> Posted by Jeffrey Riecke, Communications Associate, CFI
The 450 million smallholder farmers around the world, who comprise the majority of those living in absolute poverty, have an enormous unmet financing need. Such financing requirements include small loans for inputs like seeds and fertilizer. A few weeks ago, seven leading social lenders, who collectively disbursed $360 million in 2013 toward agriculture financing, joined forces to spur sustainable growth and instill responsible practices in this vital lending area: they formed the Council on Smallholder Agricultural Finance.
Launched at the Skoll World Forum in Oxford, the Council is made up of Alterfin, Oikocredit, Rabobank’s Rabo Rural Fund, responsAbility Investments AG, Root Capital, the Shared Interest Society, and Triodos Investment Management. The Council will meet regularly, share experiences and insights, and develop best practices and industry standards across three areas: market growth; responsible lending principles; social and environmental impact.
The Council particularly targets loans to “missing middle” agricultural businesses in low- and middle-income countries. The “missing middle” refers to businesses that require financing in the $25,000 to $2 million range, which are amounts often deemed too large for microfinance and too low for commercial banks. These businesses include producer organizations, companies that source from smallholder farmers, and companies that provide productive assets to smallholder farmers, often on credit. These companies can serve hundreds to thousands of farmers, offering an array of services including market access support, training, financial services, and accessible assets. Though millions of smallholder farmers are connected to these missing middle businesses, the vast majority are not.
There’s a huge opportunity to expand the missing middle agricultural financing market. The groups in the Council plan to increase their combined disbursements in this area to a total of $500 million by 2016. They also aim to facilitate successful market entry for new lenders. Research indicates the addressable financing gap for this market area to be about $12 billion.
While promoting market growth, the Council will look to instill responsible practices – across social, environmental, and corporate governance areas – among all financial institutions serving the missing middle market. The Council created a set of responsible lending principles for these lenders, which include principles on transparency, prevention of overindebtedness, trusted information sharing, and fair treatment.
To ensure that their lending efforts are creating positive social and environmental change, the Council created and endorsed a set of seven impact metrics that its members will collect and share annually, and use as a basis for deeper impact analysis in the future.
To learn more about the Council on Smallholder Agricultural Finance, click here.
Image credit: Africa Renewal / UN Photo / Fred Noy
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