The FTA/CIFOR/Tropenbos International eDialogue “Scaling up innovative finance for sustainable landscapes” concluded on 19/12/2019 with a Digital Summit on “Barriers to inclusive finance in a context of sustainable landscapes” in which three of the outstanding eDialogue participants explained their particular experiences in facing barriers to sustainable landscapes finance. Through their debate, possibilities for such experiences to be applied in other parts of the tropics or scaled up were analyzed, while a lively online audience posed very relevant questions.
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 conserve their natural environment while making their cocoa production systems more sustainable and resilient to climate change. Mr Soto, who illustrated very clearly how impact bonds can be extremely catalytic, indicated that it is often the case for local start-ups in the agrifood and forest sectors that 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%). This makes it impossible for them to transform or set up more sustainable businesses. For this reason, he highlighted, there is a need for public funds and impact investors’ money to support these types of 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 concretely applicable.
Dorothy Kamasa, founder of the Center for Women and Food Security in northern Ghana, admired the progress made in Peru, but underlined that for many women groups in Ghana, access to finance is limited by social and political reasons. For example, the 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 organizations actively seeking to finance more sustainable practices. Identifying such initiatives 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 in addition to the existing water sector trust fund, to enable conservation actions by the Kapingazi Water Resources User Association and help 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 standard produce without the label. 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 the benefits from the conservation actions (less erosion, more and better water) extend the possibility to contribute to a wider group of farmers. 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, as well as 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 FTA/Tropenbos International draft study which will advance and be finalized early 2020.
In case you missed this very interesting Digital Summit on “Barriers to inclusive finance in a context of sustainable landscapes”, you can easily replay it!
By Bas Louman, Tropenbos International
This article was produced by Tropenbos International and the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). FTA is the world’s largest research for development program to enhance the role of forests, trees and agroforestry in sustainable development and food security and to address climate change. CIFOR leads FTA in partnership with Bioversity International, CATIE, CIRAD, INBAR, ICRAF and TBI. FTA’s work is supported by the CGIAR Trust Fund.