Over the past decade, there has been an increasing consumer demand for sustainably-grown fair trade products, but how does fair trade really work? How are rural producers in developing countries able to serve growing consumer markets in wealthy nations?
One of the major obstacles for small producers is getting access to credit to build and develop their business. Big banks consider them too small and risky, yet they are too large to qualify for micro-finance. This is where Root Capital steps in, a nonprofit organization that provides loans for grassroots businesses in rural areas of developing countries.
Consider the example of Rolando Lazo, a coffee producer in Jinotega, Nicaragua. Jinotega was wrought by violence and fighting during Nicaragua’s civil war in the late 1970s. Rolando’s parents were killed as a child, and he grew up in extreme poverty, often spending the night sleeping under trees for shelter. He made a living as a migrant farmer, but was barely able to cover his basic needs. All this changed, when Rolando joined a coffee farmers’ cooperative that was linked with a larger association of 19 other cooperatives. Over the past six years, the association received loans from Root Capital, ranging from $70,000 to $450,000. The loans helped the farmers develop an export business enabling them to compete in the global economy.
Today, the association sells its coffee to retailers in Germany, Ireland, Italy, the Netherlands and the United States, where Peet’s Coffee carries its beans. Rolando and his family now own a small plot of land and a house with electricity, TV, and access to high quality drinking water.
Root Capital is able to lend to grassroots businesses by raising money from investors at 2.5 percent interest, and lending it out at 9.5 to 12 percent interest. In addition, the organization also receives grants from companies like Green Mountain Coffee Roasters to train rural farmers in managing cash flow and financial decision making. Also, rather than getting paid from its borrowers, Root Capital gets paid directly from importers and retailers.
Since its launch, Root Capital has provided $200 million in credit to 282 small and growing businesses in 30 countries, maintaining a 99% repayment rate from borrowers and a 100% repayment rate to investors.
-Martina Georgieva
SOURCES: The New York Times, Root Capital
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