How Impact-Linked Financing Incentivizes High-Impact Investment in Agricultural SMEs

Small and medium enterprises (SMEs) have high potential for impact, but it's costly and risky to reach them with financing. Globally, SMEs in emerging markets face a financing gap of $1 TRILLION. To close this gap in rural communities, Root Capital partnered with Roots of Impact, the Swiss Agency for Development and Cooperation, and the Inter-American Development Bank's Lab on "Social Impact Incentives (SIINC) to Unlock Finance for Early-Stage Agricultural Businesses in Latin America." Over just two years, this pay-for-performance project had a measurable impact on agricultural SMEs and rural communities, including:

• The $1 million in outcome payments during the project allowed for the disbursement of $12 million in loans to early-stage agricultural SMEs, all of whom wouldn't have been able to access finance from commercial banks under similar terms;
• The 32 enterprises reached under SIINC generated $41 million in income for over 9,000 smallholder farmers;
• Almost half of the enterprises reached grew their loan size over the project period, showing the project's catalytic capacity for building businesses' financial sustainability.

This report shares more findings from SIINC, details our plans for the future, and lays out six lessons for how future impact-linked incentive projects can go even further in extending access to finance.