In order to move forward on two of our priorities, Poverty Alleviation and Environmental Change, 3W began a long-term partnership with Root Capital in 2010. Root Capital pioneers finance for small and growing businesses (SGBs) that are trapped in the rural “missing middle” — the gap between microfinance and traditional banking. They bridge this gap by providing capital, delivering financial management training, and strengthening market connections so that small and growing businesses can lift rural communities out of poverty and strengthen the health of our planet. Here is a great video that explains the model.
Since inception, Root Capital has disbursed over $1 Billion in loans, reaching over a million farmers in 30 countries throughout Latin America and Africa while maintaining a strong repayment rate.
The Root Capital vision of success for this project involves social, economic, and environmental benefits to the borrowers and communities they serve. Social and economic benefits for the workers and members of the SGBs Root supports include increased producer income, access to education and health services, and basic food security. As a result of Root Capital financing, the SGBs themselves experience better growth, profitability, and stable access to international markets. A primary criteria for choosing client businesses is the requirement that the SGB is environmentally sustainable, therefore Root’s work ensures that the rural poor do not have to resort to environmentally destructive endeavors to succeed. On the contrary, borrowers find that the market for sustainably and ethically sourced goods provides a long-term, lucrative endeavor compared to the short-term, destructive activities to which they may have resorted before.
Why Root? Firstly, Root’s core activity enables us to significantly move forward on our priorities today. Secondly, Root provides an innovative tool for real solutions: assessing collateral on future sales rather than existing assets. The lending model, i.e. reaching the ‘missing middle’ while mitigating the risks, is not only innovative but also 80% self-sustaining, to date.
The Root focus on agricultural communities and the resultant slowing of deforestation and degradation due to improved livelihoods is one of the few proven options currently on the table. The model has successfully shown how to financially engage with the “missing middle” in the agricultural space, as well as how to work with commodity purchasers in the West through innovative financial and supply chain arrangements. The model is proving that business models can help to save the world’s forests and prevent climate change, by engaging the stakeholders who rely on forests, or land near forests, for their income.
Our grants have supported and strengthened the core financing activities of Root Capital in Latin America, Africa, and Haiti by facilitating the provision of credit, financial management training, and market connections to small and growing businesses (SGBs), with the ultimate aim of helping to move rural communities away from destructive deforestation activities. We have also provided low-interest short and long-term loans as part of our blended support.