Green Finance for SMEs Guarantee Fund (GFS)

Many landscapes in the global south are small-scale mosaics of different vegetation types and land uses, including homesteads, crop fields, and (agro)forests. They are of vital importance for local livelihoods, nature and biodiversity conservation and climate change resilience. It is in such diverse landscapes—often on farms smaller than five hectares—that nearly half of the world’s food is produced.

However, these smallholder producers tend to struggle to get access finance to improve, transform and maintain diversified land uses and business practices that contribute to sustainable and resilient landscapes. There may be financial providers in the landscape, but they are often reluctant to provide loans to small entrepreneurs in the land use sector as it is considered risky and pay-back periods tend to be longer than normal lending policies allow for. This favours investment into unsustainable practices [i.e. monoculture].

Since 2021, we are developing new ways to address this challenge via the Green Finance for SMEs Guarantee Fund (GFS).

Our goal is to increase access to finance and markets for landscapes for responsible smallholder forest and farm producers' organizations, Indigenous people and local communities, and small and medium-sized enterprises in the (agro)forestry sectors in the global South.

To achieve this, investing in this sector needs to be considered less risky, and trust must be built with investors and value chain actors. We have learned that fostering trust between value chain actors and smallholders is critical, and guarantees can be the missing link.

How does GFS work?

GFS provides guarantees for local purchasers, processors and exporters who are committed to fair supply chains and work with local communities and smallholders.

A guarantee is a promise to assume a debt obligation in the event of non-payment by the borrower. GFS provides this to financial institutions on selected loans to purchasers, processors and exporters who aim to build long-term agreements with sustainable forest smallholder producers. These loans can be for trade finance or standard loans, such as capital expenditure. If a company defaults on the loan, the financial institution will be partially compensated by GFS for an agreed percentage of the loan.

The GFS addresses a significant gap in the market, as guarantees for agroforestry companies or cooperatives sourcing from smallholder producers are scarce, particularly for smaller loans of under €200,000

As part of guarantees we facilitate agreements that benefit communities and smallholders, including fair-priced raw material purchases, production aggregation, and the transmission of knowledge to implement sustainable practices. GFS also provides crucial market intelligence, linking specialty markets to smallholders.

Business cases

• Facilitating increased access to finance and markets for local smallholders in Colombia
• Empowering organic rice farmers in Vietnam’s Mekong Delta.

The GFS initiative is supported by the Dutch Postcode Lottery of the Netherlands.