Digital summit: Barriers to inclusive finance in a context of sustainable landscapes

Aldo Soto of the Rainforest Foundation in the UK talked about a pilot of results based payments (“impact bonds”) that helped a cooperative of the Ashanika people in the Peruvian Amazon to conserve their natural environment while making their cocoa production systems more sustainable and resilient to climate change. Mr Soto, who explained the extremely catalytic mechanism of impact bonds very clearly, indicated that, for local start-ups in the agrifood and forest sectors that want to transform or set up more sustainable businesses, local financial institutes charge interest rates that are just too high (24% or higher per year) for them to meet. Even social banks and institutions apply high rates (8-15%). He highlighted that for that reason, there is a need for public funds and impact investors’ money to support that transformation. Outcome payers, or off-takers, those that buy the resulting products from the activities (e.g. cocoa from sustainable sources), are also necessary, so that the investees will be able to pay back the loans to the impact investors. He says that there is a need to change the mindset of financiers, but most importantly, there is a need for different financial tools that allow for more flexibility and are applicable.

Dorothy Kamasa, founder of the Center for Women and Food Security in northern Ghana, admired the progress made in Peru, but indicated that for many women groups in Ghana their access to finance was limited due to social and political reasons. For example, voting behavior of the population in one area could influence access to governmental support. For groups that are not well-connected to known organizations or politicians it is more difficult to obtain the funds necessary to set up sustainable businesses or improve their agricultural systems. Currently, her organization works to strengthen women groups in applying sustainable agricultural practices and conserve their environment through voluntary contributions in time or money, but is very much limited due to lack of access to finance by their members. As the moderator Gerhard Mulder mentioned, it is a shame that many times such very good local initiatives are not reached by those organizations seeking to finance more sustainable practices. Seeking out such organizations and linking them to potential financiers could be a role of platforms such as the Global Landscape Platform.

Burnice Karimi Ireri, a MSc Environmental Science student at the Egerton University in Njoro, Kenya, spoke about her study on the willingness to pay for environmental services in the Kapingazi river catchment area in Embu County, which is part of the Upper Tana Catchment in Mt Kenya region; one of the major water towers in Kenya. The area is an important provider of water for hydro-electric power generation and 67% of the farmers interviewed were willing to contribute to a conservation fund besides the water sector trust fund set up to help conservation actions by Kapingazi Water Resources User Association in restoring the watershed. The conservation fund is managed by the Water Resources Authority (WRA) and receives money from KenGen, the hydro-electric power company, and other international donors. Burnice also found that agricultural certification schemes, for tea and coffee for example, influence the willingness of farmers to implement conservation actions, either on their farms or within their landscape, since eco-labelled agricultural produce fetch higher prices in the international market than produce that is not. The main challenges to overcome are to raise farmers’ income enough so that they can actually contribute to the fund and at the same time ensure that those that benefit from the conservation actions (less erosion, more and better water) are also able to contribute. Mr. Soto observed that impact investors could have an important role in setting up such funds, but that it would be necessary to identify local off-takers due to the nature of the results produced (more and better water), as is the case with the hydro-electric power plants in Kenya.

All three examples and the overall discussion indicated the absolutely essential importance of pulling together governmental support, impact investments and local organizations that can adequately manage the funds and outcome payers or off-takers. Off-takers that apply specific sustainability criteria (such as certification schemes) seemed to have a positive effect in Kenya. The Digital Summit also very clearly showed another barrier that does not only affect access to finance: digital inclusion. Unfortunately, our Ghanaian and Kenyan speakers were not able to connect flawlessly, probably due to the capacity of the local networks in their more remote areas. This not only hampered their connection in the discussion, but exemplified how similar connection issues can occur with many of the financial organizations, limiting access to finance in particular in rural areas.

Many of these observations, as well as the discussions during GLF Luxembourg, will feed into the CGIAR FTA and Tropenbos International draft study which will advance and be finalized early 2020.

Just in case that you missed this very interesting Digital Summit on “Barriers to inclusive finance in a context of sustainable landscapes”, you can easily replay it at https://events.globallandscapesforum.org/barriers-to-inclusive-sustainable-finance-in-a-landscape-context/