Farms and forestry businesses seeking to adopt sustainable management practices that will qualify them to earn the Rainforest Alliance CertifiedTM seal are often challenged by limited access to funding, particularly in developing countries. So that they can secure loans in order to improve production practices and pursue certification, the Rainforest Alliance launched its Sustainable Finance Initiative.
According to Michelle Buckles, the director of the Initiative, helping producers access finance is a natural complement to the Rainforest Alliance’s already successful sustainability technical assistance, certification and market access efforts to help encourage sustainable practices. “Access to credit helps producers to make the necessary improvements as well as strengthens their ability to manage and grow their business. And these growing businesses can then produce more sustainable supply, sell more products and help meet the growing demand for sustainable goods around the world,” commented Buckles.
“The agriculture and forestry sectors are considered high-risk areas for financial institutions, especially for long-term loans,” explains Alexandra Tuinstra, manager of farmer finance for Latin America at the Rainforest Alliance. Not only are the institutions reluctant to provide funding, but producers are often uninformed about the loan application process.
“Our main goal is to connect or link producers with financial institutions, under the premise that farms and forests that have adopted standards for sustainability and have ready buyers are less risky and therefore more creditworthy than those who have not demonstrated commitment to sustainability.”
In March, the Rainforest Alliance helped three groups of farmers in Guatemala obtain financial support. The groups were first informed about the various funding options available. The Rainforest Alliance then helped them prepare the necessary documentation and supported them during negotiations with funding institutions. Finally, the Rainforest Alliance has been providing the farmers with technical support to strengthen their farms and management practices so they can access credit lines on their own.
“Access to financing is key for all association members because we don’t have the capital that we need throughout the year, especially at the beginning of the harvest season, when we need to prepare the wet mill and invest in worker housing,” said Arnoldo Cifuentes, general manager of ADESC, a group of Rainforest Alliance Certified coffee smallholders in Guatemala. “The Rainforest Alliance’s support has been really important for us in securing a loan, and we have already been able to access some small credit lines.”
“The greatest challenge for producers is to secure long-term loans,” says Tuinstra. “These financial resources are critically important, especially when dealing with a crisis such as Roya, a fungus that is devastating coffee plants in Latin America. Loans are urgently needed to treat and replant affected crops.”
Most financial institutions deny loans to producers due to a lack of credit history, lack of collateral and sometimes weak business management skills. But as a result of the technical support and training provided to Rainforest Alliance Certified farms, “these groups are better organized and have more confidence when applying for credit lines,” explained Mario Lopez, projects coordinator at the Rainforest Alliance.
In addition to supporting sustainable financing for producers, the Rainforest Alliance works to inform loan officers about what sustainable management entails and how it helps to mitigate risk. Recently, the organization held a workshop in Costa Rica for financial fund executives at Root Capital, a social lender that provides credit and financial management training to small agricultural enterprises and farmers in Latin America and Africa. As part of the workshop, participants visited two Rainforest Alliance Certified farms. “The goal of this workshop was to educate attendees on the principles of sustainable agriculture and how they address issues like pests and diseases,” said Lopez.
According to Jerónimo Bollen, VP of global programs for Latin America-Root Capital, these efforts are the beginning of a closer relationship between the financial world and sustainable producers in developing countries. “This collaboration allows the credit team at Root Capital to strengthen its ability to underwrite loans for producers with strong environmental performance, while reducing costs and risks across the value chain.”
The Rainforest Alliance’s Sustainable Finance Initiative is currently focused on supporting financing for sustainable coffee, cocoa and forestry enterprises mainly in Latin America and Africa. Over time it plans to expand to more crops, regions and industries including tourism, where access to funding can play a significant role in the protection of biodiversity and the improvement of livelihoods.