Real Leaders

Financing the 2.6 billion who survive on less than $2 a day

Root Capital confronts global poverty by investing in agricultural businesses that grow long-term rural prosperity for small-scale farmers across Africa and Latin America.

Over the next five years, Root Capital plans to triple the volume of its lending activities to reach 600 businesses, more than 1.7 million small-scale farming households and 10 million people. They will train more than 300 agricultural businesses to enable early-stage businesses to access finance for the very first time and then they’ll stick around to support their subsequent growth.

The typical clients of Root Capital are small and growing businesses (SGBs) that aggregate products from hundreds, and often thousands, of farmers. These agricultural SGBs traditionally connect farmers to markets, pay higher and more stable prices, and enable entire communities to prosper. Yet, despite their enormous potential to drive job creation and economic growth, these rural SGBs are trapped in the gap between microfinance and commercial banks.

Rural businesses that require loans ranging from US$25,000 to US$2 million are too large to access credit from microfinance institutions and are considered too small, risky, and often too remote, to secure financing from commercial banks. Moreover, these SGBs typically lack the financial management capacity needed to access a loan.

Of the 2.6 billion people who survive on less than US$2 per day, 75 percent live deep in the countryside at the end of dirt roads. Too often, they are relegated to a subsistence living that stresses the natural environment and makes it difficult for them to support their families. They typically rely on agriculture as their primary source of income, but are excluded from formal markets and constrained by lack of access to inputs such as seeds and fertilizers, market information, equipment, transportation, and credit.

As a result, they often resort to survival measures, such as illegal logging or slash-and-burn agriculture that degrades the environment, contributing to global warming and generating a cycle of ecological and economic poverty.

Agricultural businesses that aggregate hundreds or even thousands of small-scale farmers can create the economies of scale needed to overcome these barriers and put farmers on the path to long-term prosperity. Such businesses can reduce the vulnerability and anxiety faced by farmers who cannot otherwise count on having a well-paying market for their product.

By linking farmers to formal markets in efficient, stable value chains that pay a higher share of the end price much of this stress is relieved. These businesses can also help them invest in climate-smart practices that increase productivity and their incomes. Overall, the farmer and ecosystem can both become more resilient to climate change.

 

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