Rural producer organizations are being increasingly recognized for their efforts in improving the livelihoods of small farmers across the developing world. Caught between microfinance and commercial banks, these organizations however often struggle to access the necessary funds to bring their product to market or finance much-needed infrastructure.
In recent years, a growing recognition of the problem has led to the emergence of a new generation of specialized financial institutions (commonly called alternative lenders). Using innovative supply-chain oriented strategies such as reverse factoring, these lenders aim to catalyze the emergence of local financial markets that meet the needs of rural producer organizations. This thesis evaluates the need for these financial innovations, their impact as well as the business case for lending to rural producer organizations. This assessment is achieved through documentary research, literature review and three case studies of coffee rural producer organizations in the Mexican states of Oaxaca, Veracruz and Chiapas.
This thesis concludes that although a RPO financing gap was indeed identified in Mexico in the early 2000s, this gap was found to be receding in recent years due to the Mexican government's success in encouraging commercial lending to the sector through FIRA, a second-tier development bank, and changes in the financial regulatory framework allowing the rise of two categories of non-bank financial institutions, the SOFOL and SOFOM.
The study also found a business case for profitable lending to rural producer organizations. All three studied organizations, despite their challenges, were found to be dynamic businesses with financing needs undoubtedly beyond what the microfinance market has to offer. This thesis however identifies several risk factors for potential lenders: vulnerability to price fluctuations and local competition, the politicized nature of RPOs, dependence on public and private subsidies as well as low internal capacity in financial management and accounting.
This thesis evaluated the impact of recent financial innovations to be moderately positive at worst and transformational at best on rural producer organizations. The loans provided by alternative lenders allowed the organizations to gain precious credit experience while capitalizing on market opportunities that could have otherwise been out of reach.
Finally, this thesis concluded by suggesting a few strategies that could be used by alternative lenders to maximize their impact, including adjusting their interest rates to market conditions, working with local financial institutions, diversifying their client base, taking more risks, strengthening RPO capacity through capacity-building programs and leveraging RPO internal credit funds to unlock underserved rural microfinance markets.
| Identifer | oai:union.ndltd.org:uottawa.ca/oai:ruor.uottawa.ca:10393/28895 |
| Date | January 2011 |
| Creators | Lagace, Vincent |
| Publisher | University of Ottawa (Canada) |
| Source Sets | Université d’Ottawa |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | 142 p. |
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