Access to green finance for the agricultural sector of Colombia

Colombia is listed as one of the world’s megadiverse countries as it hosts almost 10% of the planet’s biodiversity, while 53% of its mainland is still covered with natural forests. Main threats to the conservation of biodiversity include, among others, increasing social inequality, internal armed conflict for more than five decades, and implementation of extensive livestock and agricultural models. At the same time, 40% of Colombia’s green gas emissions as well as a large share of deforestation come from agricultural and livestock production.

The green transformation of the agricultural sector requires capital and know-how. Today, 70% of rural producers do not have access to formal credit facilities. Increasing access  to  green  finance and investment capital is thus needed to facilitate sustainable investments in new technologies and production methods.

The banking sector of Colombia, headed by the Banker’s Association of Colombia (Asobancaria) signed a green protocol in 2017.

A business case needs to be defined to motivate banks to enter the field of green agricultural finance. To do so, the AmPaz project started with quantitative and qualitative market research, which showed that 5% to 10% of smallholders have a demand for green finance. On the individual farm level, the green business model was determined through a cooperation with University of Wageningen (Netherland). The simulation model showed a positive correlation between increasing reliance on “ecosystem services” and “profitability” of smallholders.

The correlation between profitability and ecosystem services.

Correspondingly, GOPA/AFC assessed the Colombian banking sector to identify the most suitable partner financial institutions (PFI) for the project and 5 finance institutions were shortlisted. Finally, cooperation agreements were signed with three PFIs namely, Banco Agrario de Colombia, Banco Mundo Mujer, and CAC Utrahuilca.

Based on customised technical assistance plans, the activities supporting each PFI included amongst others a taxonomy definition, market research, funding, product development, training, and pilot testing of green loans.

All three PFIs decided to apply a wide approach to green finance. Credit destinations were set on the basis of their impact to “climate change mitigation”, “adaption to climate change” and “biodiversity and environmental protection”. This  resulted in the definition of 15 credit destinations, covering nearly all agricultural sectors and production methods.

For Banco Mundo Mujer, GOPA/AFC also implemented a fully-fledged Environmental and Social Risk Management System (E&S) which fundamentally aimed  to  increase  the  awareness of its loan recipients about the importance of considering environmental and social aspects in their business, as well as to seek the gradual adoption of measures that allow them to properly manage environmental and social impacts. Likewise, the E&S risks exposure – and here especially reputational as well as financial or loan loss risks - of the bank is managed effectively.

The project also contributed to increase technical and managerial skills of rural producers in financial literacy, as well as environmental and farming issues together with Asobancaria and its partner, Sparkassenstiftung. GOPA/AFC trained and certified 40 trainers from local producer associations and trained more than 500 smallholder producers in the post-conflict regions of Meta and Caqueta.

Watch the project video here:

For further information, please contact Roxane Van Lerberge (roxane.vanlerberge [at] afci.de)