Dealflow | February 21, 2019

Root Capital chases ‘social impact incentives’ in loans to Latin America agribusinesses

Dennis Price
ImpactAlpha Editor

Dennis Price

ImpactAlpha, February 21 – Under a new agreement with a pair of development finance institutions, agriculture financier Root Capital is eligible for up to $1 million in incentive payments on loans it makes to high-impact agribusinesses in Colombia, Costa Rica, Guatemala, Honduras, Mexico, Nicaragua, and Peru. Already Root has deployed loans eligible for the payments to farmer organizations in Colombia, Nicaragua, and Honduras.

The Swiss Agency for Development and Cooperation and the Inter-American Development Bank will make payments to Root Capital for dispersing loans to 40 early stage agribusinesses that “either no other social lender or no other commercial or social lender would make, respectively,” according to Root Capital. Roots of Impact, the German advisory group that developed the “social impact incentives” scheme, known as SIINC, is tasked with verifying impact. The IDB is kicking in another $550,000 for Root Capital to provide technical support to 30 enterprises.

“The SIINC model is a game-changer,” said Root Capital’s Willy Foote. “It will enable Root Capital—and ultimately many other financial institutions—to lend to the enterprises that need it most.”

Impact-linked financial rewards help high-impact companies attract growth capital

Other tests of the “social impact incentives” scheme, known as SIINC, are underway with enterprises in Mexico, Honduras and Peru. In those cases, health and agtech ventures receive direct payments from the SDC and IDB for delivering better outcomes for lower income customers. In Root’s case, the first time SIINC is being test by a fund manager, the incentive will help the social lender lend to small-farmer organizations and enterprises it otherwise wouldn’t due to the risks or unattractive returns.