Root Capital Launches Its First Pay-For-Impact Partnership

CAMBRIDGE, Massachusetts, February 20, 2019 – Pioneering social lender Root Capital is partnering with impact advisory firm Roots of Impact; IDB Lab - the innovation laboratory of the Inter-American Development Bank; and Swiss Agency for Development and Cooperation (SDC) to launch an innovative “pay-for-impact” funding mechanism focused on early-stage agricultural enterprises in Latin America.

Financing for early-stage agricultural businesses has the potential to transform farmer livelihoods, strengthen food security, build resilience to climate change, and boost economic development. But commercial financial markets don’t serve these businesses, due to inherent risks and unattractive returns. In emerging markets worldwide, upwards of 90 percent of small and growing enterprises lack access to credit. In the agricultural sector, this is compounded by the risk from price and demand volatility, climate patterns, crop failure, and more. As a result, even many social lenders focused on agricultural finance are reluctant to make loans to early-stage businesses.

In order to advance its mission of transforming rural communities, Root Capital and its partners are deploying a new model—Social Impact Incentives (SIINC)—that encourages lending to early-stage agricultural enterprises with high impact potential. The SIINC collaboration creates a market-correcting incentive that compensates for short-term unprofitability of this segment, thereby improving its long-term sustainability.

Co-created by Roots of Impact and SDC, the SIINC model is a funding instrument that rewards organizations when they have achieved verified social impact. Under this new partnership, the IDB Lab and SDC will collectively incentivize Root Capital with up to $1 million for making high-impact—but also high-risk and high-cost—loans to 40 early-stage agricultural businesses in Colombia, Costa Rica, Guatemala, Honduras, Mexico, Nicaragua, and Peru. SDC and IDB will make outcome payments to Root Capital for disbursing small loans that are medium or high additionality—i.e., loans that either no other social lender or no other commercial or social lender would make, respectively.

SIINC graphic

“The SIINC approach is ideal for impact-focused, market-based organizations such as Root Capital,” said Dr. Peter Beez, economist for SDC. “It aligns the interests of enterprises and investors around impact, while offering us funders a targeted and cost-efficient means of using our resources.”

According to Root Capital’s founder and CEO, Willy Foote: “The SIINC model is a game-changer. It will enable Root Capital—and ultimately many other financial institutions—to lend to the enterprises that need it most. These are businesses that we otherwise might not reach, but that demonstrate substantial promise for growth and impact in the future.”

To maximize the ultimate benefit to agricultural enterprises and the farmers they serve, IDB will provide an additional $550,000 in support for Root Capital to deploy targeted capacity building services to 30 enterprises to further facilitate their growth and resilience.

Alejandro Escobar, project team leader for the IDB Lab, noted: “We have been testing the SIINC model of funding in sectors such as health and social services in Latin America, but this will be the first time we roll out a pilot in this critical sector of agricultural financing. We believe Root Capital is a great partner to do this with given their footprint in the region and their track record in reaching last mile farmer organizations and enterprises.”

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About IDB Lab

IDB Lab is the innovation laboratory of the IDB Group, the leading source of development finance and know-how for improving lives in Latin America and the Caribbean (LAC). IDB Lab mobilizes resources to develop innovative projects and early stage ventures with a potential for impact and great scale, benefiting populations that are vulnerable due to economic, social, or environmental factors. Since 1993, IDB Lab has approved more than US$2 billion in projects deployed across 26 LAC countries. As of October 29, 2018, IDB Lab is the new identity of the Multilateral Investment Fund (MIF). www.idblab.org

About Root Capital

Root Capital invests in the growth of agricultural enterprises so they can transform rural communities. With growth, these businesses become engines of impact that can raise incomes, create jobs, empower women and young people, sustain peace, and preserve vulnerable ecosystems. We supply them with vital resources: access to capital, trade and technical partners, financial training, and conservation practices. To date, we’ve provided over $1.2 billion in loans to improve the lives of six million people in farming communities. www.rootcapital.org

About Roots of Impact

Roots of Impact is an impact finance advisory firm working with public funders, philanthropists, and impact investors globally to finance private sector innovations and enterprises with strong potential for positive impact. We are dedicated to designing and implementing effective solutions and programs for financing social impact at scale and are driven by the desire to maximize the impact on every dollar granted or invested. www.roots-of-impact.org

About Swiss Agency for Development and Cooperation

The Swiss Agency for Development and Cooperation (SDC) aims to contribute to a world without poverty and in peace, for sustainable development. It fosters economic self-reliance and state autonomy, contributes to the improvement of production conditions, helps address environmental problems, and ensures better access to education and basic healthcare services. www.eda.admin.ch/sdc