Pioneering Rural Finance
Esta presentción ha sido seleccionada como finalista del desafío
Banking on Social Change: Seeking Financial Solutions for All .
Root Capital pioneers finance for rural enterprise in developing countries by providing capital and market connections to those not served by microfinance or commercial banks.
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tu idea
Year initiative/program began:
1999
Field of work
Banking/Financial Services
If Field of Work is "Other" please define in 1-2 words below (and explain in detail in the entry form):
Service / Activity focus (If "other" please explain in entry form)
Transaction
Year organization founded (yyyy)
1999
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Posicionando tu iniciativa en el diagra del Mosaico de Soluciones TM
Which of these barriers is the primary focus of your work?
Non-affluent are not valued customers
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
Root Capital's work also addresses the following barriers: lack of access to markets or products, lack of skills and incentives to join formal economy.
Name Your Project
Pioneering Rural Finance
Describe Your Idea
Root Capital pioneers finance for rural enterprise in developing countries by providing capital and market connections to those not served by microfinance or commercial banks.
Innovación
What is your signature innovation, your new idea, in one sentence?
Root Capital pioneers finance for rural enterprise in developing countries by providing capital and market connections to those not served by microfinance or commercial banks.
Describe what makes your idea unique—different from all others in the field.
Farmer and artisan associations play a critical role in the health and well-being of rural communities and their surrounding ecosystems. Yet because these businesses often cannot access capital needed to grow their operations, invest in equipment, or cover their pre-harvest costs, their operations stagnate and their members remain poor. Without access to markets that pay a fair price, poor people living in rural areas often resort to short-term survival tactics such as illegal logging and slash-and-burn agriculture. Exclusion from lucrative trade traps them in a cycle of poverty and environmental degradation.
Few social investment firms finance rural producer associations. These businesses are considered too small and risky for commercial investors and too large for microfinance. To mitigate risk and reach this market segment, Root Capital has developed a factoring model through which we provide a loan to a grassroots business and, when the product is shipped, an international buyer pays Root Capital directly for interest and principal payments due on the loan. Short of unforeseen circumstances, Root Capital can be confident that a loan will be repaid.
How do you implement your innovation and apply it to the challenge/problem you are addressing?
Root Capital is a nonprofit social enterprise that is pioneering finance for grassroots businesses in the developing world. We work with artisan and farmer associations that build sustainable livelihoods and transform rural economies in poor, environmentally vulnerable places. Root Capital pursues our mission through three strategic goals: Innovating Rural Finance (or Finance), Building Local Capacity (or Advise), and Fostering the Field (or Catalyze).
Our primary goal—Innovating Rural Finance—consists of lending to rural businesses in the form of short-term loans (for working capital) or long-term loans (for fixed assets). Our second goal is to Build Local Capacity among the producers we finance by providing them with the basic finance and management skills needed to grow their operations. Our third goal is to Foster the Field—or catalyze the strategic engagement of global retailers, local and international financial institutions, and networks of social financiers—to advance sustainable trade and finance for small and growing businesses in developing countries.
Do you have any existing partnerships, and if so, how did you create them?
We create partnerships with business and NGO partners who also strive to improve livelihoods for rural producers. Our buyers range from alternative trade organizations engaged in 100% Fair Trade practices (e.g., Equal Exchange, Twin Trading) to mainstream companies for whom sustainable natural products represent a growing segment of their business (e.g., Green Mountain Coffee Roasters, Whole Foods). Third-party certifiers, such as TransFair USA and Rainforest Alliance, help us identify prospective clients and conduct independent assessments of our clients’ social and environmental impacts. Similarly, by leveraging the resources of our technical assistance providers, we reduce due diligence costs, enhance monitoring capacity, and assist clients in growing their businesses. Key technical assistance partners include ACDI-VOCA, Chemonics, Conservation International, InterAmerican Development Bank, Oxfam America, TechnoServe, and The Nature Conservancy. We also work with other social investment funds, such as Calvert Social Investment Foundation and RSF Social Finance, to identify and structure co-lending opportunities.
In which sector do these partners work? (Check all that apply)
Impacto
Provide one sentence describing your impact/intended impact.
By 2012, we plan to serve 430 grassroots businesses, representing one million participants, and to triple our lending from $40 million in 2008 to $125 million in 2012.
Please list any other measures of the impact of your innovation.
To date, Root Capital has disbursed over $100 million in loans to 210 borrowers in 30 countries throughout Latin America, Africa and Asia. Through our financial education initiative, launched in 2007, we have trained leaders from 55 farmer and artisan cooperatives, in Mexico and Central America, in the skills needed to steward investments and attract capital.
Building on this record, Root Capital now seeks to scale our impact by providing capital and financial education to a growing number of grassroots businesses, and by promoting the adoption of our lending model among local financial institutions. By 2012, we will serve 430 grassroots enterprises representing one million farmers, artisans, and other small-scale rural producers. We will triple our lending from $40 million in 2008 to $125 million in 2012. At the same time, we will build the financial acumen of leaders from 150 grassroots businesses. By demonstrating the “bankability” of this long-ignored market segment, Root Capital will catalyze investment by commercial lenders in these underserved markets.
Does your innovation address and/or change banking regulations?
Root Capital has taken a leadership role in emerging industry groups, such as the Aspen Network Development for Entrepreneurs (ANDE) and the Finance Alliance for Sustainable Trade (FAST). We are collaborating with our peers to advance a common agenda for finance and sustainable trade targeted to small-and-growing rural businesses. In addition, our founder and president, William Foote, is an Ashoka Fellow, a Social Venture Network (SVN) Innovation Award recipient and a life-time member of the Council on Foreign Relations.
How many people does your innovation serve or plan to serve? Exactly who will benefit from your innovation?
We currently serve 210 grassroots businesses reaching over 340,000 farmers and artisan members in Latin America, Africa and Asia. To date, we have supported producers in the following industries: sustainable agriculture, wild-harvested products, hand-crafts, forestry products, fisheries and ecotourism. By 2012, we plan to triple both our loan portfolio and the number of businesses we strengthen though our financial training program. This growth will help create a better life for approximately one million rural producers by 2012.
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Sustenibilidad
Fuente de financiamiento
How is your initiative financed (or how do you expect your initiative will be financed)?
Root Capital secures the majority of its philanthropic and debt capital through foundation, corporate and individual partners. By 2012, we intend to raise $70M to support our expansion. Growth requires that build four primary organizational capacities: our three programs (Finance, Advise and Catalyze) and our administrative ability to support those activities. By 2012, our Finance program will reach self-sufficiency based entirely on interest earned (no explicit grant contributions will be needed to support Finance after 2012). We will also build a base of charitable contributions that enables us to expand our Advise and Catalyze programs and to improve organizational efficiency.
If known, provide information on your finances and organization:
Annual budget: $3.5M
Annual revenue generated: $5.4M
Number of staff (full-time, part-time, volunteers): 35 total
What are the main financial barriers and how do you plan to address them?
Our main financial barrier is accessing partners who will commit significant amounts of philanthropic and debt capital to help us reach our targets. While we have traditionally focused our fundraising efforts on foundations and corporations, we view individuals as an important source of funding going forward. We recently hired a managing director and associate focused on working with individual donors. Root Capital’s success in diversifying our funding base will depend on how well we build our donor network and engage our board members in helping secure growth capital.
Aside from financial sustainability, how do you plan to grow the initiative?
To achieve our growth objectives, we will:
• Build our capacity to identify, make and service more loans more efficiently.
• Solidify our financial education and training curriculum for both prospective borrowers and the local financial institutions that are in the best position to fund these businesses over the long-term.
• Build a knowledge-sharing and field-building infrastructure that ensures that the work we do is truly transformative.
• Establish seamless systems for finance, marketing, communications, human resources, and fundraising.
La historia
Please select one
What was the motivation or defining moment that led to the creation of this innovation? Tell us the story.
In the words of our Founder and President, William Foote:
"I worked on Wall Street for a number of years. I was fascinated by finance and quickly realized that the billion-dollar deals I was doing in Latin America--the finance wasn't going to get to the communities who needed it most. I realized the system was broken.
“I lived in Latin America for a number of years and witnessed the daily struggle to survive of local rural people that often leads to short-term decisions that generate massive environmental degradation: slash-and-burn agriculture, illegal logging, clear-cutting the rainforest for cattle-ranching. This is one of the reasons that we founded Root Capital: to try to come up with an approach that could relieve these inter-connected problems of human poverty and environmental degradation.
“I’ve spent…a lot of time with low-income, hardworking people, and if you ask them what they need, they'll say: ‘I need clean water, housing, education, medicine.’ But if you ask them what their Number One priority is, they'll say: ‘I need a job.’ Or, if they're in rural areas: ‘I need a steady market for my product; I need stable income for my family.’”
“We started Root Capital because we wanted to lend a hand in creating a better future.”
Please provide a personal bio of the social innovator behind this initiative.
William Foote is the president and founder of Root Capital. He was named a Young Global Leader in 2008 and was awarded an Ashoka Global Fellowship in 2007. Mr. Foote sits on the Steering Committee of the Aspen Institute’s Aspen Network for Development Entrepreneurs (ANDE) and is a founding Board member of the Finance Alliance for Sustainable Trade (FAST). He also serves on the board of Open Learning Exchange (OLE). Mr. Foote holds a B.A. from Yale University and a M.Sc. in development economics and economic history from the London School of Economics. He is fluent in Spanish and Portuguese.
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?
This field has not been completed. (166 words or less)
c) Do you help the people you serve to sell goods or services using financial innovation? If so, how?
Root Capital helps low-income rural producers gain access to the services they need to produce a high-quality product and command a higher price in the global market. We do this by providing much-needed capital to the cooperatives of which they are members. Producer associations link poor rural producers to markets for fair trade and specialty products. The premium prices paid by buyers are usually well above prices offered by local intermediaries and can be the difference between farmers being forced to migrate to the city for higher incomes or remaining on their land.
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