Root Capital: Pioneering Finance for Rural Communities
Build rural prosperity
Fill the “missing middle” in rural business financing: Provide capital and financial training to grow the rural businesses that buy from smallholder producers
How it works
- Identify small grassroots businesses that buy from local farmers and have few alternatives for affordable credit
- Provide financing for both short-term working capital loans and longer-term investments
- Collateralize the debt with forward purchase contracts from established buyers
- Make borrowers attractive to other lenders by providing technical assistance and financial training
How it will go to scale
Via the market. As Root Capital’s core lending program approaches profitability, their success will attract other lenders to the sector and their model will be replicated by others.
Progress so far
International scale up: In 2011 Root Capital disbursed $111 million in loans to 252 borrowers’ enterprises in Latin America and Africa maintaining a 99% repayment rate. Since inception in 1999 Root Capital has provided $368 million in loans to 367 borrowers.
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Countless rural businesses in poor countries can’t get the capital that would allow them to ramp up production and sales:
this is the “missing middle” that is not served by microfinance or traditional lenders. William Foote founded Root Capital in 1999 to provide access to affordable credit for grassroots rural enterprises – mostly agricultural - that boost incomes while protecting the environment. Their model uses an ingenious “future sales contract as collateral” approach that mitigates the risks that have kept these borrowers isolated from mainstream financial markets. In the past 10 years Root Capital has provided over $368 million in loans to 367 borrowers, reaching over 500,000 small producers while achieving 99% repayment of loans. Having shown that it can be done, Root Capital is now working to accelerate the adoption of their model by mainstream financial institutions, a shift that could have a huge impact all over the world.
A compelling problem
The vast majority of the world’s poor are rural producers without access to the resources, including credit that can lift them out of poverty.
A scalable solution
Mulago assesses scalability based on five characteristics common to efforts that have taken lasting impact to scale.
Real impact: M&E data indicates that their loans contribute an average of $1300 per year in household income to each of their client’s smallholder producers. Root Capital is currently refining their impact assessment process to gain a better understanding of income changes, attribution, and other effects of their lending at the enterprise and household levels.
Cost-effective: At scale, only the cost of technical assistance and training are subsidized, so donor funds are highly leveraged. Real figures will emerge from the ongoing impact assessment process.
Lasting behavior: Business success reinforces the adoption and use of new financial products.
Easy replication: Root Capital has a well-defined and vetted lending process that is expanding across geographies, industries, and borrowing enterprises.
A viable route to scale: Root Capital uses donor funds to show that you can loan money to these producers and get your money back – as with microfinance, this should drive a real lending industry.
Capacity to deliver
Led by William Foote, Root Capital has an outstanding team of managers and lending professionals, both in the U.S. and in field locations in Latin America and Africa. Over the past few years they have doubled their loan portfolio and built the field and management systems necessary to continue on the same trajectory. Their 99% investor repayment rate is further evidence of an exceptionally well-managed organization.
updated June 2012