Providing a reliable source of finance

In a recent brief published by the Smallholder and AgriSME Finance and Investment Network (SAFIN), it was mentioned, ‘the world is experiencing the worst food crisis in generations. The war in Ukraine is super charging the longer-term trends driving up poverty and hunger. Climate change is compromising agricultural productivity growth, and the conflict and Covid-19 pandemic have significantly deteriorated food insecurity conditions around the world. Rising government debt and energy costs are also further compromising the ability of developing countries to keep up with these challenges and the added rise in food prices.’ Appendix 4. 

This emphasises how the need for finance is increasingly important, to enable smallholder farmers to adapt to changing and volatile conditions.

Our aim is to be a trusted and respected provider of social finance, with a particular emphasis on working with smaller, more vulnerable groups that other lenders are less keen to support. As their businesses grow, these groups are able to improve their income and to contribute to the alleviation of poverty in their respective communities.

Nevertheless, this does not come without challenges, made present by the uncertainties brought about after the pandemic and the global economic crisis. Whilst we have had some notable success in terms of recovering longstanding doubtful debts, ongoing disruption to trading conditions has led to the judgement that we should provide, at least partially, against a higher number and value of customer accounts than normal this year.

To mitigate the risk to our members’ investment and provide effective finance, we are committed to learning and understanding the circumstances of the people and products we support and believe that communication with actors throughout the supply chain is vital. Our monitoring and evaluation process involves portfolio-wide social and financial due diligence on new and renewing customers as well as careful consideration of all disbursement requests.

We offer both short-term and long-term financing. Our short-term lending consists of three main products: Export Credit, Buyer Credit (both referred to as Trade Finance by other lenders) and a Stock Facility (referred to as Working 21 | P a g e Capital by other lenders). This short-term lending provides the required funds in advance to help producer groups fulfil their orders or to help purchase stock. Our long-term lending is referred to as a Term Loan. This type of finance is often used to develop infrastructure or purchase equipment.

The majority of our lending (91%) is provided to producer groups (209 out of 230), but Shared Interest continues to lend to buyer organisations. However buyer lending has reduced in recent years as many buyers work in the handcraft market, which has been significantly impacted by the pandemic and changing European market requirements. Despite this, lending continues to be important to fair trade buyers as they are required to provide producers with a 50% payment on placing an order as per the World Fair Trade Organization (WFTO) Fair Trade Principles.

Many of these producer groups are too small or too risky for Shared Interest to support directly or are in countries where we cannot lend. For example, we are unable to lend directly to producer organisations in India, Bangladesh, Nepal, and Pakistan due to their current financial regulations, but by providing a facility to buyer organisations, we can indirectly assist these producers to access working capital.

You can read the full Social Accounts document here.

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