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Our lending

According to a report from the Food and Agriculture Organisation of the United Nations, it is predicted that the pandemic will affect agricultural markets further over the next decade: 'Starting from 2022, prices are expected to gradually recover but to remain below baseline levels until 2029.’ It is suggested that there will be a critical need for finance beyond 2021 due to extended disruptions to trade. Despite the challenges faced during the last 12 months, Shared Interest has continued to empower smallholder farmers and artisans to grow their businesses sustainably, increase trade, and create employment opportunities by providing a reliable source of finance during otherwise uncertain times. 

During 2021, we have continued to closely monitor the risks and uncertainty brought about by the pandemic and as such, the additional controls for each payment implemented in 2020 remained in place, along with frequent communication with producers and other actors in the supply chain. 

Lending products

We lend in two ways: directly to fair trade producer groups (producer lending) mainly across Africa and Latin America, and to fair trade wholesalers, FLO Traders or retail businesses (buyer lending) in the Northern Hemisphere, extending our support indirectly to producers in Asia. 

We offer both short-term and long-term financing. Our short-term lending consists of three main products: Export Credit, Buyer Credit (referred as Trade Finance by other lenders) and a Stock Facility (referred as Working Capital by other lenders), providing the required funds in advance to help producer groups fulfil their orders or to help purchase stock.

Historically, most of our lending was to buyer organisations in the Northern Hemisphere and all customers’ accounts were managed from our UK head office in Newcastle upon Tyne. Since then, we have opened offices overseas and have now a presence in Costa Rica, Ghana, Kenya and Peru. This local knowledge has helped us to continually grow our direct producer lending. This year, 88% of our customers are producer groups located in the Global South, some of which are FLO Traders and are located in Africa, Latin America and Asia, whilst buyer organisations are located in Europe and North America  

Customer and Portfolio growth

In total, we have 200 customers, consisting of 175 producer groups and 25 buyers (see adjacent graph), an overall increase of five customers compared to 2020.

We approved 35 (2020: 36) new lending proposals (15 new customers and 20 facility increases for existing customers) totalling £7.5m (2020: £8.3m) in the year, most of which were for coffee production (£5.8m).

Customer relationship, communication and events

We pride ourselves on establishing long-term relationships with our customers and 60% of our customers have been with us for more than five years. The graph below shows the number of customers who have been with us for one year or more. The customers who have been with us for over 20 years are all buyer organisations. Four producer customers have been with us for 19 years, including Candela (Peru) and Apicoop (Chile).

Due Diligence and Management of our Risk Portfolio

We balance the desire for our lending to reach those who need it most, with the need to avoid placing our members’ capital at excessive risk. To achieve this, we implement a rigorous due diligence process. Pre-pandemic, this included customer visits but following travel restrictions, we developed a virtual due diligence process in 2020. Nineteen evaluations took place during the year, which have ensured that lending to new customers is possible during these challenging times.

Payments and disbursements

We opened our overseas offices in 2006 and gradually increased our producer lending, prior to this most of our ending was focused on buyer organisations based in North America and Europe. In 2014, producer lending surpassed buyer lending. Buyer lending is somewhat different from producer lending as no funds are sent directly to these organisations. Instead, we make
payments to producers on their behalf and report on these payments as an indication of growth and indirect support to recipient producers.  

 
In terms of lending products, coffee remains our largest focus, mainly due to the scale of Fairtrade coffee production, with more than half of all Fairtrade certified producers growing this commodity. Although the total lending for coffee has increased in 2021 in value terms, the overall percentage remains the same as we have increased our Share Capital from £46m in 2020 to £50.7m
in 2021.
 

You can read the full Social Accounts document here.

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