By Ellie Winninghoff
Fair Trade coffee from Nicaragua. Mangoes from Haiti, quinoa from Ecuador, cotton from Uganda, shea butter from Burkina Faso. Imagine connecting rural smallholder farmers in Latin America and Africa to middle-class consumers in Europe and the U.S.
Former Lehman banker William "Willy" Foote has found a way. And now Root Capital, the Cambridge, Mass.-based nonprofit he founded in l999, is scaling its groundbreaking trade finance model and seeking to adopt it to African food security.
"By moving beyond traditional approaches to collateral," Foote says, "we are proving a business case for lending to the rural un-bankable through the intelligent use of supply chains."
In 2011, Root Capital made loans totaling $111 million to 193 borrowers representing 204,000 farmer/artisans in 30 different countries. And since inception in l999, it has disbursed $389 million. Repayment rates are 98%.
"We're opening up global markets to very remote people who are improving living standards in the countryside," Foote says. "That, in turn, provides incentives to stay on the land and not migrate to overcrowded cities. It encourages sustainable farming and production and it helps preserve threatened ecosystems."
The nonprofit has two funds. The Sustainable Trade Fund, which it is scaling up, focuses on high-value (organic, Fair Trade, etc.) crops and value-added products for export. Top investors include OPIC, the Gates Foundation, and Starbucks. Returns, which are negotiated (there is no standardized product) range from 2% to 3% for one to five years. Minimum investment is $100,000.
The Innovation Fund, which was approved by its Board in June 2010, is experimenting with new models and markets. Most of the current focus is on food security and nutrition in Africa--that is, local consumption (not crops or products for export.) The Rockefeller and Lemelson Foundations, the Lundin Foundation, and General Mills have made loans totaling $2.2 million at 0%, and the fund has received grants totaling $1.9 million from the Gates Foundation, Global Alliance for Nutrition, and one individual.
Sowing The Seeds
After the Mexican peso was devalued in the mid-90s, Foote left investment banking for a two-year journalism fellowship traveling the back roads of Mexico with his wife. In the Chimalapas jungle of southern Mexico, he became close to the charismatic leader and members of a vanilla cooperative, and he witnessed how hard they toiled amidst drug traffickers to improve the lives of indigenous peoples. Despite their determination, however, the cooperative eventually failed. And that left a lasting impression on him.
"It wasn't because of the drug traffickers," he recalls. "It was because they lacked access to capital and markets and basic business skills."