Value Chain Finance for smallholder farmers: pioneer mainstreaming and mainstream pioneering
This entry has been selected as a finalist in the
Banking on Social Change: Seeking Financial Solutions for All competition.
Our Project is to give a double boost to the mainstreaming of Value Chain Finance for smallholder farmer cooperatives and rural SMEs: both at the level of Triodos and at the level of the (international) financial community.
About You
Location
Project Street Address
Project City
Project Province/State
Project Postal/Zip Code
Project Country
Your idea
Year initiative/program began:
1994
Field of work
Agriculture
If Field of Work is "Other" please define in 1-2 words below (and explain in detail in the entry form):
Banking/Financial Services
Service / Activity focus (If "other" please explain in entry form)
Transaction
Year organization founded (yyyy)
2008
YouTube Upload
Project URL
Positioning of your initiative on the Mosaic of Solutions™ diagram:
Which of these barriers is the primary focus of your work?
Social benefit businesses not deemed investment worthy
Which of the principles is the primary focus of your work?
Prove that social return doesn’t preclude financial gain
If you believe some other barrier or principle should be included in the mosaic, please describe it and how it would affect the positioning of your initiative in the mosaic
This field has not been completed. (333 words or less)
Name Your Project
Value Chain Finance for smallholder farmers: pioneer mainstreaming and mainstream pioneering
Describe Your Idea
Our Project is to give a double boost to the mainstreaming of Value Chain Finance for smallholder farmer cooperatives and rural SMEs: both at the level of Triodos and at the level of the (international) financial community.
Innovation
What is your signature innovation, your new idea, in one sentence?
Our Project is to give a double boost to the mainstreaming of Value Chain Finance for smallholder farmer cooperatives and rural SMEs: both at the level of Triodos and at the level of the (international) financial community.
Describe what makes your idea unique—different from all others in the field.
To be able to engage in sustainable value chains, farmers need to be guaranteed payment upon delivery of their products to the point of entry to the value chain: the farmer cooperative or the rural SME. However, these businesses generally lack the necessary cash to bridge the period of sourcing until payment by their buyers, and thus cannot guarantee payment of farmers from their own resources. This leaves the farmers no choice but to sell their products to local middlemen (sometimes referred to as coyotes) at strongly discounted prices. This is where the need for Value Chain Finance arises. In this perspective, pre-export Value Chain Finance is key in building sustainable trading partnerships.
This type of finance is offered by Triodos since 14 years but also by a few other players. Unique about this idea however is that:
1) The funding for Triodos Sustainable Trade Fund (2008) is largely secured through a credit line from Triodos Bank, using private deposits, charging market based interest rates and taking-up a considerable portion (2/3) of the portfolio risk. This marks a new step towards mainstreaming pre-export Value Chain Finance (pioneer mainstreaming), which currently is dominated by donor money and soft funding sources.
2) Triodos’ Value Chain Finance expertise and experience will be leveraged to a wide group of financial and non-financial stakeholders in target developing countries and to the international donor and development finance community. This is to trigger local and international mainstream banks to start venturing this new financial instrument (mainstream pioneering).
How do you implement your innovation and apply it to the challenge/problem you are addressing?
Ad1) Pioneer mainstreaming
Triodos Bank leverages external guarantees to Triodos Sustainable Trade Fund with a factor 3, taking 2/3 of the portfolio risk. Several private guarantors indicated that they are interested to offer such guarantee, provided that a party takes-up the first loss. To realize the fund’s 2.5 year targets, it is currently trying to raise EUR 3 mio of first loss capital in the form of a grant. This will create EUR 27 mio worth of pre-export Value Chain Finance (leverage of 9) within 36 months (see for more details under “How is your initiative financed”).
Ad2) Mainstream pioneering
Triodos wants to document its Value Chain Finance knowledge and experience and to and disseminated this across a wide group of financial and non-financial stakeholders in developing countries to the international donor and development finance community. To this end a consortium was formed with the parties stated below under Partnerships. The Value Chain Finance Consortium has agreed to undertake the following activities:
Do you have any existing partnerships, and if so, how did you create them?
Stichting HIVOS
Organisation type: Development NGO (citizen organisation)
Expertise: Sustainable coffee chain development.
Stichting ICCO
Organisation type: Development NGO (citizen organisation)
Expertise: Sustainable chain development in the cotton and tropical fruit sectors
Royal Tropical Institute
Organisation type: Research institute (citizen organisation)
Expertise: Value chain research
Tradin Organic Agriculture B.V.
Organisation type: International trading company (private sector)
Expertise: Sourcing and trading organic food ingredients worldwide, world market
leader
Platform Sustainable Trade
Organisation type: multi-stakeholder platform (citizen, private and public sector)
Expertise: sustainability development in mainstream value chains
IDH has launched several sustainable value chain programmes. Company participants include Cargill, Ecom, Mars, Nestle, Heinz and Ahold, ADM, Bunge, Cargill, Nutreco, VION and Unilever.
Free University of Amsterdam (yet to formally join the consortium)
Organisation type: university (public sector)
Expertise: scientific research in the field of socio-economic development strategies
In which sector do these partners work? (Check all that apply)
Citizen sector (nonprofits, NGOs) .
Impact
Provide one sentence describing your impact/intended impact.
Larger, more diverse and predictable supply of pre-export Value Chain Finance to smallholder farmer cooperatives and rural SMEs, enabling them to plan, invest and make long-term commitments to their value chain partners.
Please list any other measures of the impact of your innovation.
Upscaling the activities of Triodos Sustainable Trade Finance alone, will - within 36 months -
- enable 45.000 smallholder farmers
- to export EUR 54.000.000 worth of organic products
- to earn an organic premium income of EUR 7.000.000;
- to cultivate 115.000 hectares of land organically, bringing high soil fertility and stronger resilience to pests and diseases as well as to the adverse effects of climate change such as extreme droughts and floodings
This is a conservative impact estimate since it exludes:
- impact beyond the Project Period (after 36 months this impact will revolve/multiply)
- the impact generated by mainstream pioneering, which will be triggered by the Project Activities.
The impact is calculated using historical data of Triodos Investment Management BV and Tradin Organic Agriculture BV.
Does your innovation address and/or change banking regulations?
This field has not been completed. (166 words or less)
How many people does your innovation serve or plan to serve? Exactly who will benefit from your innovation?
Within the Project Period (36 months) and by Triodos Sustainable Trade Fund alone: 45.000 smallholder farmers, reaching > 200,000 individual persons.
This Entry is about (Issues)
Sustainability
Financing source
How is your initiative financed (or how do you expect your initiative will be financed)?
Triodos Sustainabel Trade Fund receives a credit line from Triodos Bank. The credit line is secured for 1/3 by external guarantors, the remainder is unsecured.
If known, provide information on your finances and organization:
• Annual budget: see annexed annual report Triodos Bank NV
• Annual revenue generated see annexed annual report Triodos Bank NV
• Number of staff (full-time, part-time, volunteers): 359
What are the main financial barriers and how do you plan to address them?
Triodos Bank leverages each guarantee to Triodos Sustainabel Trade Fund with a factor 3, taking 2/3 of the portfolio risk. Currently an amount of EUR 3 mio has been guaranteed, creating a credit line of EUR 9 mio. Several other private guarantors indicated that they are interested to offer such guarantee, provided however that a party takes-up the first loss. To realize the fund’s 2.5 year targets, it is currently trying to raise EUR 3 mio of first loss capital in the form of a grant. The EUR 3 mio will generate a double leverage. First, it will mobilize additional private guarantors. Second, the total amount – including the private guarantees – will be tripled by Triodos Bank in the form of an extended credit line to Triodos Sustainable Trade Fund.
Aside from financial sustainability, how do you plan to grow the initiative?
We plan to grow the initiative by triggering mainstreaming of Value Chain Finance, Mainstreaming is the key rationale of the Project. 1) A two-week Value Chain Writeshop will be held in Nairobi in February 2009. A “writeshop” is an intense inter-active way of writing books in such a way that they are easy to understand and use by practitioners in the field. The writeshop will gather financial practitioners and value chain actors from 15 selected case studies in Africa, Asia and Latin-America. The cases will be real, sustainable experiences in financing rural farmer cooperatives and SMEs through value chain relations. The resulting book will be a state-of-the-art overview of best practice in value chain finance.The book is planned to be published in October 2009.
2) In 5 countries covered by the book, newspaper supplements will be published about Value Chain Finance.
3) The book will be distributed in 2.500 copies across a wide range of national and international financial and non-financial stakeholders, including banks, producer organizations, trader associations, civil servants and policymakers, donor agencies, research institutes and NGO’s.
The Story
Please select one
What was the motivation or defining moment that led to the creation of this innovation? Tell us the story.
Triodos Bank has a track-record in triggering mainstreaming of so-called social or green financing. For instance, Triodos started financing microfinance institutions in developing countries in 1994. At that time, Triodos was one of the very few players in the world offering this type of services. At the start, the Triodos funds totalled EUR 5 million. Today, Triodos manages EUR 150 million of microfinance funds, including the first privately funded microfinance fund in The Netherlands: Triodos Fair Share Fund. More importantly, the number of international funders – including several mainstream banks – has increased to 80 managing a total portfolio of USD 3 bio. The most important development however has been that local mainstream banks have learned to appreciate the microfinance sector as a promising market with large business potential. And a market that can be served at acceptable levels of risk.
Convinced that Value Chain Finance can go through the same development phases as the green and microfinance sector in the past, we had an internal brainstorming session on the ‘’next stage of value chain finance” on 10 January 2007. In that meeting it was concluded that time had come, after 14 years of pioneering work, to
1) launch a next generation Value Chain Finance fund, showing the increased bankability of our target group (pioneer mainstreaming)
2) document and dessiminate Triodos Bank’s expertise and experience about sustainable Value Chain Finance to a wide group of financial and non-financial stakeholders in developing countries and to international donor and development finance institutions. This is to lower the treshold for mainstream financial players to start serving this under-served market (mainstream pioneering).
Please provide a personal bio of the social innovator behind this initiative.
Marilou van Golstein Brouwers is Managing Director of Triodos Investment Management, part of the Triodos Bank Group in the Netherlands. This Investment Management company manages different international funds investing in microfinance institutions and sustainable trade. Prior to joining Triodos Bank in 1990, Marilou worked with two Dutch Investment Banks and with Cargill as a commodity trader. In 2005 she was a member of the Group of Advisors for the UN Year of Microcredit. Marilou is Board Member of the Max Havelaar Foundation in The Netherlands.
a) Please identify the individuals that your innovation benefits (Please check all that apply)
Producers .
b) Do you help the people you serve to buy goods or services using financial innovation? If so, how?
No.
c) Do you help the people you serve to sell goods or services using financial innovation? If so, how?
Demand for sustainable agricultural products has been increasing with double digit figures for many years. The market for organic food products, for instance, is the fastest growing market within the food and beverage market worldwide since years. Demand for these products largely outstrips supply, creating excellent opportunities for smallholder farmers to engage in sustainable value chains. Without access to adequate finance however, farmer cooperatives and rural SMEs are not able to link-in more farmers in these value chains. Value Chain Finance is a key ‘’change maker’’ in this respect.
| Attachment | Size |
|---|---|
| Annex 5 Jaarverslag Triodos Bank 2007 (2006).pdf | 1.56 MB |
| TRI 248 leaflet Sustainable Trade.pdf | 285.86 KB |
| UpSides nr7_pag 28 tm 31.pdf | 1.4 MB |
 | 184 weeks agoValue Chain Finance for smallholder farmers: pioneer mainstreaming and mainstream pioneering has been chosen as a finalist in Banking on Social Change: Seeking Financial Solutions for All. |
