responsAbility and its peers join forces to promote responsible lending
Established in 2012, the Council on Smallholder Agricultural Finance (CSAF) is an alliance of leading agricultural lenders that focuses on serving the needs of small and growing businesses in the agricultural sector of developing and emerging economies. In the following interview, Gaëlle Bonnieux, Head of Agriculture Debt Financing at responsAbility – one of CSAF’s founding members – talks about the organisation’s achievements to date and outlines CSAF’s next objectives.
Why did responsAbility join forces with other organisations to launch CSAF?
We wanted to build on the experience we have gained over the past 10 years to help improve access to financing for agricultural organisations that buy produce from smallholder farmers and to support market growth while ensuring responsible lending practices. responsAbility began investing in agriculture a decade ago. Since then, the sums invested in agriculture have risen dramatically – driven by population growth and the increasing demand for food, as well as higher incomes and changing diets. More and more companies now realise that their future growth depends on the resilience of producers and the sustainability of the land used for cultivation. Although there is still a massive gap in financing for this sector, around 50% of the 658 businesses financed by CSAF members also have relationships with other CSAF organisations. It is therefore important for members to engage in a dialogue.
What were your exact expectations regarding the organisation?
The first objective when CSAF was established was to enable the founding members to share their expertise, exchange experiences and define industry best practices. The Council then started to organise and coordinate activities involving members in areas where there was clear common ground. Three work streams were defined - market growth, responsible lending principles and impact – and lead organisations were appointed for each area.
What has CSAF achieved in the area of market growth?
CSAF members expected to collectively lend USD 500 million a year to agricultural businesses in the ‘missing middle’ – i.e. those seeking financing in the USD 25,000 to USD 2 million range not covered by microfinance at one end of the scale or by commercial banks at the other – by 2016. In 2014, CSAF members already exceeded this target, distributing USD 564 million in loans to a total of 658 small and medium-sized businesses. This represented a 56% increase from 2013. CSAF members also expanded into new geographies and commodities and now invest in no fewer than 64 countries and 61 crops. In addition, CSAF organised price risk management training in conjunction with Twin for 60 investment officers and risk managers from CSAF member organisations in The Netherlands, Peru and Kenya in the first half of 2015 to increase awareness of this key topic.
Can you explain how CSAF members are working together to promote responsible lending practices?
CSAF members have developed a set of Responsible Lending Principles as well as model inter-creditor agreements and protocols for coordinating debt restructuring for non-performing clients who obtain financing from multiple CSAF members. Member organisations have also shared loan provisioning policies and other financial performance benchmarks. Finally, with a focus on social and environmental impacts, they have shared social and environmental due diligence tools and examples of underwriting guidelines for environmentally sensitive industries, as well as defining a common set of metrics and committing themselves to reporting on them on an annual basis.
What contribution has responsAbility made?
responsAbility played a major role in the development of the market. In fact, investment vehicles managed by responsAbility accounted for 33% of total disbursements in the course of 2014 and 19% of the businesses financed. responsAbility took a lead role in defining inter-creditor agreements and protocols for debt restructuring, as well as helping to organise price risk management training.
Which key points still need to be addressed in the immediate future?
CSAF members want to increase addressable demand. Although the demand for financing is huge, addressable demand is currently limited by the risks inherent in agriculture, the poor infrastructure in certain countries, underdeveloped supply chains and financial literacy, and occasionally also non-compliance with social and environmental criteria. Increasing access to long-term financing is also a priority. Long-term financing represented only 10% of total disbursements in 2014. Access to short-term financing is essential to fund day-to-day operations but agricultural organisations also require long-term financing in order to invest in machinery, equipment and premises with a view to delivering improvements in quantity, quality and efficiency.
About the Council on Smallholder Agricultural Finance www.csaf.net
The Council on Smallholder Agricultural Finance (CSAF) is an alliance of leading social lenders – also referred to as ‘impact-first agricultural lenders’ – that focuses on small and growing businesses within the agricultural sector. CSAF’s founding members – Alterfin, Oikocredit, Rabobank, responsAbility Investments AG, Root Capital, Shared Interest Society and Triodos Investment Management – have worked together since 2012 to share expertise, exchange their views and promote industry standards and responsible lending practices, while having a positive social and environmental impact on smallholder agricultural finance.