$100 Million in Active Loans
Fifteen years ago, around the time that Root Capital was just beginning, I was working as a volunteer with a Nicaraguan sesame oil cooperative that supplied to The Body Shop. I’d gone there because, having focused my studies on what had gone wrong in what were then referred to as “Third World economies,” I was hungry to explore anything that might be going right. That work left me believing strongly that the most powerful solution to rural poverty lies in the rural poor themselves— in their work, in their farms, and in their businesses. Serving hundreds of rural small and growing businesses – from Central America to the Andes to Africa’s Great Lakes – as a lender during my time with Root Capital has only strengthened that view. It has also led me to another firm conviction: that finance, when driven by values, can be a force that promotes inclusion and equality, instead of eroding them.
Grounded in that belief in the power of rural enterprise and inclusive finance, I’m thrilled to share that Root Capital’s outstanding portfolio balance, the amount of capital we have actively deployed, has, for the first time in our 15-year history, exceeded the $100 million mark. Whether you look at this milestone from the perspective of scaling our direct impact or of what it says about new models for using capital for good, I hope this accomplishment can serve as a testament to the viability of our clients, our model for impact-driven agricultural finance, and the emerging field of impact investing.
At Root Capital, we often talk about the importance of providing a reliable source of financing for our clients. With reliable financing, our clients are able to plan and grow; we see them making investments in agricultural inputs and training, improving quality and efficiency in processing, and adding value to capture higher prices for farmers. I see proof of the potential of small and growing rural businesses in the fact that more than half of our clients, once they have access to financing from us, become “gazelles,” achieving annual revenue growth rates of 20 percent or more. In turn, when farmers have a reliable and sustainable source of income from our clients, we consistently see them investing more in their farms to increase productivity. To our clients, this milestone reinforces that Root Capital can provide the type of reliable financing they need to scale up and to provide stable livelihoods for farmers.
In 1999, we made our inaugural loan of $73,000 to a sustainable cardamom and coffee cooperative in western Guatemala. Back then, the impact-first agricultural finance industry was in its infancy, and many questioned the viability of lending to rural businesses in low- and mid-income countries. We’ve come a long way since 1999. Today, we’ve disbursed nearly $800 million to 550+ rural businesses, reaching more than one million households – all while maintaining strong portfolio quality.
And yet we’re acutely aware that Root Capital will never be able to serve all the 450 million smallholder farmers across the world, and that there is substantial need for additional capital both from other lenders currently operating in the market and from new players. As one of the few impact-focused agricultural lenders, the burden of proof on us to demonstrate the potential for this kind of financing is, rightfully, high. Over the last 15 years, we’ve honed our business in a way that works, and the $100 million outstanding balance milestone is another proof point that’s indicative of the opportunities for this market.
Our commitment to catalyzing a market is reflected in a piece written by Matt Bannick and Paula Goldman of Omidyar, who write that “the objective [of impact investing] is to create a multiplier effect on impact by spurring the growth of more mature business models and a robust competitive market, which in turn creates impact for millions of customers.” At Root Capital, we strive to demonstrate the alternatives that are possible from a financial, as well as a social and environmental, perspective. We’ve been able to achieve this in partnership with a diverse group of 150+ investors including the Overseas Private Investment Corporation (OPIC), Starbucks, the Bill & Melinda Gates Foundation, the Ford Foundation, the International Finance Corporation (IFC), the Multilateral Investment Fund of the Inter-American Development Bank, Bank of America, Imprint Capital Advisors, and the Skoll Foundation – impact investors who are willing to put their capital to work to achieve meaningful impact within an underserved segment.
The impact of a $100 million outstanding balance has required the confidence, the enthusiasm and the creativity of these institutions. It’s our hope that together we can inspire others to participate in the market so that the needs of rural businesses and smallholder farmers can be addressed on a much larger scale. Having beliefs about achieving change gives me direction, but it’s having the opportunity to prove them true in practice that gives me sustenance.
I hope you’ll join us as we celebrate this milestone, and pave the road for others still to come.