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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 developing nations.

SocialFunds.com -- 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."

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