Good Practice, Better Finance - Improving access to finance for sustainable producers

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The challenge
Engaging the finance sector
The Farm Sustainability Rating System
Pre-competitive collaboration is crucial
Download project outputs

Introduction

About the project

Project title: Good practice, better finance: Enabling access to preferential finance terms as an incentive for improving sustainability performance in the agricultural sector

Lead organisation: Bonsucro

Partners: SRK Consulting, Cotton SA, AWS, WWF South Africa, Nedbank

Duration: May 2019 – June 2022

Funded by the Swiss State Secretariat for Economic Affairs SECO, through the ISEAL Innovations Fund

The challenge

For producers to adopt responsible practices, they need capital to buy new equipment, boost productivity, and make other changes that will allow them to meet credible sustainability guidelines and practices. However, producers seeking loans to support such investments are often deemed high risk by financial institutions, because they often lack credit history and collateral. There are limited alternative data sources available to support these risk assessments, and financial institutions often overlook improvements at the farm or commodity-chain level that could inform credit allocation. As a result, smallholders are often left with little incentive or means to invest in sustainability.

Engaging the finance sector

In 2019, Bonsucro, Cotton SA (on behalf of Better Cotton) and the Alliance for Water Stewardship (AWS) joined forces to explore how credit application processes used by financial service providers (FSPs) could be adjusted to reflect sustainability risks. Over 3 years, they worked closely with SRK Consulting, WWF South Africa, RCL Foods - Sugar and Milling Division, and South African Cane Growers Association to engage with the finance sector in South Africa, represented in the project by Nedbank and Akwandze Agricultural Finance. Through participatory workshops and extensive testing, this partnership between FSPs, sector organisations, farmers, sustainability systems and NGOs created the blueprint for a rating system that can support decision-making within FSPs and de-risk producers that invest in sustainability.

The Farm Sustainability Rating System

This system captures sustainability performance data supplied by individual farms and assesses it in conjunction with relevant regional and sector specific data. The project used a variety of indicators and data sources to test the feasibility and usefulness of this assessment, working closely with the consortium of project partners. The result is a rating per farm that can be broken down between scores across different categories. The system can be set up as an online platform that would allow farmers to enable access to their sustainability rating in support of a loan application. FSPs can choose how to incorporate the rating into their processes.

Pre-competitive collaboration is crucial

Increased access to detailed information on the sustainability risks of a farm would help FSPs support investment in better production practices. This project has shown that the data is available, but it takes a lot of effort to collect and analyse it. The key is in creating a pre-competitive space where interested stakeholders can pool resources to gain a better picture of the sustainability performance of farms, for example, by creating and maintaining the online platform proposed by this project. Bonsucro will continue to work with the finance sector to de-risk sustainable farmers and invites interested parties to get in touch to get involved.

Download project outputs

Good Practice, Better Finance - Improving access to finance for sustainable producers

Good Practice, Better Finance - Improving access to finance for sustainable producers

Good Practice, Better Finance - Project Overview | Bonsucro

Good Practice, Better Finance - Slide Deck | Bonsucro

Environmental and Social Baseline Report - IU WMA, Mpumalanga, South Africa | SRK Consulting