"We try to help farmers think through a business plan in really simple terms," Seydel says. "What do they want? Where are they going? What are their strengths and weaknesses? What skills do they need? And then we try to help them access those skills."
After the loan committee approves the loan, it's administered by the credit union. Investors' capital, which is deposited at the credit union, serves as collateral for the loans to farmers/food producers. Since the loans are otherwise unsecured, this means that the credit union can make these loans at a lower rate than it otherwise could for such high-risk loans.
Technically, investors are loaning capital to the credit union, which uses the money to make loans to the farmers. And because their capital is pooled, they earn more than if they deposited their funds individually for the same purpose--0.30% (for one year) rather than 0.2% at today's rates.
Ultimately, Seydel says, the idea is for investors to share certain fees as well. "Our dream is to give investors 3%, maybe 5% on their money."
From the farmers' perspective, the annual interest on the loan is 5%. There is also a one-time 5% "access to funds" fee which can be included in the cost of the loan, plus $45 in other fees. To help jumpstart the program, a local philanthropist agreed to pay the access to funds fees up to $3,000.
Unlike many microfinance funds in the developing world, the fund also stands out for its flexibility. It negotiates the repayment term with each borrower based on their needs--monthly, quarterly, or a balloon payment at the end. And if, say, there's a hailstorm and a crop is wiped out, it can choose to extend the credit term to make sure a farmer does not go into default.
"We want the farmers to build up their credit with the credit union and the larger banking system," Seydel explains. "We're doing this to help them build up and scale. That's why we're doing this."
Due to high demand, the Fund will raise an additional $100,000, and will use the same structure as in the first funding round.
La Montanita treats local farmers like the community asset that they are, and that makes sense in an era where it increasingly pays to restore the soil and protect local foodsheds.
A former investment banker and veteran financial journalist, Ellie Winninghoff writes a blog at http://www.DoGoodCapitalist.com. She can be reached at: ellie.winninghoff (at) gmail.com.