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  • 10.11.2-RISK AND THE RELATION TO TRADE CREDIT-SUSTAINABLE AGRICULTURE GUARANTEE FUND, ALSO CALLED AGRI FUND

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  • Financial Alliance for Sustainable Trade and Sustainable Agriculture Guarantee Fund

     
     

    FAST: Financial Alliance for Sustainable Trade

    Launched in 2007, FAST – www.fastinternational.org, is a member driven, non-profit international organization. Its current membership (over 100 as of February 2011) represents Small and Medium Enterprise (SME) producer organizations, commercial and socially oriented lenders, development focused NGOs, and other sustainable trade players, from around 26 different countries. FAST’s members are committed to promoting sustainable production and trade within their respective capacities. FAST's mission is to facilitate a global collaborative effort among its members to ensure continued growth of the sustainable trade sector. This through increasing the number of producers in developing countries who can successfully access affordable trade finance and longer-term loans for infrastructure, tailored to their business needs as they enter sustainable markets and grow their businesses. SME’s often face the problem that they are too small to benefit from infrastructural finance programs and at the same time they are too big to qualify for micro financing. This is where FAST comes in.

    Core activities now include development of a Toolbox for Financial Literacy Training that will offer producers a deeper understanding of all aspects of financial and risk management, and a Guarantee Facility for Social Lending that aims to assist credit worthy producers who are currently overlooked by traditional banking systems. To see more information on Financial Literacy go to http://www.fastinternational.org/en/node/733 where a substantial number of resources is available.

    In addition in 2009 FAST launcheda Sustainable SME online Financial Marketplace on their website that enables sustainable producers to search for lenders who offer finance in their regions (searches can be conducted by location; loan amount; sustainability certification type; interest rates and fee charges).

    FAST is currently also developing a Shared Impact Assessment Toolbox for Social Lenders, measuring social and environmental returns, as a means to add value to social alternative investment. In the interest of building support for investment in financing for sustainable producers, FAST is collaborating with its lender members in the development of this shared impact assessment tool. The generic tool will provide a common baseline for measuring the social impact of sustainable SME trade finance.

    FAST of course also requires detailed information from potential borrowers such as: overview of the SME, amount required, certification, credit history, production and sales; business plan, organizational chart, financial statements (balance sheet and income statement for 3 years – cash flow projection for 1 year); see https://www.fastinternational.org/en/node/681

    Sustainable Agriculture Guarantee Fund, also called Agri Fund

    This (revolving) fund offers (partial) credit guarantees by way of stand-by letters of credit as risk mitigating instruments to financial intermediaries in South America, Africa and Asia. Agri Fund was initiated by Rabobank International in response to a call from the Dutch Government for ideas for Public Private Partnerships (PPP) that would contribute to improved access to financial services and commodity export markets for growers in developing countries.

    Objective/mission

    Agri Fund aims to enhance access by agricultural cooperatives (or companies buying from small producers) to local financial services. This to enable them to purchase, process and trade agricultural commodities in the international market on commercial and sustainable terms.

    Additionally, Agri Fund is committed to contributing towards achieving sustainable changes in the approach of local banks in emerging economies towards such cooperatives or companies. This through offering such banks adequate financial instruments.

    The initiative has some unique characteristics, the most important of which is that finance is provided for production and export against sales contracts with pre-approved international buyers.

    Other lenders often ask for additional security in the form of fixed assets but, this then makes it impossible for borrowers to use these fixed assets as security for their long-term financial needs. Agri Fund on the other hand obtains security by using sales contracts with pre-approved buyers as collateral, leaving the borrower's fixed assets free to be used as collateral for other financing requirements.*

    Methodology/ Approach

    In executing this mission Agri Fund will issue (partial) credit-guarantees and provide other financial products as a risk-mitigating instrument in favour of local financial intermediaries. This in turn allows these intermediaries to offer commercial finance for the production and export of agricultural produce at better pricing and conditions than would be possible without such risk mitigating instruments.

    These local financial intermediaries are Rabobank Agri Fund's direct clients and are seen as Strategic Long-term Partners. Intensive discussions with these partner institutions have resulted in a mutually acceptable structure with the first transactions taking place in Peru in 2008.

    Fundamental is that the risk mitigating instrument will be decreased on a step-by-step basis, phasing out during a period of 3 to 4 years. This means that the financial intermediary is expected to increase its share in the risk (phasing in), but in such a way that the conditions for the borrower will not deteriorate.

    Agri Fund operates globally with the focus on Latin America, Sub Sahara Africa and to a lesser extent Asia.

    Focus countries are selected based on the following criteri

    • strong in the coffee (agricultural) sector;
    • an active export trade flow (on an equitable basis);
    • trading coffee (commodities) involving smallholders;
    • a strong legal structure for "cooperatives" and
    • sufficient volume / pipeline for the AGRI FUND.

    Go to www.rabobank.com/guaranteefund for more information and download the SAGF Brochure from there or directly at http://www.rabobank.com/content/images/G5334%20RI_MVO_fund-LR_tcm43-50951.pdf.

    *Contracts can be basis Fixed Price or Price To Be Fixed (see section 09.02 of the Guide), and usually are for execution within the same coffee campaign, i.e. from 2 to 4 months ahead of shipment.