32518 - Root Capital

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Summary of Investment Information

Project Number

32518

Company Name

Root Capital Inc.

Date SPI Disclosed

Nov 12, 2012

Country

World Region

Region

Global

Projected Board Date

Dec 13, 2012

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

Sep 30, 2022

Department

Gbl Ind, Manufact, Agribus & Services

Industry

Financial Markets

Previous Events

Approved : Dec 13, 2012
Signed : Jan 11, 2013
Invested : Apr 12, 2013

Sector

Development Finance Company

Additional Project Attributes

Blended Finance

Project Description

The proposed investment consists of a senior loan package of US$10million to Root Capital, Inc. (“Root Capital” or the “Company”). Founded in 1999, Root Capital is a nonprofit development financier that provides loans and financial training to farmer aggregators, cooperatives and agricultural SMEs in Africa and Latin America.

The proposed financing package will be supported by the Private Sector Window of the Global Agriculture and Food Security Program (“GAFSP”).

GAFSP funding plays a catalytic role to create opportunity to support innovative private sector investments and deliver a level of additionality and impact beyond what is possible through IFC’s regular operations.

The financing package will support Root Capital to scale its Sustainable Trade Fund operations, its core lending arm, in order to become a financially sustainable business, while addressing the funding needs of the “missing middle” in the agricultural finance space; i.e. rural businesses that are too large to access credit from microfinance institutions but considered too remote to secure financing from commercial banks.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	5.0
Equity

Development Impact

1) Expected to reach approximately two million farmers over the next five years.
2) Significantly enhances Root Capital''s lending volume targets as stipulated in its five-year business plan. This is expected to positively impact the "missing middle," which is the gap between microfinance and commercial banking, especially in pronounced rural areas in Africa.
3) Sends a strong market signal regarding the business case for sustainable and climate friendly agriculture in difficult markets.

1) IFC''s investment will catalyze private sector funding to fill the identified funding need to support Root Capital as it gradually transitions itself to become a more financially sustainable institution
2) IFC''s investment will support an innovative financial intermediation business model that targets underserved market segments including bottom-of-the-pyramid clients and small scale rural farmers. This is expected to have strong demonstration effect and replication potential to other institutions serving this market segment
3) IFC''s knowledge and experience in corporate governance and environmental and social standards will play a key role in supporting the Company in it''s corporate governance and E&S standards practices, and as such support long-term sustainability.

E&S Category Rationale / Risks and Mitigation

The review of the portfolio confirmed that short-term financing comprises more than 90% of Root Capital’s lending activities. Approximately 10% of the loans are applied to longer-term loans to finance the equipment and infrastructure needs of these businesses. The loan size ranges between US$25,000-US$2million and supports enterprises that export coffee, cocoa, nuts and fresh fruits and vegetables. Based on combination of geographical/commodity exposure and types of financial instruments used by Root Capital the overall portfolio risk is considered to be medium. Therefore, according to IFC’s Environmental and Social Review Procedure, this project has been classified as Category FI-2. For this project the client will be required to screen loans against the IFC Exclusion List, relevant E&S laws and regulation as well as apply Performance Standards to long-term transactions bigger than US$1million.

The main E&S risks and potential impacts of the project derive from the E&S risks of the Root Capital’s lending activities to producers of agricultural products. Root Capital has a sound E&S Management System in place that includes: 1) rigorous screening of potential clients, 2) policies for financing select commodities; 3) clear definition of E&S roles and responsibilities for loan officers, 4) sound system of internal verification of E&S due diligence, and 5) an on-going training for E&S coordinators as well as all investment staff. There is, however, a need to upgrade the system to enable: a proper screening through IFC''s Exclusion List and enhance monitoring of long term transactions. Root Capital labor policies are aligned with requirements of the Performance Standard 2: Labor and Working Conditions.

Contacts

For Inquiries About the Project, Contact

Catherine Gill
Vice President, Investor Relations
955 Massachusetts Ave
5th Floor
Cambridge, MA 02139
United States
Phone: +1 (617) 299-2445
Email: mailto:CGill@rootcapital.org
Web: http://www.rootcapital.org

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This Summary of Investment Information (SII) is prepared by IFC to disclose a factual summary of the main elements of the potential investment. It also includes findings and recommendations related to environmental and social considerations regarding this potential investment. The purpose of the SII is to enhance the transparency of IFC’s activities. For any project documentation or data included or attached herein, whether prepared by the project sponsor or otherwise, authorization has been given for public release by the project sponsor. IFC considers that this SII is of adequate quality for release to the public, but has not necessarily independently verified all of the project information therein. It is distributed in advance of IFC Board of Directors’ consideration and may be periodically updated thereafter. Board dates are estimates only and this document should not be construed as presuming the outcome of the Board Directors’ decision. The following SII is disclosed in accordance with IFC's Access to Information Policy (AIP) that went into effect on January 1, 2012.

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Task Title & Description	Anticipated Completion Date	Status	Comments	Completion Date
Formalize procedures		Completed	Completed	04/12/2013

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