Heifer Impact Capital (HIC), the impact investment arm of global development organization Heifer International, today announced a joint investment of $420,000 with Heifer Labs and Heifer Mexico to improve financial access for smallholder coffee farmers in Mexico through the EthicHub Regenerative Finance (ReFi) platform.
The revolving credit facility will pilot more-efficient dissemination of loan funds to qualifying coffee cooperatives participating in Heifer International’s Beyond Coffee II Project in Chiapas, Mexico. The investment will be facilitated through the EthicHub ReFi platform, a pioneering web-based platform serving smallholder farmers for whom traditional finance solutions have historically been less accessible and available. In Mexico, less than 6% of farmers have access to credit in the traditional finance sector.
Devised as an innovative and more-targeted way to strengthen access and timely availability of capital to smallholder coffee farmers, the investment will address shortcomings hindering access to finance, such as high transaction costs, long lead times to approval and disbursements, fixed collateral requirements and other well-known barriers to credit.
The revolving credit line is designed to provide working capital directly to coffee cooperatives during the harvest season. As only 1.5% of financial products are channeled to the rural sector, smallholders often struggle to access financing, which is often not aligned with farmers’ productive conditions. The credit facility will remain open for other purposes to secure financing and is intended to demonstrate the viability of using this financing instrument to provide more ready and efficient access to capital to pre-selected cooperatives in Chiapas.
“Smallholder farmers are the backbone of the agricultural industry in Latin America, and they face significant challenges in accessing sector-specific and efficient financial instruments,” said Jorge Barrigh, Heifer Impact Capital’s regional director for the Americas. “Our investment with the EthicHub ReFi platform enables us to address very specific challenges that for too long have represented obstacles to an efficient and streamlined capital delivery system all the way to the last mile in rural Latin America.”
The investment aims to significantly ease the availability of finance and access to targeted cooperatives at a 9.9% interest rate ceiling, competitive with the average interest rate in Mexico. In a bid to implement a more integrated solution that addresses shortcomings beyond interest rates, this solution also seeks to simplify and “open” the black box of costs and processes that often delay timing in approvals and delivery of resources.
By emphasizing the importance of a more transparent and traceable process, the initiative will directly benefit from the use of blockchain and smart contract innovations that prioritize speed, security and transparency, while also adopting an innovative approach to the risk-collateral solution, which is often among the more complicated obstacles for smallholder farmers.
Heifer Impact Capital’s investment reflects its commitment to build partnerships with country offices and programs, as well as forward leaning accelerators such as Heifer Labs that ease the leveraging and field-testing of innovative approaches — much-needed solutions to mainstreaming sustainable and bankable investments that strengthen targeted agricultural value chains in Latin America.
The Heifer-EthicHub relationship will provide game-changing field experience and insights that showcase the application of fintech solutions in mainstream finance vehicles to benefit smallholder farmers in last mile applications.
HIC and Heifer Labs are strongly committed to innovating, improving and amplifying choices in access to capital for farmer-owned businesses and agri-entrepreneurs to tangibly improve livelihoods, promote sustainable agriculture practices, and spur cascading positive impacts in these underserved rural economies.
For more information on HIC and its work in Latin America, visit their website at https://www.heifer.org/impact-investing.
This article was originally published by Heifer International.