2011

Root Capital: 
Pushing the Frontier of Rural Finance

Thanksgiving is a time to celebrate the abundance of the harvest and family togetherness. Yet, even as we celebrate, many people in Africa and Latin America go hungry. According to the United Nations, more than 200 million Africans and 50 million Latin Americans routinely do not have enough to eat. In 2011, severe drought has pushed millions more Africans to the brink of starvation. Widespread hunger is driven by poverty and lack of access to reliable, affordable food supplies in many parts of the world.

Since Root Capital’s inception, we have worked to address one of the prime causes of food insecurity: rural poverty. We do that by providing credit and financial training to small and growing businesses that, in turn, improve livelihoods for small-scale farmers. We have been successful at this and we are proud of the impact our team is having in rural Africa and Latin America.

Yet, we see the need to do more—to build upon our work promoting sustainable livelihoods through exports like coffee, and cocoa and to invest in agriculture systems that feed local populations. Initial pilot loans over the last year have confirmed that our approach to agricultural lending can help meet the demand for credit among businesses sourcing from small-scale farmers that produce and process nutritious foods for local markets. As we transition from a pilot stage, we’ve developed a two-pronged lending strategy that will maximize our impact across agricultural value chains.

First, we seek to achieve scale and financial sustainability. Our “Scale and Demonstrate” strategy comprises our existing core lending, and will now be called the Sustainable Trade Fund (STF). The STF focuses on enterprises that export natural products such as coffee, cocoa, nuts, and fresh fruits and vegetables. It includes both short-term working capital loans to finance production and processing as well as longer-term loans for these businesses to invest in necessary equipment and infrastructure.

Second, we continuously push the frontier of rural finance where others have yet to operate. Our “Push the Frontier” strategy takes the form of our new Frontier Portfolios that include loans for activities that we have not historically financed, such as the production of goods for domestic consumption, rather than export. The first Frontier Portfolio is our existing Innovation Fund (which is now the Innovation Portfolio within the Frontier Portfolios). As the lending strategies that we are pioneering in the Innovation Portfolio succeed and begin to scale, they may spin off into their own portfolio—and perhaps eventually grow into the next Sustainable Trade Fund.

Let me give you an example of frontier lending. Freshco, a Root Capital client since 2010, is a Kenyan processor of high-yielding, drought-resistant maize seed used by small-scale farmers. Freshco contributes to Kenyan food security by producing drought-resistant seed varieties that can potentially double a farmer’s yield over traditional seed.

A
William Foote, Founder and CEO

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