March 28, 2013
Root Capital Surpasses $500 Million in Lending to Agricultural Businesses
by Robert Kropp
Helping to address a need that has been estimated at $450 billion, the agricultural lender
anticipates $1 billion in loans over the next five years to small agricultural businesses in
A 2012 report by Dalberg
Global Development Advisors highlights the challenges to sustainable development in rural
developing nations. The report states that more than two billion of the world's poorest people live
in households dependent upon 450 million smallholder farms.
The challenges to
smallholder farm production are several, the report continues, with access to capital among those
that are primarily unmet. "At an estimated size of $450 billion, the global demand for smallholder
agricultural finance is large," the report states. It then credits "social lenders" for playing "a
catalytic role in driving financing into untapped markets."
One such social lender is Root Capital, a Boston-based nonprofit
agricultural lender that provides capital and financial training to small agricultural businesses
in Africa and Latin America. This week, Root Capital announced that its cumulative lending to more
than 425 small and growing businesses has exceeded $500 million.
Root Capital's lending is
"providing some 750,000 small-scale farm families (3 million individuals) with better livelihoods
in poor, environmentally vulnerable locations in Africa and Latin America," the nonprofit stated in
a press release.
Furthermore, 80% of Root Capital's lending activities have occurred in
the past four years, and it anticipates an additional $1 billion in lending over the next five
years. "It maintains a 98 percent loan repayment rate from clients and a 100% repayment rate to its
investors," the press release stated.
Root Capital does not engage in microlending, as its
loans, ranging from $50,000 to $2 million, are too large for the designation. "Too large for
microfinance but too small for commercial credit, these businesses serve as anchor institutions in
remote areas of the developing world while providing a resilient and sustainable supply source for
global buyers," according to the release.
"Looking forward, we aim not only to expand our
own operations, but to grow this larger market in a healthy, sustainable manner," William Foote,
Founder and CEO of Root Capital, stated. "One of the ways we hope to achieve this is by
demonstrating the effectiveness of our model in a replicable way. We are looking beyond the numbers
to show precisely how our clients are building sustainable livelihoods, and we intend to share our
tools for measuring impact so that others can follow our lead."
Small farm production in
developing nations faces environmental challenges made all the more critical by the effects of
climate change, and Root Capital conducts environmental due diligence to ensure that its clients
meet its standards for environmental performance. It also supports the increased participation of
women in rural economies, "promotes food security by financing vital pre-harvest inputs for
domestic crop production," and contributes to the economic reconstruction of vulnerable populations
in post-conflict regions.
Because Root Capital's due diligence and technical assistance
helps mitigate supply chain risks, more than 120 buyers now rely on its clients as suppliers. For
potential investors, Root Capital's high ratings on financial performance and transparency from Charity
Navigator reinforces the nonprofit's 100% repayment rate.
Although the contributions
of Root Capital and other social lenders may seem small when compared to the enormity of the
financial challenge, Dahlberg noted in its report that its "model has proven successful in meeting
smallholder financing needs, improving production, building local markets, and encouraging
sustainable management of natural resources. Furthermore, there is evidence that the model can
catalyze lending from other sources, such as commercial lenders."