Description financing model: Intermediated Financing Facility

Commercial capital is channeled through a facility that extends loans to farmers. These facilities often pool funding from both commercial and catalytic sources, enabling greater scale while balancing risk and return

Applicability: Well-suited for a range of asset owners (e.g., pension funds, institutional investors) who seek to support farmer financing without direct engagement

Considerations: Success is dependent on effective matching of stakeholders with different risk-return expectations

Description of de-risking tool(s):

Tranching: Investment structure split into tiers with different risk-return profiles, enabling blended capital participation by matching investor risk appetite

Guarantees: Third-party assurances (typically by public or development actors) to cover losses in case of borrower default, reducing perceived investment risk

Offtake agreements: Contractual commitments by value chain actors to purchase sustainably produced outputs at pre-agreed terms, providing revenue certainty and improving bankability

Case study description:

Provide credit and capacity building to small agricultural businesses and cooperatives (focusing on resilient farm mgmt., climate-smart business infrastructure, business nurseries for climate-resilient crops & shade trees) who are unable to get funding from commercial capital

1. Root Capital provides financial instruments, from seasonal working capital to loans for capital investments at market rates to small & growing agri businesses, de-risked by two mechanisms
2. Triangulated trade structure: off-takers sign offtake agreements; Once they receive the commodities, they pay proceeds to Root Capital; Root Capital passes the net reimbursement to its clients
3. Blended finance mechanism: senior debt is de-risked by philanthropic capital providing net assets (e.g., grants & revenue earned from lending portfolio), loan loss reserve & restricted loss support (e.g., guarantees); Funding is provided to Root Capital at concessional interest rates
4. Operating support is provided by philanthropic capital, enabling root Capital to provide capacity building through comprehensive workshops on various topics (e.g., agronomic & climate resilience advisory) and provide one-on-one consulting with experts

~$2B cumm. disbursements (since 1999; $67M in 2023); $46 avg. portfolio balance; 843 lending clients reached