Please describe the goal of your initiative; outline what you are trying to achieve
This project combines the critical ingredients of affordable financing, targeted training, and active engagement of local financial institutions to strengthen smallholder farmer cooperatives and catalyze new investment in the rural agricultural sector of Guatemala. Impact assessment of the project will focus on 1) the total investment in socially and environmentally responsible rural cooperatives in Guatemala, and 2) the measured improvement in the financial management systems of cooperatives that receive technical assistance.
A minimum of $3 million in new financing will be mobilized through this initiative, benefiting 8 organizations of smallholder producers. An additional 5 organizations will receive direct financial management training.
Which barrier(s) to financial inclusion does your solution seek to address? (select all applicable)
The lack of affordable financial products tailored to the needs of underserved and excluded communities,, Other (Please describe below).
If you selected 'other' above, please specify which other barriers to financial inclusion you solution seeks to address:
Powerful incentives for commercial financial service providers to invest in rural agricultural businesses.
For which underserved or excluded communities will your solution create access to valuable, affordable, secure and comprehensive financial services?
Disaggregated, small-scale producers in remote areas typically lack 1) information about market movements to know when to sell their products, 2) direct access to these markets so that they can respond to advantageous conditions, 3) sufficient volumes to negotiate favorable terms, and 4) access to affordable credit. By organizing themselves into cooperatives and associations, they aggregate hundreds of other suppliers, small-scale producers of products such as coffee.
By strengthening the financial management capabilities of cooperatives and enabling them to offer loans to their members through an ICS, the project will reduce the effects of "meses flacos," or lean months, in which families receive no income from agricultural production. Confronted with hunger, farmers are often forced to take out high-interest loans from predatory lenders. Should the harvest fall short of expectations, the lender is entitled to the land or future earnings of the family.
Could your solution work in other geographies or regions? If so, where?
The Root Link project is currently being implemented in three Central American countries (Guatemala, Nicaragua, and Honduras) and was intentionally designed with the ultimate goal of replication in additional countries and regions. Efforts are already underway to launch similar initiatives in South America and Africa, and we have begun conducting preliminary market assessment studies about the potential for replication in Colombia.
Moreover, this current three-year pilot serves as a launch pad for regional expansion. In addition to the training engagements, Root Capital is also building up an on-line library called Root Net, a Moodle based, elearning platform that centralizes training materials in a user friendly, pedagogical format. This platform is used in combination with in-person training to provide a scalable solution to replicating FAS training in new regions with minimal support.
If your solution is dramatically successful, how will things be different in 10 years?
If our solution is dramatically successful, we will witness a shift in the role of rural cooperatives in Guatemala. With strengthened financial systems, including the ability to manage an ICS for their members, cooperatives will be well positioned to have an increasingly direct impact on their members' financial lives; for example, cooperatives will be able to offer loans that match the cycle of the product with which they work, thus smoothing the income for rural producers and their families.
Additionally, this added value from the cooperative will translate into a stronger sense of loyalty from members, which improves the financial stability of the cooperative because it reduces the risk of "side-selling," i.e. farmers selling their product to intermediaries.
Finally, the cooperative's improved business and organizational capabilities will reduce the perceived risk from local FIs and ultimately lead to more diverse sources of funding for the cooperative.
What will have had to have changed to make this happen?
The aforementioned shift in the role of the rural cooperative in Guatemala is contingent on the capacity of these cooperatives to absorb and sustain the improvements to organizational management and system that result from the intervention.
In order for FIs to begin investing in rural cooperatives, the demonstration effect will have been successful. Root Capital aims to attract attention to the market and impact opportunity and inspire imitation and replication. We believe that our greatest contribution will be to expand the frontier of rural finance directly and demonstrate what works. For this reason, one component of the Root Link project includes connecting cooperatives to local financial institutions. If successful, cooperatives will increasingly able to mobilize capital from commercial sources because the perceived risk factors and barriers to entry will have been reduced.
What has been the impact of your solution to date?
In 2006, Root Capital launched Financial Advisory Services (FAS) to deliver financial training to rural enterprises. Since then, FAS has successfully strengthened the financial management capacity of over 200 producer organizations (worldwide). These engagements have confirmed that rural business leaders, when equipped with sound financial management practices and processes, are better positioned to access credit, compete in the marketplace, grow their enterprises, and support improved livelihoods for farm households.
Since initiating the Root Link pilot in October 2011, our intervention has led directly to an additional $780,000 of loans disbursed to participating organizations in Guatemala.
What is your projected impact over the next five years?
At the end of the three year pilot, we expect to have achieved the following:
-Participating FIs will produce adapted lending tools and procedures to accommodate the specific needs, collateral availability, and profile of rural agricultural cooperatives.
-FIs will have a clear and detailed understanding of common financing challenges for producer groups.
-A minimum of $3 million in affordable credit will be delivered to 8 organizations of small-scale producers—representing approximately 9,000 smallholder producers.
-Eight cooperatives will have received training in ICS management and as a result will see an overall increase in size and sustainability of their ICS
-Cost saving results from gains in efficiency will be passed on to borrowing members, making credit more affordable.
What barriers might hinder the success of your project? How do you plan to overcome them?
Sustained success of this project requires that the cooperatives have a level of financial management and organizational capacity that allows them to apply and operationalize concepts learned during training workshops and on-site training. Because participating cooperatives have varying levels of capacity in these areas, Root Capital takes a decidedly long-term approach, standing behind rural SGBs through market fluctuations and phases of organizational growth and crisis.
Winning entries present a strong plan for how they will achieve and track growth. Identify your six-month milestone for growing your impact
Train cooperatives in ICS management and other financial management topics.
Now think bigger! Identify your 12-month impact milestone
Mobilize capital and share lessons learned in order to inspire replication.