Joining forces during Covid-19

An innovative financing structure was utilized between Rabo Foundation, IKEA Foundation, the United States International Development Finance Corporation (USDFC), and Shell Foundation (co-funded with the UK’s FCDO, or Foreign, Commonwealth & Development Office). This joining of forces removed risks for Financial Service Providers (FSPs) through a joint guarantee program so that they may take the lead in providing local credit more comfortably to farmers in the long term. The program began in 2021 and runs until 2029.

The guarantee program enables local lenders to finance high-risk agricultural enterprises such as Farmer Producer Organizations (FPOs), Agtechs, Renewable Energy and Food Loss Solutions Enterprises, with the backing of a credit guarantee extended by USDFC. As a result, these farmer-focused organizations gain greater access to finance while allowing lenders to build track records with these asset classes to provide more credit in the future. Results reported by a third-party MEL consultant have already shown positive outcomes of the program. Despite a perceived high credit risk, only four defaults have occurred over a period of two years.

The program deliberately focuses on Farmer Producer Organizations where at least 50% of the affiliated smallholder farmers are women, and encourages lending to women-led agri enterprises. The rise in FPO loans disbursed through the fund shifted from only 8 in 2022 to 109 in 2023. This unlocks more capital for women working in India’s agricultural sector as well as other services that could contribute to increasing their income.

Bram Spann, Lead Asia, says: ‘This is an impactful program where we were in a position to bring some of our most mission-aligned partners together. The innovative blended finance structure where charitable organizations, private sector players and a sovereign international development bank join forces to bring capital to smallholder farmers is unique in itself.’

Beyond providing affordable capital for smallholder farmers, the consortium of financiers established a comprehensive Technical Assistance (TA) program to support lenders and borrowers in bridging development gaps. TA enhances resilience against challenges like climate change and improves organizations’ funding prospects by upgrading internal processes. First-time borrowers, particularly those under women-led FPOs, benefit from TA. Despite the benefits, the program’s TA currently remains underutilized. To address this, implementing a TA monitoring mechanism and educating lenders about its benefits can significantly enhance overall program impact.