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MIF supports innovative financing scheme for sustainable agriculture in Honduras, Guatemala and Nicaragua

IDB Group project to support sustainable coffee, cocoa, and other high-value crops

The Multilateral Investment Fund (MIF) approved a loan and technical assistance of $4.9 million to Root Capital, a nonprofit social investment fund that is pioneering finance for cooperatives, producers’ associations, and small and medium-sized enterprises in rural areas producing under sustainable agricultural schemes. The MIF is a member of the Inter-American Development Bank Group.

Considered too small and risky for mainstream banks and too large for microfinance, small grassroots businesses such as organic coffee and sugar farmes cooperatives are caught in the “missing middle;” they cannot access the capital they need to grow and sustain their operations. Root Capital addresses this market failure through an innovative lending model that serves the needs of these remote grassroots businesses and creates a new class of capital sitting between microcredit and commercial lending, enabling rural communities to unlock wealth and build sustainable livelihoods.

The project will comprise a reimbursable financing of $3 million to expand financing for organizations in Honduras, Guatemala and Nicaragua. Root Capital, through this loan, is expected to mobilize an extra $13 million in financing by establishing partnerships with local banks and microfinance institutions. In addition, the project will include a non-reimbursable technical assistance component of $1.9 million to strengthen the financial management of the entities that will receive loans, create partnerships and develop advisory services for financial institutions interested in financing the “missing middle”.

“The last 10 years have seen a great expansion in exports by coops and grower´s 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 project will support a model of financing to farmers’ associations so they can expand production, boost revenues and sales. Our financing will pave the way for Root Capital to lend under terms and conditions better suited to the needs of these entities, for example with longer maturities and postponement of final payment until delivery of the product to the importer,” Escobar added.

The MIF, also known by its Spanish acronym Fomin, seeks to empower and finance small farmer groups and associations and the SMEs in the agricultural and food sectors, so that they can access higher value markets with their productsand taking advantage of the constantly growing demand and potential of income generation from specialized agricultural products.