IDB Loan to Help Smallholder Farmers Access Credit
July 8, 2011 For Latin American growers who have struggled to find credit for their crops, help is on the way. That help comes in the form of the Inter-American Development Bank (IDB), which has closed a $3.6 million loan to provide access to financing for smallholder producer groups and farmers associations in nine Latin American countries through a loan to the Fund for Small Rural Producers in Latin America (Fondo para los Pequeños Productores en América Latina, or FOPEPRO).”
FOPEPRO is the first private, locally managed investment fund of its kind in the smallholder agricultural sector in Latin America. Although the Fund will initially target producer groups in Bolivia, Colombia, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Peru and Paraguay. If FOPEPRO exceeds its funding goals, there are plans to further scale the Fund’s activities throughout the region, so as to better serve the vast unmet financing needs of small rural producers.
The loan to FOPEPRO is comprised of $2 million from IDB’s Opportunities for the Majority initiative and $1.6 million from social investors Deutsche Bank Trust Company Americas, Calvert Foundation and Monarch Community Funds. The IDB acted as the lead arranger and book runner for the transaction.
“IDB would seek to have specialized agricultural investment funds such as FOPEPRO further scale to serve the region, to help meet the massive unmet need for small producer financing,” Susan Olsen, IDB Project Team Leader, tells Cotton International. “In Latin America, agriculture is largely conducted by smallholders who account for nearly 60 percent of agricultural outputs in several of the local economies. The need to support and strengthen farmer and producer organizations and enable smallholders and other actors in the food chain to become more competitive is also highlighted as one of the foremost important objectives of the United Nations’ high-level task force on the Global Food Security Crisis. IDB will continue to partner with other key actors providing access to finance and risk-sharing facilities to help ensure that small producers have the opportunity to grow and reach their full productive potential.”
Headquartered in El Salvador, FOPEPRO is seeking to raise a total of $20.5 million to finance onlending credit lines and investment loans to organized farmer cooperatives and associations. This market that has been traditionally underserved in the Latin America since many financial institutions lack the expertise to mitigate the risks in agricultural lending – from seasonality of the production cycle, weather risk, geographic disparity of clients and lack of physical collateral.
“FOPEPRO’s fund management model cracks the hard nut of providing access to finance for small-scale farmers,”Olsen says. “FOPEPRO has hired an excellent team of managers from Latin America with deep and broad experience in the sector, and combined the management expertise with a strong pipeline of clients, and innovative risk management tools.”
The fund is sponsored by Alterfin C.V.B.A from Belgium and Societé D’investissement et de Développment International (SIDI) from France, both privately owned social investors with over 15 years of agricultural investment experience and a strong track record of smallholder agricultural lending in Latin America, Africa and Asia.
The fund has a long-term goal of reaching at least 10,000 beneficiaries over its ten-year life. The average loan sizes are expected to range from $100,000 to $300,000. FOPEPRO will also lend a minority share of its funds to rural microfinance institutions, which will be able to reach individual farmers with smaller working capital and equipment loans.
The IDB’s Multilateral Investment Fund, a major shareholder in FOPEPRO, has contributed an additional $200,000 in non-reimbursable technical assistance resources to a parallel donor fund which FOPEPRO will use to provide technical training and market certification support for its clients. ICCO from The Netherlands has also contributed to this fund with 300,000 euros.
FOPEPRO is managed from El Salvador by Acerola Management SA, a private firm established along with FOPEPRO with the sole purpose of managing investment funds and non-reimbursable technical assistance funds for the agricultural sector in Latin America.
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