Investing in Rural Grassroots Businesses

By organizing themselves into grassroots enterprises – such as organic-certified cooperatives and Fair Trade associations – farmers and artisans are able to sell directly into the growing world market for “green” goods and ethically sourced products. Despite global buyers lining up to buy their specialty foods and handcrafts, grassroots businesses encounter a daunting barrier: they cannot access the capital needed to grow operations, invest in equipment, or merely survive the cashless gap between harvest time and receipt of payment from buyers many months later. Root Capital provides credit to rural businesses at this critical time, enabling them to compete in the global economy while generating rural employment, lifting household incomes, and conserving natural resources along with local ways of life.

Protecting the Environment

Because many rural communities are located within or on the edges of critical ecosystems and habitats, their economic activities directly affect the global environment. Without reliable access to a market for their goods, members of these communities often pursue short-term moneymaking strategies – such as illegal logging, slash-and-burn agriculture, fuel wood collection – that irreparably damage their natural environments and longer-term economic prospects. Root Capital’s financing enables them to tap specialty markets that value environmental stewardship and social development, thus creating economic incentives to stay on the land and practice sustainable farming.

Building on Microfinance

While recent years have seen rapid growth in the capital available to micro-entrepreneurs (e.g., street vendors, bike mechanics, shoe cobblers), the strong focus of microfinance has been on urban centers and densely populated rural areas. Yet imagine a family farmer growing cocoa in the backwoods of Uganda, deep in the jungle, a three-day journey from the nearest city. He cannot make money selling to local middlemen at rock-bottom prices so he joins a cooperative of growers to aggregate product, access new markets, and increase negotiating power. That business needs not a few hundred dollars but $100,000, perhaps $300,000, to bring in the crop or invest in equipment. That is too large for microcredit and still too small, too risky, and too remote to attract investment from commercial financial institutions. By working through existing cooperative structures prevalent in the countryside across the developing world, Root Capital has discovered an efficient way to reach the rural poor and address the issues of remoteness and the rural financing gap.