togetherfunders with aligned risk appetites; protecting investors
Solution
Providers
Root Capital.
Challenges faced
Most of the farmer groups lack the ability to manage R&R loans for SHFs.
Solution
35 trainers delivered financial advisory services to managers and accounting staff of Root Capital’s potential or existing clients. Training focuses on managerial, organizational, technical capacities, with a focus on orgs’ internal credit and technical assistance service.
Notes:
(1) TA and challenge grants were extended to an additional 25+ orgs in El Salvador, Guatemala, Honduras, Mexico, Nicaragua, and Peru.
(2) Source: GCP and Technoserve, Economic Viability of Coffee Farming, 2017.
(3) Root Capital assesses the credit risk of borrowers using an internal rating system that weighs various risk categories, including scale and buyer diversification, enterprise strength and growth potential, financial flexibility, and financial strategy. This data is combined with the experience and judgment of loan officers to inform a full assessment of credit risk.
(4) The funding comes from public and private financers with different return expectations. Credit enhancements reduce the investment risk, and grant funding dedicated to capacity building reduces the client risk, ultimately reducing the investment risk. Source: Root Capital, Learning Report: The Coffee Farmer Resilience Initiative, 2016; Dalberg interviews
Leveraging blended finance structures enables lenders to partially de-risk R&R investments
Root Capital used a blended finance structure to align the incentives and risk appetites of the different funders. Mechanisms of partial loan guarantees, risk-sharing, reserves for first-loss capital, and technical assistance funds helped to mitigate risks. These types of blended finance structures should be reproduced to scale R&R financing.
Invest in capacity building for aggregation points
Root Capital relies on farmer organizations to deliver and manage loans to SHFs. Many SHF orgs., however, currently lack the capacity to manage large R&R interventions. Strengthening SHF orgs. or other farmer aggregation points, like local microfinance institutions, is needed to scale R
There is a lot of work to be done to ensure the long-term supply of coffee from countries where the crop has long shaped the social and economic fabric. Learning to extend the life of their trees and improve yields helps farmers stabilize annual production and in turn, income, while the rest of the world benefits from a steady supply of quality coffee. Continue on to learn more about the immediate attention and action that is required to make this a reality.