Lending to poor farmers: Seeding the market

http://www.economist.com/news/finance-and-economics/21646267-non-profit-proves-rural-collectives-make-safe-and-profitable

The article begins with a short story about a man named Mr. Foote, founder of Root Capital, who quit his job as a Wall Street analyst and lent $73,000 to a coffee co-operative in Guatemala that has since expanded to 25 countries in Latin America, Africa, and Indonesia.  Essentially, Mr. Foote's business is lending to the owners of small farms in poor countries.  An estimated 450 million of these smallholdings exist worldwide, providing a subsistence-at-best income for more than 2 billion of the poorest people on the planet.

Mainstream finance has largely ignored this group of 2 billion people.  They face hardships including poor land quality, lack of infrastructure, and a constant threat of extreme weather.  The lack of access to credit for working capital and investment makes these hardships worse.

Both microcredit outfits that deal in tiny loans as well as businesses such as Mr. Foote's, which deal in larger loans, are proving that the poorest of the poor can be perfectly responsible borrowers.  In fact, the company says that less than 3% of its loans go bad.  

Mr. Foote's loans come with free advice and training in how to best use the money, increasing productivity as well as income for the various farmers.  The money also protects the farmers from having to sell their wares cheaply to the first available buyer.  More than half of Mr. Foote's borrowers see their income increase by at least 20% a year after receiving a loan; it rises by over 50% for nearly a third of them.

Mr. Foote's company offers credit and technical advice to roughly 550 borrowers.  In February, its portfolio of loans reached $100 million for the first time.  The cumulative total of loans the company has made since 1999 is expected to pass $1 billion later this year.  Mr. Foote's company has capitalized on the growing enthusiasm for sustainably farmed or organic goods among consumers in the rich world.  The company itself is a non-profit.  Foote believes that since the company has proven itself as viable, private investors will buy in.  Most of Foote's company's loans of $350,000 or more (roughly 25% of its portfolio) are profitable at interest rates of no more than 13% per year.

I found this article to be both interesting as well as inspiring.  I feel that it attests to the potential of economics on a global scale while demonstrating work towards income equality through investments and loans.