Invirtiendo en Resiliencia: El modelo de Root Capital Root Capital. All Rights Reserved

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1 Invirtiendo en Resiliencia: El modelo de Root Capital 2016 Root Capital. All Rights Reserved

2 Una respuesta holística, más allá del crédito Asesoría financiera Diversificación de ingresos Asesoría agronómica climáticamente inteligente Tecnología Móvil Participación del mercado Crédito de largo plazo Crédito de corto plazo Coffee Farmer Resilience Initiative Evaluación de impacto Intercambio de conocimiento Sector privado Sector público Fundaciones e inversionistas sociales

3 Case Study: Soppexcca Short-Term Working Capital Targeted Technical Assistance Renovation Financing Financing Ongoing Operations Providing Financial Management Training Facilitating Agronomic Activities Investing in Mobile Technology Solutions Supporting Farm Renovation Served as Soppexcca s first source of external financing in 2003 and continues to provide working capital each season Provided financial management training to improve internal credit systems; including 20 days of on-site training in 2015 Facilitated training and investments in agronomic activities, including hiring full-time agronomists and building a seedling nursery Trained staff on technology to map incidence and severity of leaf rust and monitor production trends using a producer-level dashboard Provided a $1.4M renovation loan for Soppexca to on-lend funding to its members

4 Lo que estamos aprendiendo 1 Apalancar financiamiento mixto 2 Identificar canales de distribución ampliables Expandir soluciones de manejo de riesgos Combinar crédito con asistencia técnica Fortalecer un entorno facilitador Sean Hawkey

5 1. Leverage Blended Finance Private markets have generally failed to deliver financing for renovation, and for smallholder agriculture more broadly. The cost of commercial capital over a seven-plus year time horizon would exceed what most smallholder farmers can afford. Partial loan guarantees, risk-sharing facilities, reserves for first-loss capital, and technical assistance funds are needed to: mitigate risk, expand impact, lower barriers to entry for other lenders, and mobilize additional capital from a range of sources. Blended Capital for Large-Scale Renovation Below-Market Capital* Risk-Sharing Mechanisms Funding for Technical Assistance Long-term below-market debt for on-lending to agricultural enterprises Loan guarantees and colending structures to reduce risk exposure of lending entity Grant funding to cover program design and operational cost, if needed, and funding from public and private pools for technical assistance

6 2. Identify Scalable Distribution Channels Farmer Cooperatives & Associations a Processors & Exporters a Traders Local Financial Institutions (e.g., MFIs) a Santa Rosa de Copa, Honduras Jinotega, Nicaragua Junín, Peru $2M long-term loan for 188 members to renovate 200 hectares; some are cofinancing $1M long-term loan to support 100 individual producers in renovating over 230 hectares $700K long-term loan to onlend to 125 producers to renovate 115 hectares Farmer Network: 650 Farmer Network: 7,000 Farmer Network: 3,040 a Currently Used by Root Capital for R&R Lending

7 2. Identify Scalable Distribution Channels Vast majority of the world s smallholder farmers do not participate in tightly organized value chains. They are unorganized and lack strong, consistent relationships with buyers as well as limited access to finance, farm inputs, agronomic training, and other support services. Even in more integrated value chains like coffee and relatively more developed markets like Peru, producers are not organized. New channels are needed to efficiently deploy capital to smallholders beyond those connected to producer organizations and enterprises. Also needed are risk-sharing mechanisms so that these alternative aggregators assume part but not all of the risk. Peru s Unorganized Producers 70%... of the 220,000 coffee farmers in Peru are not formally affiliated with an organization. Distribution Channels Farmer Cooperatives & Associations Processors & Exporters Traders Local Financial Institutions (e.g., MFIs)

8 3. Expand Risk Management Solutions Cents/LB Producers are deciding whether and how much to renovate their land in an increasingly volatile market; prices now hover slightly above Central America s estimated average cost of production. In addition to focusing on increasing production, equal attention must be paid to designing and deploying effective risk management solutions that are both accessible and applicable to farmers and farmer enterprises (e.g., weather-indexed crop insurance, long-term purchase contracts). Daily Closing Arabica Futures Price ( C Price) from January 2010 to December Coffee Futures Hit 33-Year High Fair Trade Floor Price ($1.40) Estimated Average Cost of Production ($1.10) Honduras Declares Leaf Rust Emergency Guatemala Declares Leaf Rust Emergency

9 4. Bundle Financial & Non-Financial Support There is a need to combine credit and capacity building to increase the demand for renovation. Lack of capacity, limited technical knowledge, and weak internal controls at the aggregator level become the biggest bottleneck to scaling renovation financing. While many cooperatives extend micro-credit to their members in the form of short-term, preharvest financing, the provision of long-term renovation financing requires more sophisticated accounting systems. A well-functioning internal credit fund is especially critical and must include: Realistic capitalization strategies, including lines of credit and the use of retained earnings Clear decision-making policies and procedures Timely and accurate monitoring and evaluation of portfolio performance Transparent recordkeeping; and efficient portfolio servicing More advanced decision-support tools are also needed at the farmer level to remove the guess work and help producers objectively evaluate potential financial returns. It is rarely the case that both capital and technical assistance are available. Bringing the two together is essential for expanding the addressable demand for renovation finance, as well as for reducing risk and incentivizing financial institutions to invest responsibly.

10 Combining Credit & Capacity Building Provides clients with knowledge and tools to strengthen their operations and plan for the future. Financial Fundamentals Scorecard Client Information Client Name: Medrar Cooperative Product: Coffee (Arabica) Country: Guatemala The nine coffee enterprises approved for renovation loans under CFRI thus far have required 320 days of technical assistance. Financial planning, accounting and internal controls so that enterprises can on-lend funds to producers Agronomic assistance to ensure that renovation plans are feasible. Financial Management Training Financial literacy and governance Price risk management Advanced accounting Financial planning and analysis Internal credit fund development Enterprise- Level Performance Days Delivered Pre Scoring Post Financial Planning 1 Fin 2 3 Internal Controls 2 Inte 1 2 Accounting System 4 Acc 1 4 Financial Analysis 0 Fin 2 2 Pricing and Profitability 3 Pric 1 3 Financial Literacy and Governance 1 Fin 3 4 Total days 11 Internal Credit Performance Days Delivered Pre Scoring Post Financial Planning 1 Fin 2 3 Internal Controls 2 Inte 1 2 Accounting System 4 Acc 1 3 Financial Analysis 3 Fin 0 2 Pricing and Profitability 2 Pric 1 2 Governance 0 Fin 3 3 Total days 12 Financial Literancy and Governance Pricing and Profitability Financial Literancy and Governance Pricing and Profitability Financial Planning Financial Analysis Financial Planning Financial Analysis Pre Intervention Post Intervention Internal Controls Accounting System Pre Intervention Post Intervention Internal Controls Accounting System

11 5. Strengthen Overall Enabling Environment Decision-making is often incidental rather than strategic; producers rarely have enough information to make choices based on what is optimal for their local conditions.* Limited information and a lack of consensus on varieties presents one of the most formidable challenges to successful renovation. Debates over relative merits and quality attributes between rustresistant and non-rust-resistant continue, leaving many farmers with mixed messages. Meanwhile, quality control at the seedling production phase has been inadequate. SOPPEXCCA used geo-information data to map the coordinates of its members who are renovating. The above map illustrates the incidence of leaf rust among more than 100 producers. These and related quality-control issues not only increase the cost of renovation but also reduce productivity and depress farmer incomes, thereby jeopardizing loan repayments. There is an immediate need for more coordination throughout the value chain as well as varietal recommendations and decisionsupport tools for farmers and enterprises. Using data collected by the cooperative s team of agronomists, managers can now track progress of its members who are renovating and analyze performance.

12 Gracias DISPONIBLE PARA DESCARGA Reflexiones y recomendaciones adicionales sobre: Diseño de alianzas público-privadas Uso de mecanismos de capital mixto Financiamiento de renovación de café Debida diligencia y manejo de riesgo Provisiónde asistencia técnica